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Anyone working in mobile and/or payments must have heard about M-Pesa. At every conference, in every regional report, at every mobile payments launch event M-Pesa is mentioned. In fact a ‘Sibos University’ session this morning will examine M-Pesa and its fortunes in other developing countries (albeit without a single M-Pesa practitioner as a speaker). But while it is fairly old news, M-Pesa is remarkable; a developing country implements a mobile money system with basic mobile infrastructure and not an iPhone in sight.
M-Pesa has garnered all the headlines during the past five years, but it is just one example of how mobile payments are booming outside the more ‘developed’ Western countries. While the UK awaits a few significant and imminent roll-outs from Zapp and Paym and the US has had to can its Isis (not that Isis – Ed) service because of poor up-take, the ‘developing world’ has been getting on with it.
From China to Africa, from Asia to Latin America, right across India and the Middle East and even into Eastern Europe the idea of mobile payments has leapfrogged developments in more mature markets.
Of course the developing world has an advantage: it had no significant telecoms infrastructure to start with. The arrival of mobile, which is relatively cheap to get up and running has meant that these countries have jumped from a scenario where no one had a landline to nearly everyone wielding a basic 2G phone.
However, no one really saw the combination of this cheap point of entry into telephony with springing the trap on the unbanked, which is where the market is now. While Sibos delegates debate what innovation is around the corner for Western mobile payments and, I imagine, spend a good few hours talking excitedly about the iPhone 6 and the prospect of an Apple iWallet, we should take a look at where mobile payment solutions are actually working.
China is perhaps the world leader in mobile payments, streets ahead of nearly all other markets. Mobile payments in China surged by 255 per cent year on year in the first quarter of 2014 to Y3.86 trillion ($623 billion), according to the People’s Bank of China (PBOC).
This impressive march in mobile payments has been driven by the rising middle class, who have embraced online shopping via mobile commerce with alacrity, through sites such as Alibaba and JingDong. Shopping online is growing globally, but most developing countries don’t have an established fixed internet base, so m-commerce has become the means via which people shop online.
Alibaba, which rivals eBay and Amazon in Asia and outstrips both in terms of mobile traffic, has experienced 66 per cent year on year growth in revenues to a staggering $3.1 billion in Q1 2014. Singles Day – a holiday in China to celebrate being single (I’m all for that – Ed) – generated a single-day windfall of $5.75 billion from Alibaba’s Tmall and Taobao. This led to an 80 per cent increase in sales compared with the year before. Twenty-one per cent of these sales were made from mobile devices.
Post-IPO Jingdong, an online shopping site found at JD.com, has proven so far it has the confidence of its investors. Revenue grew 68 per cent in 2013, following a 96 per cent climb in 2012.
The successes of these e-commerce platforms are almost expected considering a PWC survey from 2013 that found as many as 14 per cent of Chinese online shoppers shop daily, while 62 per cent shop on a weekly basis. Looking at the Chinese e-payment landscape as a whole, online payments grew 33.8 per cent year on year to Y287.75 trillion on 7.07 billion transactions, a 25.9 per cent increase according to PBOC.
While commerce sites may be driving significant growth in m-payments across China, there is also a growing interest in using mobile technology for peer to peer payments, mirroring the early experiments in the West with mobile payments. The difference in China is that it is happening and in some quite extraordinary ways.
For example, Tenpay uses popular chat platform WeChat (like Whatsapp) to enable users to transfer money between friends. This was surely what Facebook ultimately had in mind when it bought Whatsapp. The twist with Tenpay is that it has turned mobile payments into a game.
In China at New Year, people give each other a red envelope (a hóngbāo) with a random amount of money in it. Tenpay has digitised this tradition and has enabled WeChat users to give money in digital red envelopes to their friends and family.
