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Where is the innovation in mobile money?

Dr. Bill Maurer is Professor of Anthropology and Law at the University of California, Irvine,  and the Director of the Institute for Money, Technology and Financial Inclusion. Dr. Olga Morawczynski has spent the last five years studying mobile money applications. She has undertaken research in numerous countries including Kenya, Tanzania, Uganda and India. Currently, Olga is with the Grameen Foundation (AppLab) in Uganda. She is developing and testing applications to increase the adoption and usage of mobile money products amongst the poorest segment of the population.

Back in March, Mark Pickens wrote an interesting blog about innovation in the mobile money space. His main argument after attending the Mobile World Congress in Barcelona—not much has changed in the industry. The majority of mobile network operators (MNOs) are introducing clones of M-PESA and not too many of them have gone beyond payments. After attending the recent Mobile Money Summit in Rio, we can confirm that Mark is right. There are plenty of new players in the industry, but what is really new aside from the recent launch of M-KESHO? More interestingly, why are we not seeing more innovation in this space?

Our position is that if MNOs focused less on creating the right “ecosystem” (the buzzword of the moment, Jan Chipchase reminds us) and more on thinking about and piloting new products, things would be very different. There may also be one partnership in particular that could be hampering innovation—that with the banks. Historically, these two players have taken very different strategies for new product development, especially in resource poor countries. People are quick to fault the regulators for stifling innovation. But the regulator is really a scapegoat when the traditional partners in the ecosystem engage in anti-competitive practices.

MNOs and device manufactures have been excellent at innovation and product design. Oftentimes taking the lead from poor customers, they are quick to spot new trends and to harness them into new products and services. They quickly realized that if their products were to be scalable the pricing structure would have to be suited to the erratic income inflows of this segment. So they introduced pay as-you-go services, which allowed individuals to top-up when they had cash but did not exclude them from the mobile system when they didn’t. This is quite different to the minimum balance and monthly fees required by banks. And it was the MNOs who rocked the financial landscape by bringing mobile money to the village and the slums—locations which few banks have dared to enter. Given these very different focuses and ways of doing things, it is no wonder that MNOs have become less innovative as they expand their network of financial institution partnerships.

So what can be done then to really spur new product ideas in this space? Unless banks and financial institutions are ready to start thinking more creatively – and we do not doubt that some are – we have to look for ways to allow innovation to come from the rest of the ecosystem: from customers at the bottom who set devices and services to new and unexpected purposes; from creative new entrants who go it alone before seeking partnerships; from operators concerned less with the leverage potential from banking the unbanked and more with people’s everyday livelihoods, real needs, and creative interventions.

-Bill Maurer and Olga Morawczynski

For all the talk about financial services over mobile technology and our aspirations for a cashless society, it is striking to me how far the economies in the US and Europe still have to go. This blog tends to focus on mobile financial services in the developing world. But I still marvel around the 1st of every month when I have to write a check to my landlord to pay my rent; or when I have to go to the ATM to get $20 to contribute to an office group gift.  Shouldn’t we be beyond this by now?

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Ignacio Mas and Daniel Radcliffe of the Bill & Melinda Gates Foundation have a new paper summing up the early experience with M-PESA - Mobile Payments Go Viral: M-PESA in Kenya:

M-PESA’s market success can be interpreted as the interplay of three sets of factors:

* Pre-existing country conditions that made Kenya a conducive environment for a successful mobile money deployment;
* A clever service design that facilitated rapid adoption and early capturing of network effects;
* A business execution strategy that helped M-PESA rapidly reach a critical mass of customers, thereby avoiding the adverse chicken-and-egg (two-sided market) problems that afflict new payment systems.

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Many mobile money services are out there, but what’s different about MTN Mobile Money? In MTN’s recipe for mobile banking success, Chris Bold pointed out three things:

• MTN has teamed up with not one, but nine different banks - and others are knocking on the door.
• Customer sign-up is done anywhere that customers can be found.
• They have built a completely independent network of cash-in/cash-out agents.

Staying on the business model theme, Chris also reacted to the news of yet another mobile operator buying a bit of a bank, this time in China: Mobile operators and banks: If you can’t beat them…buy them!

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To promote effective regulation of branchless banking, especially mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the third Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’re blogging from the seminar, where the conversation has focused on technology, but also business models and especially distribution networks. A session on banking agents was chaired by Ignacio Mas of the Bill & Melinda Gates Foundation. The broad consensus was that agents (so far) have not created significant risks for consumers or the soundness of any banking system among the countries where agents are doing cash-in cash out transactions.

It is easy to slip into a shorthand vocabulary when dealing with a technical issue like mobile banking. Is that a challenge when we talk about agents?
For me, the key word is distribution. That’s the main problem we are trying to solve. It means two things. First, getting services closer to the customers – proximity. The second is being able to conduct smaller transactions affordably. Those two together are a basic enabler to serve poor people. Solving the problem of distribution is solving a business case and getting closer to the customers with the ability to do small transactions. In general, the broad solution to us seems to be to take banking transactions outside of traditional bank infrastructure, which is why I prefer to say that we are seeking “banking beyond branches” rather than “branchless banking.” Branchless banking cannot work without branches. The small store doing cash-in/cash-out transactions still has to go somewhere to get rid of the excess cash – and that’s usually a bank branch. So it actually isn’t branchless at all. The objective is to create outlets for people to transact in every town and village.

