Balancing act

[Dave Birch] There was a great kick-off talk from Blums Pineda at the Mobile FInancial Services conference in Singapore. Now with Exicon, he was previously with Globe Telecom, home of GCash. Blums chose to focus on the balance between consumer protection and business opportunity, building on his experiences with G-Cash. He was essentially optimistic that regulators are embracing new models. As he pointed out, it’s the transaction space that is driving growth in the financial services market. In the mobile transaction space, we need regulatory certainty to encourage investment and no regulation at all is not the right kind of certainty. In the Philippines, the regulators did not over-react and use inappropriate banking regulation to constrain the evolution of payments business.

There are good reasons, as we have discussed before, why we actively want regulators in the m-payment space. That’s because while no regulation at all might minimise compliance costs for the provider, it does not minimise costs for society as a whole: consumers carry on using more inefficient forms of payment (cash, in the countries being discussed) because they have regulatory certainty. So there are great benefits to having regulation. Blums summarised these as benefits to consumers, providers and the common good. I thought he was dead right to include the common good as a separate and distinct beneficiary, serving to remind . Surprisingly, to some people, he said that one of the benefits of regulation was to encourage innovation.

The idea of regulators balancing prescriptive vs. principles-based

He gave a useful case study of the Philippine regulatory response to the development of G-Cash and Smart Money, showing how the regulators allowed the market to develop new solutions by working with the new entrants to find ways to make the regulations work. As an aside, later in the day a chap from Ernst & Young (who began by saying that, with admirable candour, that the “big four” have come “a little late” to m-payments) was drawing some lessons from the launch of Smart Money (in 2000), GCash (in 2004) and Citi (In 2008) in the Philippines. Smart Money has seven million registered users and 700K retailers, GCash two million registered users and over 600K retailers (and GCash customers have access to 6,000 ATMs) but these systems could be bigger still with bigger networks of agent, consumers and merchants. The barriers to entry are too high.

GCash need to make it easier for new members (consumers or merchants) to join system. But they also need to do something with the agent network. There is an onerous process for new agents to join the GCash network and since agents only get 1% commission for cash loads compared to 10% commission for airtime top-up, there’s not much of an incentive for them. These factors have limited the growth of the agent network which has, in turn, limited the growth of the scheme. As an aside, here’s a useful data point: Blums reckons that the shift to m-payments has eliminated nearly 80% of microfinance provider costs in the Philippines. Now, the environment there is most conducive to m-payment — 95% of Philippine towns have mobile coverage, only 60% have a bank branch. There are 10,000 ATMs but a million airtime resellers — but so the cost savings may be at high end of possibility, but the opportunity to significant cost reduction in many markets is clear.

Looking forward, he reiterated the growing need to regulate the agent networks in the m-payments space (Globe has something like 1,800 accredited partners for the GCash service), something that we have been thinking about with some of our customers and something that we will be sure to return to on the Digital Money Blog. Finally, he noted that a key element of the future platform is some form of mobile identity infrastructure. GCash has over-the-air registration, but if you use it at POS you have to present an ID card, which makes it less convenient than it might be. I couldn’t agree more, which is why I was so keen to have a mobile eID panel session at the recent Identity and Privacy Forum and I’ll be talking on this subject in Session C European eIdentity Management, the 22nd eema conference, on 25th June in London.

He was wrong, but so was I

[Dave Birch] Way back in 1995 the then director of the US Mint, Phillip Diel, told a Congressional subcomittee hearing that expected to be issuing legal tender stored-value card before he issued a one dollar coin. To date, they’ve done neither. And to be honest, the dollar coin looks to be a long way off. But was there something in the Mint’s thinking? We don’t need to agree that the US Mint — which makes five cent coins at a cost of 7.7 cents each — is a model business with a track record of accurate futurism. In fact, as I am constantly whining on about, what they do overall is to waste everyone’s money, on quite a large scale.

Central banks agree, putting the cost of printing, issuing and recalling old-fashioned folding notes and coins at between 0.4 per cent and 0.6 per cent of gross domestic product.

[From FT.com / Technology / Digital Business – French take a lead in mobile payments]

So how wrong was the director of the mint? Well, one the one hand I don’t think there will ever be a dollar coin, so he was perhaps right to mark stored-value cards as being more likely to occur in a finite timescale. But “legal tender” stored-value cards issued by the government? No, I don’t think so.

Fairy tales

[Dave Birch] In a recent edition of European Card Review, Malte Krueger of Paysys noted that a cashless society is some way away (in fact he calls it a “fairy tale”), not because cash is more efficient but rather because the law ensures unfair competition. This is not because legal tender laws force people to use cash, as is sometimes claimed, because they do not. But there are some laws that do discriminate in favour of it. In Germany, for example, banks are simply not allowed to charge private customers for withdrawing cash. Similar laws would undoubtedly be enacted in other countries should banks try to recover any costs on this side.


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