Post-Industrial Archeology

The BBC World Service has a podcast series called “50 things that made the modern economy” hosted by the economist Tim Harford. It features inventions ranging from COBOL and banks to antibiotics and, interestingly, M-PESA. This caught my attention because M-PESA is one of the Consult Hyperion projects from the last couple of decades that we might find ourselves chatting about at the forthcoming 20th annual Forum, Tomorrow’s Transactions 2017. The Forum will be held at the America Square conference centre in London on 26th/27th April and Kevin Amateshe, the current M-PESA product manager will be coming in from Nairobi to give us a detailed picture of where M-PESA is now and where it will be going next.

The Forum, thanks to the wonderful support from our friends at Vocalink, PaySafeGroup, WorldPay and Olswang, will once again provide a unique environment for learning, investigation, discussion and debate about the future of electronic transactions. The future of people, businesses and government in the post-industrial online and interconnected economy.

This year’s invited keynote will be given by Professor Lisa Servon, one of the world’s leading authorities on financial and social inclusion. All delegates will receive a copy of Lisa’s new book “The Unbanking of America: How the New Middle Class Survives”.

 Other speakers and panelists include Gilad Rosner (IoT Privacy Forum), Nick Telford-Reed (WorldPay), Amy Parsons (Discover), Sandra Alzetta (Visa), Terry Cordeiro (Lloyds Bank), Jane Zavalishina (Yandex Data Factory), Tim Jones (Mondex co-founder), Will Judge (MasterCard), Katie Evans (Money and Mental Health), Vasily Suvorov (Luxoft), David Rennie (gov.verify), Emma Lindley (Innovate Identity), Andy Tobin (Evernym), Ben Whittaker (Masabi) and other people who are shaping the future of retail electronic transactions right now will be discussing PSD2, shared ledgers, AI, real-time payments, the Internet of Things, financial inclusion, open-loop migration and everything else shaping strategy across a variety of industries.
In addition to a fireside chat about instant payments with David Yates (CEO, VocaLink) and Ron Kalifa (Vice Chairman, WorldPay), there will be an introductory keynote from me, the judging of the annual Future of Money Design Award for artists and at the end of the first day a 20th anniversary drinks and networking reception. You’d be mad to miss it. As always, the Forum is limited to 100 people to ensure every gets a chance to meet and interact with everyone else so run, don’t walk, to our web site and buy a place right now. I look forward to seeing you all there.

Incidentally, listening to the BBC podcast narrating the story of our good friends Nick Hughes and Susie Lonie (Susie will be at the Forum too if you’d like to come along and say hi to her) brought back many memories, so I decided to conduct a little bit of post-industrial archaeology and I tracked down the presentations on M-PESA that Nick Hughes and our very own Paul Makin (who led the original feasibility study for M-PESA!) ave at the Centre for the Study of Financial Innovation (CSFI) in November 2005 when M-PESA had 300 users and eight agents!!! As of today, it has 25 million users and 261,000 agents across 11 countries.

You can read them here….

Nick Hughes [csfi_Nov_05_Hughes.pdf]Paul Makin [csfi_Nov_05_Makin.pdf]

See you all in April when we get together and try to work out what the next M-PESA will be!

