Sarah Rotman

In a recent CGAP Focus Note, Ignacio Mas and I wrote about six cases of e-money schemes in developing countries. Going Cashless at the Point of Sale: Hits and Misses in Developed Countries intended to draw lessons from these experiences to inform the work being done with e-money in developing countries. The last post in this series looked at the mobile operator-centric payment scheme Simpay. Now we turn to the second such scheme, Osaifu-Keitai in Japan.

DCM is Japan’s leading mobile communications operator, with 53 million subscribers as of March 2008, representing over half of Japan’s cellular market. It launched a mobile wallet service, Osaifu-Keitai (meaning: wallet-mobile phone) in July 2004.

Osaifu-Keitai is based on a FeliCa card embedded in mobile phones (the same that was used by Octopus in Hong Kong). Osaifu-Keitai is a device-based mobile payments solution, supporting both proximity payments in shops that have a FeliCa chip reader and remote (online) payments. Read the rest of this page »

A few months ago, Ignacio Mas and I wrote a CGAP Focus Note entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. Our aim was to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research revealed several important insights.

In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Already on this blog, I have highlighted the two cases of smartcard-based electronic-cash providers: Mondex in the UK and Octopus in Hong Kong; as well as mobile operators facilitating existing payment instruments: Mobipay in Spain and Moneta in Korea.  Now I turn to the final approach, mobile operator-centric payment schemes. The first example of this is Simpay in Europe.

Simpay was launched in February 2003 by a consortium of the four leading European mobile operators: Orange, Vodafone, T-Mobile, and Telefonica Moviles. Its mission was to develop and operate a pan-European payments system for mobile phones, focused on micropayments (less than 10 euros). Despite the company’s tagline—“pay for stuff with your mobile”—the system was also designed to allow purchases from PCs connected to the Internet. Read the rest of this page »

Going Cashless at the Point of Sale: Hits and Misses in Developed Countries is the latest CGAP Technology Program paper in which Ignacio Mas and I analyze six instances of electronic money initiatives in the developed world. We hoped that these experiences would provide us with insight into what to do and what not to do with similar initiatives now being attempted in many developing countries around the world. The last post in this series looked at the first scheme under the category of mobile operator-faciliated payment instruments (Mobipay). Now I have taken an excerpt from the second such scheme, Moneta.

SK Telecom (SKT) belongs to the third largest chaebol (conglomerate) in Korea. SKT controls around half the market for mobile telephony, with 20 million customers. It has developed a comprehensive framework for mobile payments (Moneta), mobile banking (Mbank), and mobile commerce. Moneta was launched in November 2002 as a mobile wallet application that allowed customers to make proximity (in-store) payments through several mechanisms. Moneta initially supported a mobile cash payment product (Moneta Cash) and evolved toward a platform to support credit card payments through mobiles.

Read the rest of this page »

In a recent CGAP Focus Note, Ignacio Mas and I wrote about six cases of e-money schemes in developing countries. Going Cashless at the Point of Sale: Hits and Misses in Developed Countries intended to extrapolate lessons from these experiences to shed light on the work being done with e-money in developing countries. In past posts, I chose excerpts of the paper that discussed smartcard-based electronic-cash provider schemes. Now I turn to mobile operator-faciliated instruments, looking first at Mobipay.

Mobipay is a mobile payment mechanism that allows customers to pay for goods through their mobile phone using a range of payment instruments: credit cards, debit cards, or the operator’s account. It supports both in-person and remote payments. The platform is open to any mobile operator or payment instrument issuer in Spain.

Each Mobipay customer gets a virtual wallet, which can contain up to nine different payment instruments. Each time the customer wants to make a payment, the system will ask which of the available payment instruments the user wishes to pay with. Customers can register a new bank payment instrument in their mobile wallet by requesting it from its issuer (through their branch, ATM, Internet banking, or telephone banking channels) or by sending a short messaging service (SMS) with the keyword ALTA (subscribe) followed by the card number. Mobile operators automatically register the mobile account as a payment method (whether the customer is on a prepay or postpay plan) when their customers use Mobipay for the first time.

