Mobile Payments : Mythical Facts

Abstract – This article is triggered by real life incidents combined with a high-level overview of mobile financial services and mobile payments. The mobile technologies covered herein are neither new nor a revolutionary innovation; but have been there on this planet for decades though not all of us have been aware or maybe the way I have experienced them was far different from everyone else. Mobile payments using NFC, USSD, Mobile App or even SMS have been in existence for a long time but banks and retailers have been hesitant to fully and willingly participate due to fear of low adoption rate, however, the lack of participating banks and retailers is the precise reason for the low adoption rate.

This is repost of my post on linked from July-2015

Mobile Payments are an easy and simple concept but sometimes they get oversimplified along with the same reasons for payments under mobile or simplified version as mobile payments about which every single company on this earth is talking about these days and it is true every single company is. The assumption made here is that the reader is well versed in mobile payments through the mobile wallet or mobile money which is a solution that lets people conduct banking transactions with ease, directly from their mobile device in a secure and convenient manner. Having full understanding of the business case and technologies we can now get ideas on how to merge these to gain some cost reduction, increase in speed and effectiveness.

In case you need detailed information or further deliberation on any part, please feel free to get in touch with me directly. A myth is normally described as a traditional or legendary story so is Mobile Payments, usually concerning some being (Mobile Handset or Technology) or a hero (Mobile) or event (Payment Made), with or without a determinable basis of fact or a natural explanation, especially one that is concerned with deities or demigods and explains some practice, rite, or phenomenon of nature.

Introduction – There is no second or subsequent thought that Mobile payments are on the rise. NFC (near-field communication) that allows two devices equipped with an NFC chip placed within a few centi-meters of each other to exchange data. With today’s technology, we have come a lot further. MasterCard, ApplePay, AndroidPay, Europay, and Visa, leaders of the growing trend of mobile payment, have been pushing to create a standard for the modern method of commerce, so that mobile payments can be easily accessible on a global level. There are major contributors to reduce time to pay for the services/goods and give feeling like touch and run.

If we had a Ministry of Innovation for regulation and control on a global level, they would have made todays work and innovation impossible or may have stopped it long back. Apple (as per news 10 Million handsets were sold in first 3 days of launch) launched Apple Pay (NFC Solution) from a technology perspective was neither a new offering nor a game changer, which is now followed by almost every big player in the industry. MasterCard even claims that, under the banners of convenience and security, their technology will create a world in which we will one day never even think to withdraw money from an ATM or stand in line to buy a train ticket. Instead we’ll just tap a button. Without a doubt, that launch was to set a trend for NBFTC (Non Banking Financial & Technology companies) on how to enter into payments and did its job well, so-called banking domain and eat the share.

When Apple decided to jump on board (Sept-2014), the game changed because all of a sudden they were presented with a guaranteed massive user base for this type of technology and service. Unlike most of the MNOs, which keep on focusing and growing the mobile network in a positive way to penetrate the isolated areas, millions of people are now able to connect via a mobile phone. As a result, mobile payments have become a viable alternative to traditional payment methods such as paper, plastic, online or even bank accounts payments.

Main Story  - Rapid advancements in mobile technology are changing the way we live; from the way we connect with others to the way we manage our finances. It’s time to rethink mobile payments by putting some of its common myths to rest. One can help grow their business while offering their customers an alternative way of paying their bills while still maintaining a high amount of security. Yesterday I was standing at a KFC counter for my Sunday evening meal and after I made my mind I was given a 9 US dollar bill to settle in advance before I collect my stuff (This must be an usual method I guess around the globe). I started searching for cash in pocket and realized I don't have my wallet and now about to excuse myself all of sudden a sweet voice brought me back to reality asking how I wish to pay and I was given options as, Card Payment (Debit, or Credit), Mobile Payment (either using my Mobile Wallet (NFC, Mobile App or simple USSD) or my Mobile Banking account).

