Most mobile money services currently work as closed loop systems, unconnected to other payment services. This has the advantages of minimising costs, simplified operations, and providing real time transactions. As mobile money was originally designed for the unbanked as a replacement for cash, a closed loop system was fine. However, there is a growing demand for services opening up interfaces to make the service interoperable. For example, to provide utility payments with real time notification to the billers’ accounting systems, and transfers between mobile money accounts and conventional bank accounts.
The biggest driver for this connectivity comes from “dual economies” with large banked and unbanked populations, and where the unbanked are transacting in an environment with significant conventional payments infrastructure on a daily basis. For example:
- Many of the shops serving the unbanked use tills which are fully integrated POS systems with reporting, reconciliation and stock-keeping systems. These retailers will not readily become mobile money agents or merchants until their POS devices can be linked to mobile money systems seamlessly, as other payment methods are. (This also implies a need for an system which allows one POS to accept multiple mobile money services, but that’s a story for another day.)
- Retailers, whether chains of stores or the more affluent market traders, need to be paid in mobile money then transfer their takings directly to their bank account rather than cash out at an agent then travel to a bank branch to make a deposit.
- A key source of earnings for the unbanked is the banked population which employs them to provide, for example, domestic services. In dual economies there is a large banked population, and a lot of domestic employment. The banked senders do not want to withdraw cash at an ATM, and then travel to a mobile money agent make deposit, and then make a P2P transfer. For them to adopt mobile money at scale, they need the ability to transfer funds from their bank account directly to their own or their staffs’ mobile money accounts.
- Many dual economies have, or are developing, social payments. The cost to the government of delivering money to the unbanked by conventional means can be a significant percentage of the amount disbursed. The low cost of B2C mobile money transfers are an attractive alternative. The same benefits are of interest to large scale employers paying their workforce. However for this to be feasible at scale, the service needs to be provided with the same kind of connectivity and interfaces used to administer conventional disbursement/ payroll systems.
The time is fast approaching for the mobile money industry to “grow up and start playing with the big boys”. Until it does, the growth potential will remain limited by its inability to interconnect.