Mobile money in emerging markets: where to next?

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mobile money

We recently identified some of the main challenges that have faced mobile network operator (MNO) mobile money (MM) products, and why the concept’s overall impact in emerging markets remains a bit of a mixed bag. This week, we look at whether the shift to interoperability heralds a new deal between banks and operators that offers a sufficiently compelling model to make services practical and affordable for the vast majority of the poor and unbanked.

The aid and donor community has always strongly supported financial inclusion as a way of bettering the lives of poor people in emerging markets. But while it is all well and good for NGOs and donors to provide commercial and financial incentives to banks and the private sector to embark on financial inclusion projects, the reality is that unless these services are commercially viable they will not stay around long enough to get market traction (If you disagree, its worth asking whether MPesa would still be around three years later, if it was not contributing 30% to the bottom line).

The only way this can happen is to ensure that the spread of commercial incentives across the ecosystem ensures both banks and MNO’s contribute the maximum value they can. Whether one chooses to call this ‘Interoperability” or just plain ol’ good business is quibbling over semantics — a rose by any other name smells just as sweet.

In order to get there though, both banks and MNO’s, have to move away from their ‘walled garden’ approach to one where both derive maximum value based on their core strengths and contribution. To achieve this, both banks and operators will require heady dash of boldness and foresight to enter new commercial relationships that build on respective strengths, rather than an attempt to evolve their businesses into something to which they are more often than not, poorly suited.

Value added resellers

What does this “stick to the knitting’ approach mean in practice? Well, it means that banks that are well suited to provide a range of financial products and services built around their core strengths of risk, cash and liquidity management do just that, while MNO continue to build on mass-market brand and advertising across income segments with their robust, high-volume, low transaction processing platforms, and pervasive control over the SIM card and data channel to the customers.

Once over that hurdle, operators can shift from becoming providers of financial services (such as payments and money transfers) to value added resellers of financial services. The value added reseller model is something MNO’s understand well. And therein lies true “interoperability” between operators, banks and technology companies — aggregating customer volumes that allows ecosystem players to drive down costs and fees associated with moving money between different entities in the ecosystem, and lowering the cash management overheads to deliver the kinds of meaningful services that people want, at a price that encourages emerging market customers to keep their cash in the system. Emerging market customers are no different in their desire to access services, whatever is offered has to have the confidence that it can do something useful and meaningful with cheap and convenient access.

The drive toward this lies in the fact that no one entity owns all the elements of the value chain. MNO’s need banks because, in essence, banks understand the business and value of risk, and MNO’s understand the business of connecting people.

There is simply no point in operators continually pressing banks into providing liquidity, cash management or compliance services if the bank is only onboard as a “compliance” partner (with marginal revenue). Likewise, the incentive is just not there for MNO’s to carry bank products (either as a bearer channel or reseller), in return for some incremental traffic and airtime.

Quite what this new model will look like has yet to be defined, however one thing is apparent and that is to make it work, both banks and MNOs must change their understanding of what it means to own the customer.

Partnerships will arise that can deliver choice for customers, based on price and convenience, not on the presence of bank branches and ATM’s or SIM card ownership. In that way, MNO’s use their brand, platforms and distribution, regardless of the customer, while the bank brings the financial products and risk management, regardless of the channel owner.

It all sounds somewhat simplistic, given that both banks and MNO’s like to keep customers in walled gardens, blocked by contracts and networks. Banks and operators alike will have to slaughter a few sacred cows along the way, as they feel their way along.

I also doubt whether there be a single model that we will be able to point to to pave the way for financial inclusion, as companies structure alliances and ventures based on new commercial realities, but whatever they come up with will have to be simple and easy to understand. Success is often about doing basic things really well — a point Steve Jobs understood.

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