To make me crazy enough I was told whichever method I want I can use on separate counter even via free phone call to my family/friend (their location can be around the globe) to ask them to pay for my meal. Finally I paid via my mobile money account using my mobile app on my Apple phone; this whole episode told me very clearly there is no dull day in the payments business these days provided the buyer is willing to pay. The unglamorous world of clearing and settlement is a recipient of generous attention due to continuous launches of visible overlay propositions, often by non-banks. The so-called innovators and many players are constantly anxious about protecting their hard earned franchises, thereby confirming emergence of the ‘new normal’. I believe in embedding these core elements in the proposition, operating and delivery models will enable players to ‘play to win’ in these turbulent times. 

Technological innovations have made certain aspects of our daily lives that much easier. The advent of mobile money has awarded those who were previously unable to conduct monetary transactions an easy and affordable alternative to traditional bank accounts. Mobile Payment services may or may not link to your mobile wallet or directly to your bank account. Important questions being;                  

1. How to position Mobile Payments Portfolio to my consumers?
2. What my consumer wants?  
3. How my consumer wants it?  
4. How much and when my consumer needs?

Traditional payments services providers, including banks as well as the well established big names like Mastercard, VISA etc have to wake-up, smell the coffee and innovate otherwise MNOs will "move their cheese". Imagine what will happen when social media makes vibes into the payment space. A very interesting fact in the mobile financial industry is we usually receive funds once or twice a month as part of salary or fee but spending is done at least thrice a day, sometimes over 5 times.

This method of spending is known as micro-payment/micro-spending. Putting in numbers, this can go into billions of dollars; an easy example: if we start charging 1 cent per transaction as commission for micro payments through NFC (the stored value card technology) for food, drinks, snacks, petrol, tolls, souvenirs or any similar purchase each one of us spend minimum $5 a day (assumed at 40% of world population) then the total commission earnings will be to the tune of $4.3 billion per month. This market has clearly not been explored that well and this also goes straight into Mobile Money Market as potential leakage plug.

The main drivers behind the success of mobile money are the explosive growth in the number of mobile devices and the fall in the cost of computing power, which have lowered the barriers to new entrants in this field. Mobile money (m-money) is quite versatile and can support a variety of services, in particular, person to person (P2P) money transfers, which are of significant value for emerging economies.

The other key driver for this is the inaccessibility of banking services to the general populace mainly due to poor infrastructure and lack of trust in local banks by country fellowmen and companies. Payments have a share to move beyond transaction capture to enable a sale (trigger, originate) by aligning to the new ‘consumption context’ of payment services. Partnerships are an effective way to enable this. e.g. Apple Pay is a ‘device franchise’. Utilize collaborative models, where available.

It integrated servicing to provide differentiated and cost effective servicing in real time responses to presence, activity and transaction(s) leading to satisfaction of wants/personalisation. In Mobile Payments flexible and dynamic integration capabilities to enable real time, interoperable messaging; acts like a bridge to deliver tomorrow, while enabling ‘insulated incremental transformation’ at the back end. In the new ‘sharing economy’, ownership is not a differentiator. ‘Build vs Buy’ of yesteryears should synthesize / weave into a ‘Do vs Source’ agenda. Most fulfillment activities, sourced on a variable pricing model are the necessity.

Key Advantages – To All

• Expand financial sector reach by leveraging on a Mobile medium.
• Ease of use for financial services via various interfaces like IVR, USSD, SMS and Smart Apps.
• Expand set of services to larger sector of society.
• Solution Providers (Service Provider)
• Acquire large number of customers for their solution or services.

Telecom Operators

• Drive retention, and increase ARPU to the mobile
• Higher revenue through increased Data, USSD and SMS usage

Utility Organizations

• Prompt payment of bills enabling better cash flow

Subscriber / Customers

• Basic banking facility made available
• Advantage to transact on the move. 

Conclusion: What are the implications of Mobile based Payments and Solutions? Is it going to change the world, be a significant “win”, be a nice hack. Proximity based , Mobile App, SMS or USSD , Cloud or hosted mobile payments can support globally and will give financial institutions and partners greater choice in offering consumers secure ways to pay with smartphones. Time has now come for banks and other entities with an interest in financial service provision, to step up as one team, exploit technology and leverage on existing MNO infrastructure to acquire customers, enrich use cases, lower costs and increase revenue especially in markets where regulators (such as reserve banks) play a dominant role. Support for 'Regulatory Compliance' is taken as a given.