There are three main ways of initiating a payment. For smaller, in-person transactions, customers can give their phone number to the merchant, who will then issue the payment request. Larger retailers can use a special barcode reader that can acquire the customer’s mobile phone number directly by reading a tag on the customer’s phone, which reduces the possibility of error. For purchases from machines or for remote purchases, the customer can enter a transaction code that identifies the product to be purchased (e.g., a parking meter might display the code *145*980*122#). In this case, the customer initiates the payment request.

Mobipay was trialed in mid-2002 in a small town and launched nationally in late 2002. In less than a year, it acquired 17,000 customers and 4,500 merchants (2,800 online and 1,700 bricks and mortar). Six years later, there are only 400,000 registered—not necessarily active—users, amounting to less than 1 percent of the population. And less than 2000 transactions are processed daily.

This dismal performance can be explained by two main factors. First, Spain is highly penetrated with banking services and infrastructure, so Mobipay struggled to open up a niche in the retail payments market. Second, Mobipay did not have a marketing budget to promote its own service; it had to rely instead on promotion by its shareholders (who were also its customers). These shareholders, in turn, did not see much benefit in promoting the Mobipay brand, because they felt that their competitors (whether the telecoms or the banks) would benefit equally from their marketing expenditures. As a result, Mobipay has languished in the absence of effective marketing or a “killer application” that can raise public awareness of the service.

You can read about the other cases we analyzed in the paper here.

Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.

In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. The last blog post looked at Mondex. Now we turn to Octopus.

In 1979, Hong Kong’s Mass Transit Railway (MTR) launched a prepaid card with a magnetic strip as a ticketing system for use with its rail services. In 1994, Creative Star (renamed Octopus Cards Ltd. in 2002) was formed as a joint venture between MTR and four other public transport operators in Hong Kong to make it an intermodal ticketing system (i.e., including buses, ferries, subway, etc.). The Octopus card, a contactless smartcard based on Sony’s FeliCa chip, was introduced in 1997, replacing the old magnetic strip cards. The card does not need to be physically inserted into a device to be read, which makes payment very convenient for users in a hurry: all they have to do to pay the exact fare is to swing their purse or handbag near the card reader.

The value is stored securely in the card itself. The card can be personalized for an extra charge with a photo, and personal data can be kept on record. If a personalized card is lost or stolen, the customer can reclaim the remaining value of the card, and the original card will be blacklisted to prevent its use.

At the time of launch, acquiring an Octopus card required a deposit of HK$50, which created widespread resentment with the new payment mechanism. However, adoption was driven by (i) very rapid conversion of all turnstiles to the new system; (ii) a short phase-out period for the old ticketing system of only 2–3 months; and (iii) a pricing scheme of the only remaining ticketing alternative—a single trip ticket—at a much higher price. This amounted to a compulsory conversion by all transport users, such that within 3 months, three million cards—a number equal to half the residents of Hong Kong—were sold (Siu 2002).

The Octopus system is now a widely used electronic cash system. By mid-2008, there were over 17 million Octopus cards in circulation (which is more than twice the population of Hong Kong), with more than 10 million transactions, worth HK$85 million, processed daily (Citi 2008). The cards are used by 95 percent of the population of Hong Kong aged 16 to 65; the average user stores around HK$63–65 on the card.

Van Hove (2005) notes that Mondex failed to take root in Hong Kong, whereas Octopus has taken root. Octopus had four distinct advantages over Mondex:

• Having signed up all the main public transport companies in the territory, Octopus had a de-facto monopoly with a large user base—mass transit users.

• Octopus focused on replacing cash in unattended POS—ticketing machines. The ability to present exact fares at all times through a smartcard at unattended machines offered a big convenience factor for users. In contrast, at least initially, Mondex attempted to replace cash in stores, where not having the exact change is much less of a bother for customers.

• Octopus’s contactless features made it extremely convenient for users—indeed, faster than using cash. The cards do not have to be inserted and, in fact, generally do not even have to be withdrawn from wallets and handbags, to be read by the card readers.

• The card’s personalization feature means that value can be retrieved by users who lose their card or have a faulty card.

You can read about the other cases we analyzed here.

Recently, Ignacio Mas and I wrote a CGAP Focus Notes entitled Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. We wanted to analyze the history of electronic money schemes in developed countries, more specifically in Europe and Asia. We thought it would prove a useful exercise as CGAP works towards sustainable branchless banking models in developing countries. As expected, our research shed light on important lessons.

