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FINANCIAL MOBILITY - Mobile money
Financial transactions are increasingly being conducted on the go. Bohdan Zabawskyj 
looks at why subscribers, dealers, operators, banks and money transfer agencies are embracing mobile money service opportunities
Money, m-transactions, micro-payments, mobile banking and mobile commerce - no matter how you refer to it, mobile money services are on the rise. They provide an unparalleled level of flexibility and convenience to a growing number of subscribers worldwide, in both emerging and developed markets. In the years to come, financial transactions, which are typically made today using ordinary financial instruments such as banks, ATM cards and cheques, will dwindle in popularity as subscribers take advantage of the convenience of mobile money.
Financial transactions are increasingly being conducted on the go. Subscribers are learning to transfer funds to a friend's mobile account, withdraw funds from a bank account or receive a remittance from an overseas relative, using a number of mobile devices. Increasingly, individuals with mobile money on their phones can both monitor their finances and purchase anything from taxi services to a candy bar at the corner convenience store.
In developed markets, bank account holders appreciate the immediacy and convenience of using their mobile device as their wallet. In emerging markets, mobile money forms the vital missing commercial link between ‘unbanked' individuals, companies and the societies they live in.
Emerging markets are benefiting most from the adoption of mobile money, especially those in which financial infrastructure is not readily accessible. The ability to transfer funds via a mobile phone in ‘under-banked' regions means that people can avoid many hours of travel between remote villages in order to pay bills or collect wages. Also, workers in many countries use their mobile phone to stay in touch with the current market price for their goods and therefore the phone is also a tool that facilitates profitable commerce and allows them to immediately capitalize on the latest prices.
Mobile money services will be driven primarily by the operators, who can charge service fees to complement existing SMS and voice revenues while simultaneously increasing customer loyalty and the number of transactions on the network.
Within the emerging markets, there are ample opportunities for operators to make the most out of mobile money services and this suggests that the mobile money phenomenon is here to stay. According to the GSM Association, fewer than 1 billion of the 6.5 billion people worldwide have bank accounts. At the same time, nearly 85 per cent of the next billion mobile subscribers are expected to come from areas such as Africa, Latin America and East Asia.
Short message service (SMS) and unstructured supplementary service data (USSD) are expected to remain the technologies of choice when dealing with mobile payments in emerging markets until 2011. This is largely because these technologies are ubiquitous and well-proven in even the most basic mobile devices and networks, and because SMS is the intuitive messaging vehicle of choice. For now, keeping handsets and access mechanisms simple and affordable is paramount in driving the uptake of mobile money services, until improved handsets are expected to support more complex, alternative Internet-centric capabilities for fund-transfers.
Mobile money services currently implemented in emerging markets are available in four major service types consisting of international remittances, airtime reselling, mobile wallet and roaming recharge.
International remittances are transfers of money by foreign workers to their home countries. They are generally international person-to-person fund transfers of a relatively low value, normally sub-US$200. Generally, the greatest flow of remittance traffic is from the developed countries to adjacent developing regions, for example, from the Middle East to Bangladesh and Pakistan or from the US to Central or South America.
Airtime reselling extends the dealer network of the operator to smaller population centres by allowing any subscriber to become an airtime reseller and effectively act as an agent for the operator. An airtime reseller purchases airtime from the operator distribution network at a discounted price via SMS on the mobile device. It is then sold, once again via SMS, to end subscribers at the full price - with the agent keeping the mark-up and thereby earning an income. In addition to creating an entrepreneurial framework, the operator benefits from reduced overhead and distribution costs, as well as the elimination of the theft and fraud write-offs associated with distributing physical airtime vouchers.
A mobile wallet provides the equivalent of a bank account to the "unbanked", and allows cash deposits and withdrawals. The mobile wallet is accessed via the mobile network and enables the subscriber to check the status of the account, make micropayments to a given merchant for goods or services, and even receive his or her weekly wages via the mobile wallet. In the future, mobile wallets will increase in capability as emerging markets develop more formal linkages with financial institutions.
Roaming recharge offers mobile top-ups and transfers of minutes between subscribers of an alliance of operators. Subscriber benefits include the convenience of topping up while roaming as well as the ability to conveniently transfer funds between subscribers of different operators. Roaming recharge services enable increased roaming revenues for prepaid subscribers as well as incidental revenues from any applied service charges.
Developed markets, such as those in Western Europe and North America, are also a valuable source of revenue through mobile money services. Mobile revenue from international money transfers in North America is expected to grow from $27 million in 2008 to $1.4 billion by 2012, whereas revenues from national transfers will only reach $17.5 million in the same time frame.
Although the mobile remittance industry is growing, the primary focus thus far on mobile money services in mature markets has been associated with an increasing need for real-time access to account information - coined ‘nano-economics'. In the case of these developed, mature markets, mobile banking services offer subscribers real-time access to account balances, the ability to transfer funds and make payments, or validate transactions. Security issues and standards are the largest inhibitors of mobile banking adoption, but these challenges are being overcome over time with the improved ratification and adoption of mobile security standards and tools.
Another form of mobile money is the area of payments using Near Field Communications (NFC). When the phone is placed close, say within less than 4cm, to a point of sale terminal supporting the same technology, the subscriber is allowed to make purchases using a PIN code from money stored on the SIM card. Many operators are working on enabling NFC technologies, and commercial GSM handsets supporting NFC are expected to hit the market this year. Revenue generation would likely follow the bank card model, with the operator getting a share of the transaction fee due to the key role it plays.
Collectively, the forecasted increase in mobile money Services, such as the increase in global mobile banking transactions from 2.7 billion transactions in 2007 to 37 billion by 2011, will contribute close to $8 billion in incremental revenue to mobile operators by 2012.
Subscribers, dealers, operators, banks and money transfer agencies are embracing mobile money service opportunities and creating value in the process. Even if analyst predictions are generous, the global economy is creating ample mobile money opportunities which cannot be ignored, and which will benefit subscribers and their mobile operators alike.
Bohdan Zabawskyj is CTO, Redknee
www.redknee.com
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