The MM market is currently afflicted by a lack of agreed terminology – as is normal for any new market – so first we must define exactly what we mean by MM interoperability. If we put international remittances to one side for now, there are two distinct high level domestic candidates:
- The ability for customers of any mobile money operator (MMO) to connect with a range of other types of financial service provider, such as banks and payment services providers (PSPs)
- The ability for customers to send e-money between MM accounts provided by different MMOs on different platforms
Type one, more accurately termed interconnection really is a no-brainer as discussed in my previous blog post [http://www.chyp.com/mobile-money-practice/blog-entry/time-for-mobile-money-to-start-playing-with-the-big-boys] . Indeed it can be argued that in many markets, especially those where domestic remittances are less common, this interconnection is needed in order to create successful MM services. It will certainly result in growth of the whole MM market, particularly in “dual economies” with a more developed financial service infrastructure as well as a high unbanked population. It could theoretically be achieved by multiple bilateral agreements between MMOs and the various financial institutions. In practice this is likely to be limited to interconnection between MMOs with large customer bases and the friendlier financial institutions and thus be slow and self-limiting as a mechanism to grow the MM market overall.
The more likely recipe for success will involve one or more interconnection services which plug MM transactions on one side of their switch (or other suitable infrastructure) and conventional financial service providers on the other. These interconnections will allow much faster development of an integrated market with more participants than are possible from multiple bilateral negotiations and technical integrations. The organisations successfully providing this connectivity are yet to emerge although there are already a few contenders lining up.
There may also be a third way to interconnect for specific use cases such as the WinguPay service concept for in store payments [http://www.chyp.com/media/library].
The second type of interoperability, between MM systems, has fewer advantages at this early stage of the industry’s development. There are two levels of interoperability:
1. Customers with MMO1 can send funds directly to the account of MMO2 and vice versa
2. Customers of MMO1 can use the agent or merchant recruited by MMO2
Sending funds directly to an off-net customer account is certainly more convenient than the current norm of sending an “unregistered user voucher” which can be cashed at an agent, and it should encourage people to keep e-money in their account to use for other digital transactions. But it is not clear that it will dramatically change customers’ use of e-money, particularly as it is not uncommon for them to have accounts (and SIMs) with multiple MMOs. Undoubtedly MM account to account integration will happen over time but it does not have the same priority as interconnection.Again it may be achieved, when the time is right, bilaterally or via an intermediary.
Agent and merchant sharing is a potential issue for commercial as well as technical reasons. Companies acting as MMOs are mainly doing so to differentiate themselves from competitors in their core business, and the winners tend to be the services with the biggest and most efficient agent networks. Agent sharing removes their competitive advantage. Worse, companies that invest in their agent network will see it given away to their less committed competitors for free. They are unlikely to regard this kind of interoperability as motivation to invest in their agent network. Further, interoperability tends to imply a version of a four-party banking model, for which there are no scheme rules, technical standards or common user experience. Suddenly the simple closed loop system becomes much more complex with increased administration and additional entities levying charges. Few mobile money services can yet sustain a drop in revenue, so they will need to increase the cost to consumers who are unlikely to view higher transaction fees as enhancing economic empowerment.
Interoperability is certainly coming, and done properly will certainly move the MM industry forward. However the various types of interoperability need to be clearly understood, prioritised, and introduced when the markets are ready, or they may have the opposite effect.
The main point is correct – interoperability is coming, and the details need to be worked out to provide a proposition that customers easily understand, and that does not undermine the investment made by the MM providers.
I think however that the analysis needs to include further items such as:
Brand trust as a key element that will restrict cross-agent usage, until regulations and commercial benefits combine to make this a reality. Competing brands will be happy to service a competing MM subscriber if it is commercially viable, customers are not confused and if they have the opportunity to cross sell. Many MNOs would love to get their competitors customers coming into their stores and asking for service. The focus from MM providers will be to increase quality to win servicing customers.
Domestic interoperability has already been mandated in some regulatory frameworks from the start, and can be argued to have depressed investment due to the (regulator desired) pressure to increase competition to the benefit of the subscriber. Its unrealistic to think that regulatory and industry pressure will not have an eventual effect in more mature domestic MM markets and planning needs to start on what this means.
When considering interoperability, international remittance must be taken into account – especially in areas such as the West African CFA, and arguably the East African Community. Whilst country borders exist, language and trade can benefit from international remittance, whilst respecting local MM brands. There is an opportunity here to set (and benefit from) the agenda, as opposed to allow the status quo to remain. MNOs should investigate the size of this market by analysing call and SMS patterns to and from neighboring markets.
Interoperability, both domestic and international can only benefit the customer if presented in a clear way, and with strong brand management, the domestic mobile money providers. This will lead to higher quality in order to win the customers attention. MM providers need to include contingency planning to cover enforced domestic interoperability, and should look at those plans as a future business case backed up by insights from existing internationally aware customers.