Product innovations on Mobile money
Mobile money has often been likened to a network of digital rails through which a variety of financial and payment services can be delivered. Much of the burgeoning literature over the last seven years has focused on how to build the rails, the marketing and profitability analysis of basic mobile money propositions. Yet for mobile money to deliver on its promise, it needs to prove that it is capable of supporting a wide variety of products and use cases. More uses ought to drive broader appeal to more customer segments and generate more transactional volume. This will help in justifying the required heavy investments and sustaining denser cash merchant networks.
More products and services with more differentiated pricing present more opportunities for providers to create and extract more customer value. By underpinning a wider range of essential socioeconomic activities going on in a country, mobile money providers can gain a much higher level of impact, durability and goodwill.
P2P money transfer (one-to-one)
Peer-to-peer (P2P) money transfers are often positioned as the core product of mobile money. They also represent the basic building block from which all other mobile money services are built. Here we use the more generic notion of P2P as a real-time transfer of funds between two participants in the mobile money network. This is whether they are individuals or registered as a business, and if it is for personal or business use.
P2P means the ability to push money between two mobile money peers with access to the network. The sender originates the transaction, addresses it to the recipient’s phone number, and the money is moved between the account of the sender to the account of the recipient. However, there are ways of implementing a P2P transaction. Whose accounts are used are the main variations in the product. Furthermore, it relates to how the recipient is addressed, and whether recipients need to be pre-registered by the sender.
On the first dimension of variation across P2P implementations, there are four main payment modalities. This is based on whose accounts are used: Account-to account, Account-to-cash (sending money to unregistered customers), Cash-to-account (direct deposits) and Cash-to-cash (over the counter).
The second dimension of variation across P2P implementations is the addressing method. While the most common method is using the recipient’s mobile phone, other possibilities exist. These include dedicated business numbers, Bank account numbers, Mobile Money IDs (MMID) , Email addresses and Business numbers with error detection.
Bill payments (many-to-one, C2B)
Bill payment is a facility that allows a corporate entity (the biller) to receive regular payments from a broad base of users remotely. It can be thought of as a structured collection of individual wallet-based or over the counter P2P payments. High transactionality accounts, Required payor identification, Easy biller selection, Charging flexibility and Biller account manageability are typically with the following enhancements. One important limitation of bill payment services is that they tend to be costly to set up. Hence, they are generally directed at the larger corporates, utilities and schools.
The other limitation of bill payment services is that they are generally not designed to cover the entire transaction cycle. Customers are not informed when bills are due, nor do they interact directly with the biller when paying through mobile money. The following enhancements would allow for an improved customer experience: Electronic bill presentment and Biller confirmations.
Bulk payments (one-to-many: B2C or G2P)
These payments are the logical reverse of bill payments, but they share some of the same types of service requirements on the corporate account side. Bulk payments have the need for a larger disbursement (rather than collection) account. They also have the need for a specialized web-based user interface and APIs, and flexible charging models.
Merchant payments (C2B: in-store)
Merchant payments can be thought of as a special kind of P2P transfers which arise from commercial transactions, generally inside stores in exchange for goods. Like bill payments, they accumulate in a collection account. Merchants typically desire higher account limits and web access to be able to view their transaction flows and manage their collection account.
Online merchant payments (C2B: through the web)
A special case of merchant payments is where the merchants are online retailers. In an e-commerce setting, there are key technical challenges. Firstly, avoiding customers having to enter their mobile PINs on an insecure web page. Secondly, they avoid linking the mobile payment with the commercial online transactions.
Cash in/out (P2P offset by an opposite cash transaction)
A special kind of P2P transfers which are made to offset cash transactions between a mobile money customer and a mobile money agent are CICO transactions. Like merchant payments, these transactions are face-to-face, but transaction speed is perhaps less critical. This is because there is no direct competition with cash and the store is specifically paid to conduct the service. Unlike with merchant payments, the store engages in transactions both ways (to buy and sell cash against electronic value), so the store sometimes is a sender and sometimes a recipient of electronic money.
Savings / Money management
Pure-form mobile money systems incorporate a store-of-value mechanism, in the form of an account. This may be used simply to enhance payment convenience. It is done by permitting a consolidation of multiple electronic transactions into fewer CICO transactions as well as timing separation between electronic inflows and outflows. However, this account can be used to accumulate savings beyond what is required to meet shorter term transactional needs. OTC-based (i.e. non-account-based) systems have of course stripped out this functionality entirely.
Group-based savings and credit
Much of traditional low-value finance in developing countries occurs on a group basis. Group-based mechanisms draw on peer pressure and habituation –ritualized through periodic group meetings— as key discipline drivers. As cash is recirculated locally, they can also be operationally cost-effective. Group-based savings and credit mechanisms can range from the self-forming Rotating Savings and Credit Associations (ROSCA) to the more structured Savings-Led Groups (SLG).
Insurance
In recent years there has been substantial interest in delivering microinsurance services leveraging the mobile channel (Tellez 2012). Mobile microinsurance is currently being offered in several markets independent of mobile money. However mobile money also provides an opportunity to maximize the value of such a service for providers and customers alike.
Mobile Money Adaptability
Mobile money services have tended to start as fairly focused propositions (send money home, bill payment, bulk payments, etc.). However, over time they have had the potential of becoming platforms for delivery of a broad range of products and services. This includes both financial and non-financial. All is to play for yet. We see at least two main gaps in the usage patterns of mobile/electronic money.
The primary gap is that most accounts are emptied soon after cash is deposited or received. This makes people not naturally inclined to pay electronically at stores. Secondly, there is very little formal business use of electronic payments, where cash and especially checks prevail. These two gaps work together to limit the electronification of payments in everyday life. Moreover they allow for ability of providers to gain sufficient insight into customers’ income sources and financial habits. This allows for the development of more robust credit-scoring mechanisms.
Moving Forward
An opportunity to strengthen the value proposition in both cases is for mobile money to offer manageability tools around the money balances. These could be for the people to keep and the payments they make or receive. As a saver, mobile money should make me feel in control of my money, and substantially beat informal alternatives. As a business, mobile money should make it easy for me to keep accounts, reconcile receipts with invoices, and match against things like inventory.
We feel that innovation and experimentation around the manageability of saved balances and payments ought to be the core focus in the future. This is especially as we start to prepare for the inevitable transition to smartphones. The greater computing abilities and richer, more tactile user interfaces of these devices should be leveraged. It will make customers feel more in touch with their money, their business concerns and their goals.
Sourced and extracted from: Product Innovations on Mobile Money by Igancio Mas