In the paper, we discuss three broad approaches, and in each case we look at two providers who met different degrees of acceptance in the marketplace. Although our primary interest is with payment through mobile phones, we start with two cases that use smartcards, because these share many of the same characteristics and issues as payments through mobile phones. Here is an excerpt discussing the first case, Mondex.

Mondex is electronic cash on a card. It was designed to mimic cash, particularly small notes and coins (e.g., micropayments), so transactions with Mondex had to be extremely fast and had to incur no transactions cost. Accordingly, Mondex was conceived as an offline transactional method that does not require clearing systems to support individual transactions. Mondex-type systems are generally called “e-purses.” Many such systems emerged across Europe in the late 1990s: the Proton system backed by Visa in Belgium and the Danmont system in Denmark were other early projects.

Under the Mondex system, customers are issued a smartcard, which is a plastic card with an integrated circuit or chip from which data can be read and updated by card-reading devices. The chip stores the money value, but this is not linked to any bank account, and the information is not backed up on a server. Thus, the money value is irretrievably lost if the card itself is lost, and the card provides a much higher level of anonymity for users.

Consumers load Mondex value by transferring money from their (separate) bank account using an ATM or a Mondex-enabled telephone, which has a card reader and is connected to the Mondex system. The float is kept by the Mondex issuer (a private company set up by Mondex International in each country), from whom participating banks would “buy” Mondex value to meet their customers’ requirements for Mondex value.

Extensive field tests were conducted in Swindon, in the United Kingdom, during 1995–97 and in Guelph, Canada, in 1997–98. Both involved a very strong marketing push to get a critical mass of merchants to take up the card-reading devices. In the Swindon trial, 14,000 cards had been issued by the time the trials were discontinued after 3 years, compared with the uptake of 25,000 cards that had been anticipated for the first year alone (Van Hove 2005). Use of the cards turned out to be much more disappointing. Although this service still lingers in a few countries, it never met much market success.

Mondex is one case which shows that customers will adopt (or not) a new payment service or technology when (i) it provides clear benefits relative to current alternatives and (ii) they can trust it based on a clear understanding of the risks involved. Mondex failed to convince the public on both grounds.

Read the rest of the cases we analyzed here.

Last month, Ignacio Mas and I completed the latest publication from the CGAP Technology Program – Going Cashless at the Point of Sale: Hits and Misses in Developed Countries. Instead of focusing on branchless banking experiences in developing countries, we decided to look at the experiences of electronic money in developed countries. Our paper reviews some of the bigger failures and some of the more promising experiences in the use of smartcards and mobile phone as payment platforms in developed countries. Over the next few weeks, I will highlight excerpts from this paper which focus on the six different schemes we analyzed. While the developed world context in which these initiatives were launched are very different from the developing world context in which CGAP works, nonetheless there are important lessons. Here is an excerpt from the introduction of the paper.

Storing value electronically…sending value electronically…many people living in developed countries take these things for granted because making electronic transactions are part of everyday routines for them. After all, who would think twice about making a payment or getting cash from a debit or credit card?

Debit cards are indeed becoming a standard payment instrument for people with a savings account. Debit cards have achieved critical mass adoption in most developed countries. Their further spread is mostly limited at this point by three factors:

• The penetration of bank accounts among the population.
• The weak business case for deploying a sufficiently dense network of acceptance terminals (automated teller machines [ATMs] or point-of-sale [POS] devices) in environments with low economic activity or population density.
• The cost of communications underpinning the real-time authorization of payments, in markets with limited communications infrastructure or for very low-value transactions (for which the communications cost as a percentage of the transaction cost may be too high).

These are important limitations in many developing countries, where the spread of banking services and infrastructure is often restricted by socioeconomic stratum and geography. Even in developed countries, these limitations may create niche opportunities for alternative electronic payment (e-payment) schemes to exploit the gap between the informality of cash and the heavier communications infrastructure required for debit cards.

Yet, many initiatives that have sought to push the frontier of electronic money (e-money) and payment devices to drive out cash beyond debit cards have failed, because customers often are not convinced of the need or practicality of these systems. Europe tested the market for these services early on—and collected some high-profile failures in the process, from cash-substituting smartcards in the second half of the 1990s (Mondex, Proton) to interoperable mobile payment platforms in the early 2000s (Simpay, Mobipay).