This has been extended to enable Chinese football fans to place bets on teams using the WeChat app. Tenpay has 650 million active users. The company is also investing in a taxi hailing app that will allow Tenpay users to pay for a cab. Company founder, Jim Lai, says the WeChat-based app is also being used by banks to contact their customers. It is the start of building a cashless society in China.
Services such as Tenpay and the growth in m-commerce are driving a veritable explosion in mobile payments in China, which is showing more innovation, forward thinking and drive around m-payments than any other market in the world.
But there are potential road-blocks to this booming m-payment market. China’s central bank has moved to stop the use of Tenpay and Alibaba’s own Alipay mobile payment apps as it seeks to address several key issues. First, the PBOC wants to see more information about how customer data is secured before it allows these services to restart; and second, it is looking to make these mobile payment companies hold far more capital to mitigate against bad debt as the popularity of both services grows.
Latin America always has been a hot-bed of mobile phone use and has been tipped as the perfect place for mobile payments to take off. It’s a familiar story: the population is wedded to mobile phones, is largely unbanked and mobile infrastructure has leapfrogged fixed line telephony. The recent rise in e-commerce also points to the region being, like China, a boom market for mobile payments.
According to a 2013 Ericsson ConsumerLab study across Argentina, Brazil, Chile, Colombia and Mexico, the rise of mobile commerce in the past year has been dramatic and game changing. Its figures reveal that between 28-30 per cent of consumers in Brazil, Chile, Colombia and Mexico use some form of m-commerce. Of these, 20 per cent regularly use mobile banking, 10-13 per cent use mobile wallets and 15-17 per cent use mobile shopping. The picture is similar, but lower, in Argentina, where 21 per cent use m-commerce, 12 per cent mobile banking, 7 per cent mobile wallets and 11 per cent use mobiles for shopping.
Across Latin America, the study finds, consumers relish the convenience of the mobile, but are caught in a dichotomy of decision. On the one hand, the mobile provides convenience and can tap into the unbanked as M-Pesa has done in Africa, but on the other hand, most Latin Americans baulk at involvement with banks and distrust most ‘official’ organisations.
According to anecdotal evidence gathered by Ericsson ConsumerLab, most people use and borrow cash from friends and relatives. They are unbanked not purely because of poverty, but because of culture. However, the rapid rise in mobile shopping is likely to trigger a shift in behaviour. And this shift will generate a number of start-ups looking to create services around mobile payments across the region.
Mango launched this year in Argentina and has a number of products in the works to address electronic and mobile transactions. In Mexico, Conekta is working to deliver one-click mobile payments platforms, while PagPop is active in Brazil and YellowPepper and SumUp are looking to roll out solutions across the region.
However, to date successful roll-outs have been limited. Aside from consumer distrust of banks and large organisations, plus security fears and many other hurdles, many in the mobile industry in Latin America suggest that the biggest problem lies with unsupportive banks.
Cristina Randall, co-founder of Mexico-based payment solutions provider Conekta, says: “If a merchant integrates directly with a bank to process payments, it is not provided with an anti-fraud system or with any training or procedures to deal with charge backs. As a result, many merchants are hesitant to start transacting online with credit and debit cards in a meaningful way.” Coupled with the difficult legislation towards merchants in the case of charge backs, some merchants continue using 3Dsecure or Verified by Visa, which can reduce sales by up to 70 per cent, she adds. As a result, merchants never see their sales take off and lose hope of growing their online sales. “On the other hand, we have seen success cases of merchants taking responsibility into their own hands and educating themselves about the processes involved in charge backs and how to protect themselves. Because of the challenges that exist for merchants, part of our core focus as a company is fraud detection and providing mechanisms for prevention.”
Unlikely as it would have seemed ten years ago, sub-Saharan Africa (SSA) has become the poster boy for mobile payments. It has the largest number of mobile financial accounts of any of the developing regions, with 24,000 per 100,000 adults. Compare that with the world average of just 4300 or the even more paltry 416 in Europe.
