By Srinivas Nidugondi, Sr. VP & Head of Mobile Financial Solutions, Mahindra Comviva
The proliferation of mobile devices has increased in the past decade. There is no doubt that mobile devices are moving beyond their role as a simple communication channel and becoming enablers for a wide range of functionalities ranging from entertainment to commerce.
We are progressively moving towards a “mobile first” world where the first time the consumer experiences and in some cases has access to financial services and digital commerce is through a mobile phone. Increasingly, consumers are becoming more comfortable using mobiles for payment and the emerging world seems to be setting the benchmark when it comes to digital financial services. The payment landscape in Africa is touted globally as a case for mobile as the only channel available for users to access financial services.
Mobile payments are set for a new wave of growth, but disruption is rising in a blurring industry landscape. Innovations in this space have occurred sporadically over the last decade to suit local scenarios. Disruptive innovation inevitably involves a degree of fragmentation, especially in the short term. A move toward interoperability between different platforms may help to solve the current confusion and complexity in the mobile payment platforms landscape.
Interoperability will fuel the next wave of growth in mobile money service. In broad terms, interoperability is the interconnection of mobile money services with external parties, with the aim to create value for both customers and commercial players. Viewed as a “silver bullet” for greater financial inclusion, it is increasingly cited as a solution to increase transaction volumes and extend the range of financial products offered through the mobile phone.
Opportunities for interoperability arise where interconnections with external parties can create greater value for customers and service providers than a single mobile money service provider can create alone. Once an opportunity for interoperability has been identified, it needs to be strategically or financially compelling for all parties involved to jointly pursue it. Thus, interoperability can bring many benefits, helping platforms and ecosystem members to achieve reduced costs, greater customer value through enhanced functionality and convenience, and ultimately increased choice for end customers.
To assess the opportunity, it is important to define what services fall within and adjacent to this category. The universe of these services is expanding rapidly with the growing desire to connect a pure mobile money network with other money transfer networks as boundaries blur between payments. For mobile money transfer, it is important to view interoperability in three ways:
Domestic interoperability – The ability to transfer money between two different mobile money services in the same region. With the industry working together to join the dots in the global mobile money ecosystem, systems are changing in some regions. Referring to a success story, in 2014 Tanzania became the first country in Africa to successfully develop and implement domestic interoperability. Tanzania’s three mobile money heavyweights — Airtel, Tigo and Zantel – signed an interoperability agreement, enabling users of their respective Airtel Money, Tigo M-Pesa and Zantel’s EzyPesa services to send money to each other from their handsets. The hopes of over 16 million mobile money customers in Tanzania were pinned on this service. For the first time in this space, mobile money platforms run by telecom operators were seen taking a collaborative approach: account-to-account or wallet-to-wallet, in real-time to send and receive money directly between the mobile money accounts of these two service providers. The service simplifies off-net money transfers and enables recipients to transact through the convenience of their own mobile phone without cashing out. Tanzania is just the tip of the iceberg. We are likely to see a number of markets jumping onto the interoperability bandwagon.
Facilitating International remittance via interconnect with third party – This involves partnership between an operator and a MTO or a remittance hub. Users send money to another country via, for example, Western Union, and recipients receive it in their mobile money account (and collect it from the mobile money agent. For example, in Zimbabwe, Econet Wireless Services is facilitating inward remittance via partnership with WorldRemit and Western Union to enable anyone around the world to transfer money to an EcoCash wallet.
Interoperability with cross-border mobile money providers – Another aspect of international money transfer is direct account-to-account money transfer between mobile money services in neighboring countries or countries within the same region. For example, in April 2014, Bharti Airtel and MTN agreed to partner to provide an international remittance service between Burkina Faso and Côte d’Ivoire. MTN Mobile Money customers in Côte d’Ivoire can send money directly to Airtel Money customers in Burkina Faso. Similarly customers of Airtel Money Zambia, Rwanda and DRC transfer money directly to each other.
Another upcoming trend in mobile money interoperability is switches. Mobile money service providers are investing in switch-like infrastructure that will interlink various mobile money services and third-party payment networks. For example, a multi-country operator in Africa has implemented a switch that enables direct money transfer between mobile money accounts of its customers in different countries.
With the competition intensifying, banks do not want to be left behind in the race and to remain relevant in market they are collaborating with mobile money services provided by opcos and third parties. Banks are working with mobile money service providers to provide interconnect between mobile money accounts and bank accounts. This enables banked customers to transfer money between the two accounts.
Mobile money provider are also investing to interconnect with card networks to provide seamless interoperability with heterogeneous systems and services, bringing in convenient and integrated solutions to the consumers. For merchants to capitalize on an uptake in payments and revenues, it is imperative to devise solutions that enable the acceptance of payments from mobile money accounts. In turn this puts emphasis on compelling consumers use mobile money for everyday payments. However, the merchant network of current mobile money services is limited. Customers can pay only via mobile money to merchants who are registered with the mobile money service provider. We have to move beyond the closed loop systems and embrace an open-loop merchant payment approach. To enable open-loop payments mobile money providers are integrating with global card networks like MasterCard and Visa to issue companion cards (linked to mobile money account) which can be used for payment at any MasterCard and Visa powered POS machine both nationally and internationally. The open-loop approach exponentially increases the merchant acceptance network for mobile money. Even virtual cards linked to mobile money account can be issued for making online transactions.
The mobile money space is now something of a success story in terms of adoption rates. According to the GSMA’s State of the Industry 2014 report, active mobile money accounts stand at 103 million as of December 2014 (up from 73 million in 2013), and an increasing number mobile money services were available in most emerging markets.
To continue the momentum of this growth, we need to tackle the challenges in the ecosystem, the biggest of which is the lack of interoperability between mobile money services. All of the various stakeholders in the mobile money ecosystem stand to benefit from improved interoperability. For operators, this would provide customers with more flexible payment options which could increase the number of transactions and the velocity and volume of money in the ecosystem. For regulators, it is an opportunity to draw more cash into the formal financial systems. For service providers, interconnecting means to establish secure real-time connectivity between service providers. For customers it promises more accessible and flexible services and financial inclusion is expected to get a significant boost.
The trailblazing initiatives in Africa have helped to demystify the concept of interoperability. The need of the hour is that we continue to focus on providing customers with a reason to move to mobile payments; that combines ease of use, interoperability and added value.