Mobile Payments in Emerging Markets

mobile paymentsMobile money services have huge potential in markets where mobile penetration vastly outpaces the number of people with bank accounts, according to Gartner, Inc. However, service providers, including banks and mobile operators will need to invest substantial efforts in building an “ecosystem” to make the service work within the local regulatory and business environment.

Mobile money refers to mobile banking and payment services and includes functions such as balance and history enquiries, money transfer, bill payment and prepaid top-up.

“Following the popularity of mobile money services in countries such as the Philippines, where 80 percent of the population has mobile access but only 20 percent have bank accounts, we are seeing rising interest from both mobile operators and financial institutions in offering the service in emerging markets,” said Sandy Shen, research director at Gartner.

Gartner has identified seven crucial steps to enable providers to make successful mobile money offerings in emerging markets. These offerings include:

Step 1 — Talk to the Regulator
Regulators must be involved from an early stage to gain their support, especially in markets where mobile money offerings have not been established. Present regulations are centered on banks and may potentially destroy the business case for mobile money, so service providers need to talk to regulators to educate them and gain their support.

Step 2 — Define the Business Model
In general there are four business models: –  Led by the Bank — Banks in this case take most of the responsibility and treat mobile operations as a “bit pipe” that provides mobile access. Banks take care of service development, marketing and promotion, distribution, agent and merchant acquisition, regulatory compliance and technical support. This approach is more likely to be used in developed markets where banks extend the service to existing customers.

– Bank-Operator Joint Efforts — Banks and mobile operators establish a partnership or joint venture with each party taking a fair share of responsibilities. Gartner believes that this business model is the most effective as each party performs tasks they are good at with their expertise complementing each other to meet business and regulatory requirements.

– Led by the Operator — Operators in this case assume all responsibility, including float accountability and gain the highest returns of all business models, but it also assumes the highest risks. In essence, the operator provides stored value accounts to the customer and keeps the float with its own bank account. This model relies a lot on regulation because not many countries allow the operator to perform a deposit-taking role. Therefore, this model is likely to be used in only a few markets.

– Led by a Third Party — This is usually led by a solution provider that offers the service across operators. Third parties can work with a bank to comply with regulatory requirements and with operators to gain network access, but it assumes most of the responsibility, such as marketing and distribution.

Step 3 — Select a Vendor
Due to the nascent nature of mobile money services, startup companies are sprouting up to chase opportunities in various segments of the market. Gartner recommends vendors with an end-to-end robust solution that is market proven and those with successful deployments of scale. A vendor should also have a solid understanding of the local regulatory and business environment and a proven track record.

Step 4 — Set up the Agent Network
Agents play an essential role in “cash-in” and “cash-out,” one of the most valuable elements of the mobile money service. Service providers must chose their agents with care, ensuring that they consult regulation as to which businesses can assumes agent roles, as well as the process of approving and registering the agent. Agents should be trusted by both the customer and service provider, frequently visited by the customer, and readily equipped.

Step 5 — Recruit Service Partners
Service partners are third parties that accept mobile payments offered by the service providers and examples include retail shops, chains, utilities, Internet/broadband providers, transportation companies, governments, schools and charities. By connecting the service partners to mobile money services, the service offers more value and makes it more attractive to the end user, creating stronger loyalty.

Step 6 — Manage Risks
Risk management is key to the success if the service, both for consumer protection and regulatory compliance. It should cover technology risks, operational risks — such as misuse of PINs and theft of handsets — and compliance risks.

Step 7 — Market the Service
For major cities, marketing is not that different to other services and should include above-the-line-advertising, billboards, campaigns and events. The challenge is to market to rural and remote regions where the majority of the target market resides and where there is a lack of marketing channels. Word of mouth is the best way to advertise in this case and one way is to recruit a community leader, such as a priest or doctor that can impact the wider community. Agents are also an ideal channel to market the service, particularly those in a local store where they are in a natural position to introduce new services

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