A way to embrace “over the counter” mobile money transactions

As one of the pioneers of mobile money (cutting my teeth on the initial service proposition and business model for M-PESA, way back in 2004, three years before commercial launch), I’m always naturally inclined to see its potential in a positive light. But I’m starting to wonder if maybe we need to give it a bit of a nudge – realign it, if you will.
One of the more interesting phenomena we’ve seen in recent years is the rise of Over The Counter (OTC) transactions – those transactions carried out by agents on a customer’s behalf, in many cases without any link to the real people relating to a transaction. We’ve seen cases where agents maintain four or five mobile money accounts, on different phones, so that they can spread their customers’ transactions across accounts and so avoid transaction limits.
The reasons for OTC can be various, but certainly include illiteracy, lack of appropriate language support on mobile handsets, and – fairly commonly – liability (after all, if things are going to go wrong, you want someone else to blame, don’t you?). But the obvious potential for money laundering means that this situation can be a financial regulator’s nightmare.
Of course, it doesn’t have to be this way, and there are examples of it being done properly, with even in some cases biometric authentication of all parties to an OTC transaction. Worldwide, however, this is rare.
But I digress. What I really wanted to talk about was the somewhat self-congratulatory attitude we in the industry are all guilty of at some time – after all, an industry that has grown from nothing to something more than 270 services in over 90 countries in only fifteen years is undeniably impressive. But I do wonder if we’re all kidding ourselves sometimes. I mean, sure, for the middle classes, and for many of the employed poor, it has been an amazing opportunity, and has transformed access to financial services. But there are gaps – possibly some big gaps.
As an example, I’d like to relate a recent experience. First, you have to understand that I believe you can’t develop anything new without spending time with the people who are going to be using it; so I like to go out to the field, and see what people are actually doing, not what the research tells me. Just sit and watch, and ask the occasional question. It can be very educational.
So we were working with this mobile money operator (MMO), who has a deal with an MFI for the delivery of MFI services through MM. On paper, it all looks very good, plenty of transactions, lots of people receiving loans and making repayments, all through MM. I was very keen to go to a group meeting and find out what the customers thought, how they used it, what else they did – the usual.
We turned up at the meeting, and the first thing that was happening was training from the field officer. Great. But there was a surprise in store; the training included the following advice about security: “Always keep your PIN secret. Never tell anybody. EXCEPT the Agent – you should whisper it quietly into his ear” – uh oh. The alarm bells started to ring.
And then the Agent turned up. At this point the field officer started to gather repayments, in the traditional way for group lending – laboriously entering everyone’s name into a list, checking that they have the cash to make the repayment, noting down the repayment amount, all at a glacial pace (now this is one area where investment in IT could make an immediate impact) – and then the mobile money part started. Each person making a repayment took their phone and their cash, one by one, to the Agent – who took their phone, ‘deposited’ the cash for them, then forwarded the repayment to the MFI.
There were also three loan disbursements that day, and the process was much the same: hand your phone to the Agent, whisper your PIN to him, walk away with a wad of cash.
All of these people at the group meeting are in the MMO’s books as active mobile money subscribers. So I have to ask: in what way are these people mobile money subscribers? How is this empowerment? All that I can see is that the MFI has outsourced their cash management problems to the Agent, who walks the streets with a bag full of cash. Glad that’s not me.
So there are clearly a large number of people, down towards the bottom of the pyramid, for whom the step from a pure cash environment to being asked to use a mobile money wallet or account to manage their finances is just too big. Expecting people who’ve never had a bank account to make the conceptual leap from paper cash to mobile finance in one step is asking too much. Without help many of them will never do it.
Maybe the way forward is to make the steps a little more manageable. Introduce an intermediate step. And I think the way to do that is to embrace OTC, but to do it in a way that formalises it and addresses the concerns of the regulatory authorities: give this section of customers a card, which identifies their account. Maybe secure it with biometrics, if you want. Let them visit an agent, and get the agent to do the transactions for them, but now with all transactions linked to the card/the account. Link it to their mobile phone, so that the more adventurous can see their balance via the MM service. Make sure they’re comfortable with this, and make sure there’s a migration path that leads to the full MM service over time.
After all, this is the long term migration path we’ve seen in Europe over the course of decades; the move from cash, to bank accounts, to debit and credit cards, to Internet banking and mobile payments has happened, of course; but with each step taking years or even decades. Expecting people immersed in a world of cash to make the leap in a matter of days or weeks is just unrealistic. Why should they be any different?

Footnote: Yes, the author is well aware of Safaricom’s moves to issue a companion card for the use of M-PESA for retail transactions. That’s somewhat different to the case described here, though in itself interesting.

Developing services that change people’s lives

One of the most exciting things about working here at Consult Hyperion is that you are involved in the design and delivery of services which have a huge impact on people’s lives. My family moaned when I asked the taxi driver that took us from the airport into Nairobi whether he used M-PESA. However they were soon having similar conversations as they realised how important the service is to every Kenyan they met. More recently they have accused me of being responsible for “card clash” on the London Underground and have resorted to buying shielded wallets to ensure that TfL only take money from the Oyster Cards that I fund!

Sat here as I am at the AidEx conference in Brussels, surrounded by the great and good of the Humanitarian Aid community, I feel that Consult Hyperion is on the verge of delivering yet another life changing service.

The refugee issue is a regular topic of discussion across all media. Most stories focus on the plight of the individuals walking across Eastern Europe. However there is a growing awareness of the impact of so many refugees on the local economy. For example Alex Forsyth, reporting for the BBC’s From Our Own Correspondent, highlighted that the holiday season in Lesbos has been extended, as people descend on the island to help the refugees arriving by sea.

The conversations in Brussels have focused on the need to provide aid to the refugees in the form of cash-based payments, rather than physical goods, such as rice or tents. The argument goes that if the refugees have the funds to buy the goods, then the entrepreneurs in the host country will invest in the distribution channels to ensure that the goods that the refugees need are where they want to buy them.

