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Forgetting the Leather Wallet: Mobile Money
For ages now, Bankers have been talking of the untapped potential across markets. This potential rests at two far ends of the bankable population: first, the fast-paced sophisticated consumers with access to all varieties of technology and banking services, and second, the unbanked hard-to-reach population in the backward parts of the globe. For the former, banking firms strive to provide them quick, hassle free and convenient banking at their fingertips, and for the latter, reaching the population is the single hardest challenge, closely followed by identity management, lack of awareness and thin revenues at the bottom of the pyramid. Let us look at both these cases individually.
The developed and well-connected
In the developed parts of the world, electronic cards and online banking services have been there for decades. The mobility of money is by no chance a new concept. As money moved from paper to plastic, and then finally digital, the leather wallet has become more of a style than utility. Just when we thought banking technology could not go any further, the rapid rise in the number of mobile device users did bring some excitement to the rescue. If one thing appropriately identified, located and connected an individual all the time, it was the mobile phone. All of a sudden, logging into the internet banking portal and transferring money became too time consuming and swiping smart cards and signing slips too old-fashioned. A few clicks on the smartphone for transferring money and tapping against a retail terminal as you check out to make payment wasn’t just cool, but as well fast and convenient.
This like-never-before deployment of mobile devices to facilitate commerce is what we call Mobile Money, also referred to as Mobile Wallet a lot of times.
The tough-to-reach, the underbanked
Just as when carrying out transactions over the mobile made our lives fancier, there is another side to this story as well. In the developing countries, a huge chunk of the population, as big as 55% is either unbanked or underbanked, with hardly any access to banking facilities.Two problems majorly constitute this problem: difficult penetration for BFS organizations in the rural geographies and unavailability of identity documents among the population. A manager with one of India’s largest bank says, “There are a lot of people whom we cannot register, just because we don’t have a proof of who they say they are.”
The past decade saw a phenomenal growth in the use of mobile phones across all sections of the population. Lower handset costs and affordable charges, a mobile phone is something that practically everyone owns today. Now this opens up a lot of avenues for a lot of service providers, especially BFS companies. People may not have an ID, but they do have a phone number, unique, direct, perennial and extremely easy to reach. The astounding success of M-Pesa in Kenya sets an example that many such businesses can follow. Mobile Money Market has brought in two major advantages in this market. First, people can now deposit their vulnerable savings with a banking organization and save for the future while earning interest on them. Second, migrant workers find it extremely easy to transfer remittances back home. Without such a system in place, it was inconvenient, unsafe and expensive, and rampant with middlemen, who used to charge a significant portion of the amount.
Technologies and Applications
There isn’t one but a whole range of technologies that facilitate mobile money transactions. Near Field Communication, QR Code based payments, Mobile wallets, Cloud based wallets and Direct Operator billings are the hottest of these. A few years back, SMS based transactions were in widespread use.
NFC based transactions are carried out by bringing two devices in proximity, such as tapping the phone to a retail terminal to make payments, or two devices together to transfer cash from one account to another. QR codes are 2 dimensional barcodes, anuseful methods of entering data into the mobile. Payment applications use this to make product purchases extremely handy. Mobile wallets are built into mobile devices and are usually linked with a bank account, credit card or a loyalty card. When the mobile is used to make payment, the account is automatically debited. Cloud based wallets like Pay Pal, Amazon Payments and Google Wallet make it even handier to carry out transactions over the web. In the Direct operator billing mode, the operator, such as Vodafone or T-Mobile , have a relationship with the customer and accept payments on their behalf, and later charge the customer’s mobile account. Application markets on mobile platforms like Android/iOS usually use this model.
The way forward
With a huge untapped potential at both ends, the penetration is bound to grow. As larger players will strive to provide sophisticated banking applications, market across the world will see the rise of local players trying to reach the underbanked population. The trend is already on the rise. A facilitator of banking services till now, cellular operators have started launching their own commercial front-ends. The big bang launch of Airtel Money in India stands testimony to this. A few years down the line, the concept of “talktime” in mobile services may not even exist. Interest free deposits in the mobile accounts will be a major source of operating cash for the telecom operators.
Unless the economy changes dramatically, the margins at the bottom of pyramid will be thin, but the huge scale will continue to be a big attraction for the players. Rural residents will have an easier access to short-term credits and financial services such as insurance and stock trading. The early mover advantage exists, and that would raise the entry barriers as more players enter the market. Telecom operators shall continue to enjoy their strategic advantages, arising from existing distribution channel. The bigger the operator, the better.
Companies in the mobile money business will be focusing on these result areas:
- Building payment solutions that are leaner, faster and secure
- Implementing advanced business intelligence to personalize offerings
- Facilitate international monetary exchange, for both individuals as well as trade
- Register with the highest possible number of users at the bottom of pyramid, where scale is everything
- Innovate to provide secure, low-risk short term credit at lower costs
- 3rd party service providers will increasingly seek collaboration with network providers to reduce operational costs
- Data driven transactions will rapidly replace SMS and IVRS based transactions
- Redefine loyalty schemes to gain long term advantage and build sustainable customer base
About the Author
Piyush Patel currently works at MarketsandMarkets, and focuses on building expertise in the Information and Communication Technologies domain. A postgraduate in management from the Indian Institute of Management Lucknow, Piyush is a digital marketing enthusiast and has a candid eye for technologies that closely touch consumer life.
MarketsandMarkets is a global market research and consulting company based in the U.S. We publish strategically analyzed market research reports and serve as a business intelligence partner to Fortune 500 companies across the world.
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