Mobile payments and mobile banking are not the same thing at all and, as I have long maintained, there is no reason to think that mobile payments should be provided by banks, nor that mobile operators want to get in to banking. This is why I maintain the much of the comment around these topics is misleading. For example:
Geo-strategic and political consultant at Nova-Comm Strategy Group, Brett Goldman, says: “With M-Pesa… Essentially, what you are doing is eliminating the need for a bank,”[From Near field comms: How are mobile payments changing traditional banking? – 2/22/2011 – Computer Weekly]
Well, up to a point. They are not eliminating the need for a bank, they are eliminating the need for banks to run payment services. And this is not bad for banks, or customers, because M-PESA don’t need to eliminate banks in order to improve the banking infrastructure as it demonstrates with the example of the M-KESHO service, launched with Equity Bank, that allows M-PESA customers to transfer money to and from savings accounts.
With the M-Kesho Account, customers will be able to get pre-qualified personal accident insurance, access to short-term loan facilities ranging from KES 100, and interest on the mobile account from as little as KES 1. The application is built with the ability to score a customer’s credit rating using a six-month history of his M-Pesa balances.[From Safaricom, Equity Bank launch M-Pesa bank account – Telecompaper]
How interesting is that? The transaction history built up inside M-PESA provides a straightforward mechanism for financial inclusion, simply not available in a cash economy, and an apparently entirely viable alternative to credit history. The service has been tremendously successful.
He noted that some 21 percent of M-PESA users in Kenya now use the service simply to store money and earn interest. The savings service – branded as M-KESHO and in partnership with Kenya’s Equity Bank – has effectively set-up 750,000 new bank accounts in Kenya since launching in May with deposits totalling KES900 million (US$10.7 million).[From Vodafone, Telenor To Expand Their Financial Services | Telecom Recorder]
Scatchamagowza! They’re on their way to creating a million new bank accounts. Far from taking customers away from banks, M-PESA is bringing customers to them! As far as I can see, this is pretty conclusive proof that banks are wrong to lobby regulators to insist that mobile payments can only be provided by banks and that regulators are wrong to listen to them. (In Europe, fortunately, this is not true because of the Payment Services Directive: O2 have applied for a payments licence in the UK, for example). So, an efficient and effective mobile payments platform adds value to mobile financial services by making those financial services more accessible at lower cost. And while stimulating this, operators can make money too.
Aite says mobile payments will account for $214 billion in gross dollar volume by 2015, up from only $16 billion in 2010[From The Smartphone Payments Train’s Leaving the Station – Bank Technology News]
That means lots of transaction fees. It’s interesting to note how M-PESA’s transaction fee income has held up.
As the use of M-Pesa spread, Kenyans started using it for smaller and smaller transactions. The average amount sent through M-Pesa declined from the equivalent of about $50 in March 2007 to less than $30 by March 2009.[From Fascinating Stat and Lesson for the US About Mobile Payments in Africa]
So Kenyans are sending smaller amounts and are paying transaction fees that amount to larger fraction of the transaction (around 7%) because they still find it more convenient to do this than to use any of the alternatives. Once again, we see the mobility premium in action and a new value network that enables mobile operators to provide profitable payment services (because of that mobility premium) while simultaneously enabling bank, insurance companies and others to provide profitable financial services using mobile payments as a conduit.
More important than the mobile payments business itself will be the businesses that it enables. Just like M-KESHO, there will be new financial services businesses that only make sense on the mobile payments platform. In the UK, initiatives such as O2 Mobile Money and Orange Cash should provide some useful early indications as to how the market might evolve: if third-party financial services offer new products using these payments (eg, SME payments, media subscriptions, that kind of thing), then I think that will show that the pie will get bigger instead of getting sliced.
P.S. By way of an experiment in the service of readers, I have instructed no.1 son to go mystery shopping for an Orange Cash card and will report here in a couple of weeks.