[Dave Birch] I had a few questions from journalists about the announcement of the Nokia Money service. We’ll get on to the service itself in a minutes, but the dreary pedant inside me can’t resist first pointing out that most of the headlines were on about mobile banking:

Noki­a is to enter the mobile banking market

[From Nokia to Launch Mobile Banking Service]

The announcement from Nokia, of course, says nothing of the kind, and for a very good reason. In most countries, if you decide to launch a mobile banking service then you need to be a bank. An if you offer a banking service without a banking licence, you will tend to get arrested. The Nokia press release very clearly calls the service a “mobile financial service”, and says that

we are enabling services such as payment of utility bills, purchase of train and movie tickets, top-ups, all through their mobile phones

[From Nokia – ShowPressRelease]

Quite. Nokia Money is a money transer service, not a banking service. If someone else want to run a banking service that uses Nokia Money as money transfer and payment mechanism, then that’s great. My guess is that people will want to do this, although whether the operators will be sanguine about them doing so with Nokia rather than with the operators themselves remains to be seen.

There is every reason to see this business model as sound. There is a latent demand for financial services amongst the unbanked and there are organisations perfectly capable of delivering those financial services once the mobile money transfer service is in place. A good example of this is in the Philippines, where the G-Cash mobile money transfer service forms the payments platform for a growing range of financial services, including banking. This is how I would expect Nokia Money to evolve. To see an example, check out what Green Banks is doing with the Microenterprise Access to Banking Services (MABS) infrastructure

Now, rural banks are no longer just traditional depositories; it has also become a venue for clients to make the following transactions:

  1. make loan payments (Text-A-Payment)
  2. make deposits (Text-A-Deposit)
  3. make withdrawals (Text-A-Withdrawal)
  4. send and receive remittances (Text-A-Remittance)
  5. disburse salaries (Text-A-Sweldo)
  6. pay bills for schools and utility cooperatives in remote areas (Text-A-Bill Payment)
[From Mobile Phone Banking Blog]

A few years ago, I was involved in a study for a customer in Latin America who was looking at the business opportunity just for this last service, the bill payment. Without breaking any confidences, I think I can say that the business opportunity was substantial, but only available to an organisation with a large enough cash-in network, which meant agent networks rather than banks (either through retailers or specialist outlets) because it would be too expensive for banks to build big enough networks from scratch.

Oddly, when the Nokia story came in on the feeds, I was commenting on another piece about Nokia, an open letter to Nokia from a former employee. This said that Nokia should take several hundred million euros and invest in creating a wireless payment infrastructure across western and northern Europe and then spread through the rest of the world gradually. Clearly prescient, but as you will see the author says that Nokia should become a bank, and this is what I was writing about.

There was very interesting thinking in the piece, and for all I know the author is absolutely correct about the benefits of the business model. But, as I was writing, there is no need for Nokia to become a bank to do this in western or northern Europe: it can simply wait until 1st November and then apply to become a Payment Institution (PI) under the provisions of the Payment Services Directive (PSD). This would allow it operate a payment system as described in the article, without having to shoulder the burden of complying with banking regulations. And there’s another point that the author may not have been familiar with but which is nonetheless relevant. The European Central Bank (ECB) and the European Commission (EC) both want to see more competition in the pan-European payment space and I think they would not be unhappy to see a challenge to Visa and MasterCard arise from a flagship European non-bank such as Nokia since mobile operators have so far failed to mount a credible challenge. So the commentaries that say that Nokia’s move is aimed at developing countries are right, but the commentaries that say the new service is not relevant to Europe may well be wrong.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

1 comment

  1. Dave, I enjoy your posts more than most! Nokia Money has little to do with Nokia’s core business unless…. you put their hat on. They and other manufacturers are having on-going battles with the mobile carriers and others as to who will be responsible for the NFC capabilities in the phone. Consider this: Nokia leverages their relationship with carriers to create the Canadian Zoompass (mobile carrier collaboration) model but on a global scale. As consumers sign up for this service they receive a pre-paid card which gives them easy access to cash (ATM), PoS purchases and on-line purchases. The Nokia Money branded card moves to “top of wallet” when the carriers move the card credentials to the NFC chip on the phone as a “free” service! Voila, the carriers all participate in Interchange fees. When carriers collaborate they become the most formidable marketing force on the planet representing 4 billion consumers with 1.3 billion being Nokia customers.
    To summarize, Nokia Money and the carriers split the revenue generated by:
    1. Existing Interchange fees
    2. New NFC enabled cash replacement Interchange fees
    3. New float from deposits and
    4. they keep all of the convenience fees.
    Either the banks wake up or we see the biggest disintermediation ever.
    The “stored value” account model is all that is available to non-banks and this works very well in the developing world as consumers aren’t sacrificing any convenience, however, it also works well in the developed (banked) world if the banks don’t provide an alternative!
    Nokia has an entirely new revenue stream which puts them in the driver’s seat to be responsible for the NFC in the phone and ultimately become the Trusted Service Manager for proximity payments (providing yet another revenue stream).

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