The trouble with cash is that it has a tendency to evaporate, i.e. not all the intended funds reach the recipient, even if it is transported into the region in 40 foot steel shipping containers on the back of a truck.  As we discovered in Nigeria the principal alternative, paper vouchers, have some major disadvantages. They are difficult to manage in large numbers; they must be printed by specialist printers; they have to be ordered significantly in advance; they have to be the right value to allow the refugee to spend all the funds in one visit to the merchant, even when the local currency is devaluing; the merchant and the agency running the scheme have to reconcile the vouchers before the funds can be provided to the merchant; and the used vouchers have to be stored in case of dispute.

Recognising this, there is growing support within the Humanitarian Aid community for the use of Cash Based Transfers (CBTs), essentially smartcard based e-money schemes, which can be rapidly established in times of crisis and in which the reconciliation process can be done automatically in the Cloud. The trials to date have focused on prepaid card schemes. But these also have significant disadvantages, since they require access to expensive payment terminals designed to operate in clean retail environments typically found in urban areas, whilst creating a huge problem with cash liquidity in the local community.

Groups of representatives from the Humanitarian Aid community under the auspices of Electronic Cash Transfer Learning Action Network (ELAN), the Cash Learning Partnership (CALP) and the High Level Panel on Humanitarian Cash Transfers, sponsored by DFID, have analysed these trials and documented their requirements for CBT solutions.

Reviewing these with the retail payment experts within Consult Hyperion it became apparent we had already developed many of the building blocks required to deliver the Humanitarian Aid community’s ideal CBT solution:-

•  A proven, robust and scalable beneficiary registration and voucher distribution service, The TAP Platform, which was used to register in excess of 500,000 subsistence farmers in Nigeria’s northern states to the Ministry of Agriculture and Rural Development’s GES voucher scheme. The transparent nature of the information stored within the system allowed us to remotely identify incorrect or fraudulent activity within the system and initiate remedial action accordingly.

•  Mobile applications which can be used to complete transactions initiated by tapping a smartcard to the merchant’s mobile phone, replacing the payment terminals and removing the need for physical cash.

•  AML/KYC compliance solutions developed for use in regions where regulatory supervision is limited, such as Somalia.

•  A group of ethical hackers who could validate the security of the end to end service.

The result is TeMS (the TAP e-Money Service), which we are launching at the AidEx conference. Our market research tells us that TeMS will make it easier for the Humanitarian Organisations to rapidly and securely deliver cash payments in areas with limited or no communications or electricity.

But there is a lot more behind that simple statement. The local community will be more inclined to welcome the recipients as they will bring income into the region. The teams delivering the aid will be able to focus on the financial awareness of the merchants and recipients, helping them to learn how to plan and save, rather than spending time reconciling paper vouchers or ensuring that there is sufficient cash in the region. Donors will have access to detailed information about who is receiving what aid and where, allowing them to respond to the growing demand for value for money information from their local media.

My hope is that my daughter, who is planning to spend time within the Humanitarian Aid Community when she graduates from medical school, will again be able to ask the people she is working with how a product Consult Hyperion developed has changed their lives.

Managing the join

Since 2008 we have been working with Transport for London to allow contactless payment cards (CPCs) to be accepted wherever Oyster cards are accepted. This was first achieved in December 2012 on buses (which are flat fare in London) using a retail payment model. The next step was to introduce a distance-based payment model to allow all the other transport modes to be included which have zoned fares. This was launched in September 2014.

All the convenience of Oyster (such as not having to queue to buy tickets and fares capping so that you do not need to understand the fares structure) but using a card already in your pocket. Whether you are local or just visiting. But this is for London only. And the solution is based on a risk model that knows the maximum charge for a single journey is not very much. The delivery of such a solution relies on the intelligence migrating from the card to the back office. TfL’s back office to allow acceptance of CPCs for transit is complex and took several years to build.

In early 2012 the TfL payment and security models for contactless payment card acceptance in London where pretty much complete and the rest was ‘mere implementation’. TfL asked us to help them consider how it might work if they offered their back office as a service to transport operators outside of London. These might be in the UK, or potentially anywhere in the world (though different payment model are likely to apply outside of the UK). We discussed at length the notion of using your ‘card as a token’, be it a payment card, Oyster, ITSO or, potentially, other secure contactless tokens. Eventually, the ideas were parked to allow TfL to focus on delivery of the system for London in conditions of extreme austerity.