But, while much attention has been lavished on the SSA region and on M-Pesa in Kenya in particular many miss the true picture of mobile banking and payments in Africa. While M-Pesa has been a success in Kenya, it isn’t perhaps the success many would have you believe.
Brian Richardson, co-founder of mobile banking technology platform developer Wizzit International, says there have been about 150 implementations of some form of mobile banking in Africa so far, around 70 per cent of which were driven by mobile network operators. Currently nine are operating at break-even or better and eight have more than 1 million users, reveals mobile industry body GSMA.
Digging deeper into the GSMA figures, it becomes apparent that in the more sophisticated market of South Africa, 48 per cent of people use mobile banking. However, outside of that the average usage figures across the rest of Africa are surprising: 30 per cent of people use it once every three months; 18 per cent use it once a month. As many have pointed out, it is difficult to make a business case for something that is used by just 18 per cent of the population with any degree of regularity. And unlike China and Latin America, it will be a long time before e and m-commerce pull people into the m-payments orbit. There is no shopping culture outside the metropolitan elites.
Instead, Africa needs to focus on how to use mobile to not only help with money transfers but to truly bank the unbanked and help them develop a culture of loans and credit through mobile. This has drawn the attention of Kenya’s Equity Bank (the country’s largest in terms of customer numbers) into the world of mobile with the aim of charging for mobile transactions and developing more in the way of savings and loans.
Earlier this year, Equity acquired a telecom licence and made plans to distribute to its customers SIM cards that would enable them to access all their accounts without visiting a branch. The ultrathin cards are designed to be placed on top of any SIM card already in a user’s phone. This will effectively give users one phone line linked to Equity’s bank service and another for Safaricom’s voice and M-Pesa services. The bank has given the cards to its employees and hopes to distribute 1 million to current customers within one year.
At the heart of this push is Equity’s belief that banks are best positioned to provide banking services. “We have a major problem with the mobile provider also providing financial services,” says John Staley, Equity’s chief of finance, innovation and technology. “You can’t have a freight company controlling the tracks.”
South Asia is a fertile market for mobile payments and banking. The region, consisting primarily of Bangladesh, India and Pakistan, accounts for the largest number of offices actively providing mobile money services; 3.8 million compared with 805,000 in all of Africa and 1.8 million in East Asia and the Pacific region.
After just four years in operation, Pakistan’s wireless network, Easypaisa, moves some $3.5 billion across its network annually. In Bangladesh, where the bKash wireless payment system has been operating for only two years, the transaction rate is $4 billion annually.
India has been proceeding more slowly, but the pace is quickening. According to the latest figures from the Reserve Bank of India, the number of wireless money transfers has more than doubled since September 2012 to around $3.2 billion.
Lately, the two best-financed efforts, Airtel Money and Vodafone M-Pesa, have begun expanding across the country. And because of the nation’s huge population, broad adoption of mobile phones and some of the lowest airtime rates in the world, even a modest conversion to mobile money in India could make South Asia the world’s largest wireless-transfer economy.
“India is probably the most exciting market for mobile money in the world,” says Michael Joseph, the man credited with the success of M-Pesa in Kenya. He is now working for Vodafone in London to promote global mobile money programmes. “When India takes off,” he says, “it will eclipse anything we’ve done in Kenya.”
And he could well be right. Some analysts estimate that by 2015 mobile money transfers in India could total $350 billion annually. The size of the opportunity has attracted the major banks and mobile network operators but also at least a dozen new companies, including Beam Money, CanvasM, Ezetap, PayMate, Y-Cash and Zaakpay.
The most rapidly growing new venture is MoneyOnMobile. In operation for fewer than three years, MoneyOnMobile has already attracted 75 million users, four times as many users as M-Pesa’s 18 million in Kenya and twice as many retail outlets (163,000 versus 79,000).
Although its transaction volume is tiny by comparison, India is perhaps really where m-payments will showcase itself in the coming years.