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In 1968, a film titled “Planet of the Apes” captured the dystopian mood of the time by vividly telling the story of an astronaut who gets lost in space for many years, and eventually crashes on a strange world where apes, not men, are at the top of the food chain. The main plot twist comes when the astronaut finds the buried head of the Statue of Liberty, and realizes he is not on another planet, but rather, is on a post-nuclear-holocaust planet Earth - many years in the future. Everything mankind took for granted is gone. Humans are relegated to a life of servitude, subordinate to the super smart race of apes that has come to rule the planet.

This week at the Mobile World Congress has felt a bit like a live-action version of “Planet of the Apes,” with a few differences. Instead of apes, we have apps. The species rising to power goes by the ticker symbols of GOOG (Google), YHOO (Yahoo!), APPL (Apple), though some telecom wags seem to think these are simply four letter words.

On Planet of the Apps, the species running in fear are the mobile network operators.

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Today, the CGAP Technology Blog comes to you from the Mobile World Congress in Barcelona. The MWC is the world’s biggest business show for all things mobile related. In recent years we’ve noticed how the focus on mobile banking has slowly grown on the agenda – both in the conference itself, as well as for the mobile network operators who comprise the membership of the GSMA.

Just two years ago, mobile money was relegated to a side session of a few hours. This week, there’s two full days of mobile money content – starting with Monday’s panel of the so-called “two billion club” – the handful of mobile operators who combined reach one third of humanity with their cell coverage.
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Are you the sort of person who likes to visualize data? If so, you should definitely visit the GSMA’s new data mashup on Google Earth: Mobile Money for the Unbanked Deployment Tracking.

The tracker is useful to:

• Track markets with live mobile money deployments
• Assess latent demand for mobile money in each market
• Benchmark approaches to service design and partnerships

CNN looks at the potential of mobile banking to reach the unbanked and gets right to the point - that the real issue is cash:

Imagine your life if you had no access to banks, ATMs, credit cards, or savings and checking accounts — just cash that you needed to hide or carry around. It would be hard to save, plan, get ahead, take chances, or feel secure.

The insanely influential US tech sector website TechCrunch asks, “Is the Internet Finally Robbing the Greedy Financier’s Gravy Train?”

The most amazing thing about the Internet is how many industries it’s wrecked. File sharing and iTunes forever changed music’s economics; blogging and other forms of online content have killed old media; and open source and software-as-a-service have brutalized the expensive, on-premise enterprise software products…Here’s the second most amazing thing about the Internet: The fact that there are still industries it’s barely touched. One of those is finance.

Ignacio Mas of the Bill & Melinda Gates Foundation has a new paper out - posted to the Microfinance Gateway:

Savings help poor people cope with life cycle family expenditures and shocks. Only about one quarter of households in developing countries save with formal banking institutions. Large commercial banks find it too costly to reach out to the poor with savings products, and poor people, in turn, do not trust commercial banks.

If anyone doubts the ascendancy of the mobile phone and social media when it comes to people connecting with each other, here’s a story that perfectly demonstrates how social marketing and mobiles can play a positive role, $10 and one text message at a time: “Mobile donations to Haitian relief top $7M.”

Americans have donated more than $7 million to relief for the earthquake in Haiti via text message, according to the Mobile Giving Foundation, including more than $5 million to the American Red Cross.

-Jim Rosenberg

Since the official launch of GCASH in early 2004, Globe Telecom’s subsidiary GXI set-up a number of initiatives to help them arrive at a strategy for mobile banking in the Philippines. As part of those efforts, CGAP and GXI partnered to roll-out GCASH in three predominantly rural and low-income provinces of Bohol, Palawan and Surigao. Our goal was to understand how to expand the reach of GXI’s agent network into smaller towns and how customers would use the service. I am writing to share briefly what we learned in terms of customer usage and preferences in the low-income provinces that we have been working in.

In 18 months, GXI signed up 120,000 new GCASH customers in three low income provinces (Bohol, Surigao del Norte and Palawan) and set-up 200 agents to service those customers (GXI has 1.1 million GCASH customers nationally with 3,000 agents). GXI reached over half of the registered base in the first three quarters of 2009 – roughly 72,000 new GCASH accounts. About 2,000 of those customers (under 3 percent of total) have been conducting one or more GCASH transactions a month. The average transaction size was very low at USD 30, reflecting GCASH’s appeal to those looking to transact at low values. In addition, a very small number of customers have used the wallet for storage. We found a small subset (6-7 customers) maintain a monthly running balance.

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• Continuing our podcast series, Anu Bajaj of DFID explained on how donors, private firms and governments can work together for branchless banking;
• Mark Pickens reflected on FSD-Kenya’s survey of M-PESA users;
• Kane A. Russell looked at the push and pull for poor people and mobile banking;
• Ron Webb and I spoke about the early days of M-PESA and ATMS linking up in M-PESA and ATMs, interoperability, and the future;
• Ignacio Mas of the Bill & Melinda Gates Foundation spoke on how branchless banking can foster savings accounts for the poor;
• I reported from Delhi on how mobile banking in India *could* be poised for take-off;
• Dave Parratt of MTN Mobile Money in South Africa shared his views on how a mobile network operator can make the switch from selling prepaid airtime to a banking relationship.

-Jim Rosenberg