[Paul Makin] When you use the term ‘mobile money’, your audience generally assumes you are referring to the phenomenon of mobile phone-based money transfer schemes in emerging markets, in particular its poster child, M-PESA in Kenya.  And there’s good reason for this; most press about mobile money focuses on emerging markets and if you visit the GSMA’s Mobile Money Tracker (http://www.mobileworldlive.com/mobile-money-tracker), it lists a large number (182 at the last count) of mobile money deployments around the world, all of which are in the emerging markets of Latin America, Africa, and South and Southeast Asia.

This may be because the data is supplied by the GSMA’s Mobile Money for the Unbanked (MMU) team and focuses on the community that the MMU team engages with, so perpetuating the view that mobile money is exclusively an emerging market phenomenon – a view that I disagree with, if not in actuality, certainly in potential.

Consider what constitutes a mobile money scheme:

·         Customers’ access to their account, for carrying out transactions or for managing their account, is primarily through the medium of the mobile phone;

·         Cash can be deposited and withdrawn via the intermediary of human ‘agents’ in local shops;

·         Cash can (sometimes) be withdrawn at ATMs;

·         Transactions are fast, and tariffs are low;

·         Registration is simpler and faster than for a local bank account.

In addition, it is fair to say that mobile money schemes are generally aimed at the unbanked market – that is, people who are unable to access traditional banking services, however basic – but I would argue that that is a characteristic of the available, under-served market, rather than any law of nature.

The dramatic growth of mobile money services in the emerging markets is a consequence of the huge size of the unbanked market in those countries, coupled with the launch of services that provide them for the first time with readily accessible basic financial services.

But there are mobile money services elsewhere, and they certainly occur in the so-called emerged markets. In the UK, for example, we have seen a number of such services being launched in recent years. A prime example is O2 Money, launched in Q2 2012. This has all of the characteristics of a mobile money scheme, as described earlier, but with one important extension to ensure its applicability to the British way of living – it has a companion card, a plastic card which allows O2 Money to be spent in shops, and which can also used for ATM withdrawals.

It must be said, though, that none of the schemes in the emerged markets have broken through in quite the same way that M-PESA has in Kenya. This is principally due to the differences in the markets. As an example, in the UK (as in other “developed” countries), people with a bank account can access the services offered by mobile money using cards on line or in person and most have access to mobile banking.

So people with UK bank accounts are unlikely to be regular users of a mobile money scheme, and therefore a strategy needs to be developed to recruit customers that offers something beyond the basic financial services. I am of the firm belief that such a strategy can be developed, and that a successful strategy would embrace elements aimed at three different groups: the mainstream banked; the not yet banked (teenagers); and the unbanked (the poorer sections of society).

The mainstream banked will be the most difficult to attract, and the key here will be differentiators from the mainstream banks’ offerings.  As mentioned above, mobile money offers little advantage to them.

The not yet banked are a slightly easier proposition –almost all of them have a relationship with a mobile phone operator, and are very familiar with buying things with their mobile phone. A proposition is required to meet their needs, by incorporating elements such as entertainment tickets (discounts are the key) and products linked to stadiums and venues (such as closed loop payments), and the option of a companion plastic card is essential.  But ultimately, whether or not this supports an attractive business case is another matter.

But the UK unbanked are a proposition with great potential.  There are around 1.25 million unbanked households in the UK[1], equating to around 4.5 million unbanked individuals. There is a real need here, and the unbanked could form a valuable element of a broader model for a mobile money operator. And you can bet that, in modern Britain, the vast majority of these people have a mobile phone.

To those who would say that the unbanked have no money, and cannot therefore be of interest, I would point out that, in common with poor people the world over, they pay significantly more for financial and other services than any other segment: fuel, cheque cashing, and short term loans are all examples of the amount such people are forced to pay for services that the mainstream gets either for free or at very low cost.

At the core of any unbanked proposition must be the facilitation of social payments. The majority of social payments in the UK (including pensions) are delivered directly to bank accounts, and in a cost-efficient manner that is at least competitive with any mobile money offering. However, the 4.5 million unbanked recipients receive their payments by alternative means, and at significant expense to the UK Government. Giving these recipients a mobile money account, and facilitating these social payments, should be at the core of any strategy.

Access to cash is also an issue. In many of the poorer areas of the UK bank branches have been closed, and the only ATMs that remain are private ones in small shops that typically charge around £2 for a withdrawal. By adopting the agent approach of emerging markets, access to cash from the mobile money account would be greatly facilitated, and drive additional revenue into the local community.

By definition, unbanked people do not have access to the conventional banking system, and there is an opportunity for a mobile money operator to facilitate that access and so enhance their own proposition. Basic functionality, such as direct debits, should be offered in order to address, for example, fuel poverty (if you cannot pay for fuel – gas and electricity – by direct debit in the UK, you will be paying a lot more for the fuel you use). Another aspect of being unbanked is the lack of access to loans at reasonable cost (hence the controversial rise of the so-called ‘payday loan’) – there is an opportunity for a mobile money operator to create a portfolio of relevant of financial services for their customers here, in which partnerships could be formed with local organisations, such as credit unions, in order to promote savings and loans.  I am sure there are lessons that can be learned from the experiences of microfinance institutions (MFIs) in the emerging markets.

In summary, I do not believe that mobile money is exclusively a phenomenon of the emerging markets. There are significant populations in developed markets that closely match the characteristics of mobile money customers in the emerging markets, and there is a clear opportunity for the right mobile money propositions.

[1]Defined as households without access to a bank account – savings accounts are excluded.

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