Meanwhile, we were hired by the SEFT (South East Flexible Ticketing) programme to specify the rail validators that could accept ITSO as well as contactless payment cards. At the time, Transport for Greater Manchester was just starting to procure such a back office for their region. We pointed out to SEFT that this CPC back-office-for-tranist stuff is complex and not standardised. It was therefore decided to not include any interfaces to the payment card back office at that time and the SEFT validator specification was ‘mothballed’ for the time being.

Spare a thought for the traveller buying long-distance rail tickets that include travel within the London area. London supports Oyster and CPCs (and a few specific train operator ITSO products, but not many at this point in time). Some train operating companies are implementing 2-D barcode, and some are trying ITSO. But the only technology commonly read across the UK currently and for the foreseeable future is the cardboard ticket with magnetic stripe. Basically, any ticketing innovation is scuppered at the boundary between London and the rest of the UK. This problem is what our friends at Trainline call ‘managing the join’.

Hopes for contactless payment being accepted for transit outside of London were recently dashed with the announcement that Transport for Greater Manchester has sacked their back office supplier. And anyway, it has been speculated that CPCs only work within London because London is a special case and it could not work anywhere else because the operators will not co-operate and/or the fares are too high for the risk model to work.

Enter the cavalry in the form of the UK Cards Association. They are leading a project with the Department for Transport and others (including representing train and bus operators) to develop a contactless transit framework for the UK by the end of 2015. The project to date has identified three contactless transit models:

  • Standard retail model for transit: pay as you go model with a known fare, for buses and trams (like TfL bus retail model).
  • Contactless for transit model: pay as you go model where the fare is aggregated at the end of the day or journey leg, for multi-mode operators (like TfL distance-based model).
  • Card as Authority to Travel (CAATT) model: pre-purchase model.

This last model could be just what we need for ‘card as a token’ or ‘managing the join’ as we have called it. The idea is the customer:

  1. Purchases their ticket online and associates it with their CPC.
  2. Can view their purchase on their statement.
  3. Uses their CPC as their ticket on a train.

Watch this space …

Another report on falling cash usage in the UK

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My son and I have been out and about, living the life of normal folk who don’t care about payments. We made a couple of cash payments and we made a couple of non-cash payments. We didn’t, however, make any chip and PIN or contactless or swipe payments.

The new PSR’s priorities

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The UK’s new Payment Systems Regulator is now open for business. I imagine that their highest priority work stream will be around access to payment systems, because this is what “challenger” banks need in order to create the more competitive environment that the UK Treasury wants.

I’m not sure that “unbanked” is the problem or that “banked” is the solution

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There’s been a lot of buzz around Bill Gates’ challenge to bank the unbanked, set out in this excellent Verge article. Naturally I agree with the sentiments, but the use of the word “unbanked” bothers me.

Plastic banknotes

[Paul Makin] Seeing the recent coverage in the media of the Bank of England’s interest in issuing plastic banknotes reminded me of some work we did a while ago. What interests me about plastic banknotes that they make a much better substrate for various types of electronics than paper does.  During the project, we looked at printable electronics, organic electronics, flexible displays, printable batteries, quantum dots and a range of other technologies, and it is surprising how much you can add to a sheet of plastic

Of course, the simplest option is the addition of an RFID chip, the size of a grain of sand, which replicates the banknote serial number – so you can in theory count banknotes by scanning them with a suitable device as they move past. But that seems a little mundane.

Of far greater interest is the more complex idea of a smart banknote with a particular focus on their applications alongside mobile money in emerging markets. With the right combination of technologies, a smart banknote could be created whose appearance changed according to the value it currently represents; blank if it has no value, looking like a £10 note if it’s currently worth £10, etc.

It could then be integrated with your mobile phone and used to download money from your mobile money account (and change its face value accordingly) – and vice versa. Once it had value loaded, it could be used to buy things in shops just like ordinary notes.

Apart from the fact that this would reduce the need for ATMs and mobile money agents, it would also remove the huge costs associated with moving cash around – security guards, vans etc – the savings from which would allow blank smart banknotes to be issued for free (transporting them is cheap, because until you download cash onto them, they have no face value).

Of course, there’s always the crumple test standing in the way…

What do we mean by mobile money interoperability?

[Susie Lonie]Intuitively, interoperable mobile money schemes sound like a good thing.  Telecoms services interoperate; bank accounts (mostly) interoperate; and many case studies have demonstrated that interoperability caused these markets to grow, to the benefit of all.  So why not mandate interconnected platforms for mobile money?  It’s a “no-brainer”.  Or is it?

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:

  1. 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)
  2. 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 []  .  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 [].

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.