“Those who don’t know history are doomed to repeat it.”  This quote from Edmund Burke, an 18th century British orator, politician, and philosopher, still rings true today… even within the new realm of mobile money.  This blog describes how understanding the past of mobile money will influence not only its present, but also help shape a more successful future.

Learning from history

A new and detailed mobile money research report entitled, “An Empirical Examination of Why Mobile Money Schemes Ignite in Some Developing Countries, But Flounder in Most,” was published by David S. Evans and Alexis Pirchio through the University of Chicago Institute for Law and Economics.  In researching mobile money initiatives within 22 countries for the past several years, the authors found that:

• 8 countries experienced “Ignition with Explosive Growth”
• 3 countries experienced “Ignition with Weak Growth”
• 8 countries had “Failed to Ignite”
• 2 countries were “Too Soon to Assess Ignition”
• 1 country had “No Basis” to determine ignition

Their research led to several useful observations:

• Heavy regulation is usually fatal to igniting mobile money schemes in a country.
• Mobile money schemes are more likely to succeed in poorer countries that lack basic infrastructure and where mobile money schemes, therefore, create more value by reducing a greater friction.
• The growth of send-receive and cash in/cash out platform must go hand-in-hand.
• Ignition and explosive growth occurs [relatively] quickly [i.e., up to 4 years after launch] or not at all.

The authors also remind us that payment innovation tends to take a long time.  To paraphrase the authors:  Diners Club ignited the modern card payments industry back in the 1950s, but seven years later there was only one successful U.S. payment network….  Visa and MasterCard didn’t even start until 16 years after Diners Club, and it took them another decade to gain widespread use!

Past is prologue

Looking forward, the future of mobile money—like many other emerging technologies—may only become clear in hindsight.  That said, we believe new approaches are needed in technology platforms, business models and regulatory frameworks in order to improve the probability of successful ignitions.

For the last several years, “mobile money” has typically come to refer to Mobile Network Operator (MNO)-driven services which enable consumers to perform certain financial transactions, which have been funded essentially through mobile minutes which have been purchased.  MNOs have desired to use these new services to reduce the churn within their customer bases.  And in almost all cases, mobile money has not been interoperable across different MNOs.

We believe that over time, this “version 1.0” (so to speak) of mobile money may become increasingly recognized as archaic.  New technology-agnostic platforms and forward-looking business models (where banks and MNOs develop partnerships) combined with enlightened regulators should lead to interoperable and more useful mobile money initiatives—that have a higher chance of achieving ignition.  A “version 2.0” of mobile money is needed; one that leverages the learnings of the past and enables a flexible approach for the future.

Bangladesh with its bank-led mobile money called bKash which works across most MNOs there, and Peru with its yet-to-be-launched ASBANC mobile money initiative involving banks and MNOs may be good models for successful ignition.  Within the research report, Bangladesh was recognized as a developing country that experienced “ignition with explosive growth;” Peru was not included.

One key ingredient—confirmed by both this research and by our own experiences in everyday life—is the innovation which removes the most pain from our lives while adding the most value will achieve success.  This is true for mobile money or almost any other new product or service.

In closing, payment innovation does takes a long time, and we’re still in very early days.  Measuring ignition in terms of a few years may even be too short of a timeframe, but… one thing is for sure:  new mobile money models which learn from the past and are adaptable to the future will be best positioned for ignition.  Let us know what you think.