The more developed markets in Asia—Japan, Hong Kong, Korea, Singapore, and Taiwan—have taken the lead in devising new schemes and are, in fact, meeting with some success. So against overwhelming failures in Europe, we can point to underwhelming successes in Asia.

There may be factors specific to Asia at play in explaining the more positive experience in Asia—customers’ fascination with new technology, the importance of conveying innovation in the branding strategy of mobile operators, the low penetration of credit cards. Some of the Asian formulas are now finding their way back to Europe. Hong Kong’s success with transit cards (Octopus) is also proving its mettle in London (Oyster). Japanese and Korean operators (NTT DoCoMo [DCM] and SK Telecom, respectively) are slowly proving the benefits of mobile phones with very short-range communications technologies for use with in-person mobile payments, and many European operators are now anxiously awaiting the spread in Europe of phones with embedded NFC capabilities.

This paper reviews some of the bigger failures and some of the more promising experiences in the use of smartcards and mobile phones as payment platforms in developed countries. We selected just a few examples—from dozens of possibilities—and did not delve into much detail on any given scheme. Beyond telling the stories of these ventures, our objective is to extract some lessons behind the failures and the successes. Although these developed country experiences may not directly translate into lessons that can be used in developing countries, this paper better informs us about what may or may not be possible and may or may not be different in the developing world context.

Last week, CGAP hosted a roundtable and webinar on the important topic of how mobile phone banking can deliver a range of financial services to poor people and change lives for the better.

We had a great response both in person and online through this blog.  Thank you to all who participated and added to the discussion with thoughtful questions.

If you missed the presentations, or if you’d like to hear them again, you can now access the archived presentations and video.

Presentations: Building Agent Networks & Creating Regulatory Space

Video: Introduction and Sessions 1 & 2 and Session 3 (requires RealPlayer)

Introduction by Elizabeth Littlefield, CEO of CGAP

Session 1: Driving mass market customer usage
Moderator: Kabir Kumar (CGAP); Panelists: Brian Richardson (WIZZIT, South Africa), Bold Magvan (XacBank, Mongolia)

Session 2: Building a viable, motivated network of agents
Moderator: Mark Pickens (CGAP); Panelists: Nick Hughes (Vodafone Group), Sam Kamiti (Equity Bank, Kenya), Carl Johan Rosenquist (c/o Maldives Monetary Authority)

Session 3: Creating and taking advantage of regulatory space
Moderator: Tim Lyman (CGAP); Panelists: Rizza Maniego-Eala (Globe Telecom, Philippines), Abbas Sikander (Tameer Bank, Pakistan)

Here’s a great write-up of the sessions from Patrick Philippe Meier at Tufts. Thank you Patrick!

On October 29th, CGAP’s Technology Program hosted a discussion with Vodafone’s Nick Hughes, who leads this global mobile network operator’s mobile banking efforts. Vodafone is one of the biggest mobile network operators with operations in 30 countries and over 250 million subscribers worldwide.

Vodafone has been expanding its operations in emerging markets. Safaricom, Vodafone’s network operator in Kenya, M-PESA was launched 18 months ago. Since this time, it has reached nearly four million people in a country with a population of 31 million people where just 5 million people have bank accounts.

Nick presented three key aspects of the M-PESA model….

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In May 2010 we updated this research: For the unbanked, is mobile money cheap enough? CGAP releases pricing study across 16 providers in 10 countries

Back in August, Mark Pickens and I pulled together a pricing table comparing the prices of 6 branchless banking pioneers: GCash and Smart Money in the Philippines, M-PESA in Kenya, WIZZIT and MTN Banking in South Africa, and Tameer Microfinance Bank’s pilot with POS terminals in Pakistan. We did this because it seems that very little was known about the pricing schemes of these early movers, and so a comparison was in order.

Since posting the table, we have heard from many of you, covering a wide range of actors in the mobile banking space (both from comments on this blog and also from direct  interaction with our team). Several of you have used the pricing table to benchmark your own operations. For example, a commercial bank launching an m-banking service for low-income clients’ domestic remittances plugged in its pricing numbers to compare itself with the others. A donor has used the pricing model to analyze the offerings in the Tanzanian market, where m-banking is just taking off. If other organizations are willing to send us their pricing data, we would welcome the opportunity to expand the table for greater comparison.

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