About Charmaine Oak

Charmaine Oak is the practice lead for Digital Money at Shift Thought. She has over 27 years of experience of creating and delivering solutions to market. Her skills and experience are at the intersection of mobile, banking and payments. She brings a unique perspective, having contributed to significant ventures at leading global companies: Western Union - one of the world’s largest financial brands, France Telecom/Orange – a leading mobile operator, Royal Bank of Scotland – a leading bank, LogicaCMG – the Pioneer in SMS and Wipro – one of the world's largest IT service providers.

How one Fintech start-up is rolling out mobile payments services across Europe

Posted on May 12, 2015 by Charmaine Oak

As Fintech firms continue to make breakthroughs and disrupt banking and payments services around the world, I am delighted to share the perspective of someone at the forefront of innovation in Europe.

Cashcloud has received a number of awards for its’ innovative payments service, most recently winning the Fintech Innovation Awards 2015 held here in London. I was therefore delighted to have a chance to get their story from the man who is behind much of the success, Olaf Taupitz, Managing Director of Cashcloud SA.

Olaf, Congratulations on winning the Fintech Innovation Awards 2015. Could you please give us an introduction to your company and services?

I look after all the operational entities of the Cashcloud group of companies. We have our headquarters in Switzerland. Cashcloud SA in Luxembourg is the unit through which we manage the relationship with partners & customers. We have an important operations base in Germany and Romania which has agents for customer service. We also have near-shore development teams in Ukraine and Spain.

So although we have just 35 people on board, it is an international setup focused on European markets. My partner Sven Donhuysen was the Founder of the company in 2012. By the end of 2013 we launched in the first 4 European markets where we have over 100,000 customers and over 500,000 downloads of our app.

We are proud of the award you mention, that we recently won in London. This was the third award we received in 6 months with wins in Switzerland (Nov 2014), Germany (Dec 2014) before that. These have been encouragements for us to become better and better, and provide us motivation to tackle the host of issues we as a start-up face.

Could you tell us a bit about your products, services, markets and segments, and what is behind the recent awards you’ve received?

What was particularly appreciated is how easy it is to use our application and the fact that we combine a number of things, not just payments.

Our primary segment is the “native digital” youth market, who can transfer money easily between each other, make payments at POS through NFC stickers and earn cash credits in return for buying specific goods, sharing information or inviting friends. Coupons and cashback activities have been launched in Germany and Spain.

We allow customers to easily transfer money between friends through a simple message. They can pay at POS using NFC stickers and will shortly have cards with MasterCard acceptance around the world. And importantly, people can obtain offers and bonuses for using us through Cash Credits.

Why did you decide to get into mobile payments, and how did you select the countries you’ve picked (Germany, France, Spain and the Netherlands)?

Regarding the motivation to enter mobile payments, I have a background in Telecoms and Finance and was convinced that we could make a strong play through a Telecoms+Finance+Card offer, especially as the smartphone kept getting cheaper.

Through the mobile Cashcloud eWallet we aim to offer this: a means for people to pay online with no need to enter personal data, good control over their transactions and special incentives for using our service to make payments.

Which of the four European countries showed the most take-up of mobile payments?

So far for us Spain showed most adoption. With NFC stickers, there are more NFC acquiring terminals there. As you know, card usage itself is not as popular in Germany, which is a cash-driven market. Netherlands is not bad but we don’t promote so many activities there - it is a good test market for us.

So right now if I was to go on holiday from UK to Spain, could I use your service to pay in Euros?

We primarily issue the service to citizens of the countries in which we’ve launched.

However people could receive a secondary card or sticker up to the limit of 2,500 Euro a year, beyond which KYC requirements apply. People can use the MasterCard to pay everywhere in the world.

How easy has it been for you to expand to new countries in Europe? Any plans to go outside Europe?

We had to start with one currency first – Euro based and chose 3 big markets and one small. Later this year we hope to investigate launch in other Euro-based countries as well as in UK, Poland, Romania and Switzerland in their currencies.

Going outside Europe is not on our plans right now. In our future work, we look forward to enabling remittances as well, especially as we enter the UK market.

How does your business model work, and how have customers reacted to your Freemium/Premium pricing?

We’re not about making money from payments itself. With the new rulings across Europe we anticipated that transaction fees, interchange would drop, merchants want to pay less.

What we are able to do is to obtain aggregate knowledge on consumer trends and profile typical customer shopping behaviour. This is very important for the emerging campaign management and advertising models.

What key technology decisions did you have to make since 2012 and how have these contributed to your success?

Two key decisions we made from the start have proved right, and helped in our success. Firstly we decided that our service must be mobile and supported Android and iOS from the start. Secondly, from the start we focused on building a platform – an online API that would help us integrate and be a part of other ecosystems and use cases.

What is your view on the competition especially Apple? How would a startup service fare against such global competitors?

Actually we welcomed the Apple Pay launch as it supported the NFC solution. We are happy to see the success in the US. We anticipate it will take longer to launch in Europe, perhaps it could take another 12 months for the pieces to be put in place.

What’s been the most difficult challenge for you so far?

I’d say we found it easy from the issuing side, but it was the acquiring side that is harder for us to control. As the acceptance network rolls out across Europe we expect this to be resolved.

Secondly it has been a challenge to build strong drivers for adoption. This is the problem faced with mobile payments in developed countries where people already have good banking and card services. I think the role of the mobile phone as an authentication device is now being acknowledged and we expect better take up due to this.

What are your plans for 2015 and beyond?

We are hard at work on our plans for expansion. Apart from more countries across the Eurozone, we are investigating in market launches in the UK, Switzerland, Romania and Poland – so will have to support a number of new currencies.

It has been fascinating speaking to you Olaf. Thanks for sharing your story that I hope will be an inspiration for the many Fintech startups, across Europe and around the world. I wish you the very best of success in your plans!

Olaf Taupitz is Head of Product and Innovation and a Member of Board at cashcloud.

Olaf is in charge of managing all initiatives of the company and he oversees the development of cashcloud’s application and technical set up, including management of outsourced partnerships. He brings to his role key expertise from his experience at IPS International Prepay Solution AF, CALL4T, Tele2 and his other work at the intersection of Telecoms, Payments and Card services.

Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

http://www.linkedin.com/in/charmaineoak

Join me on Twitter @ShiftThoughtDM and The Digital Money Group on LinkedIn

Trends in Mobile Money and Mobile Financial Services – Views from a veteran

Posted on April 19, 2015 by Charmaine Oak

The origins of Mahindra Comviva date back to 1999. Since then the company has enabled mobile operators and financial institutions around the world to address opportunities presented by money going digital. As part of Shift Thought’s assessment of the state of the market, it was a real pleasure to speak to Srinivas Nidugondi, to obtain his views on the latest trends and future directions. In this post I share highlights of our discussion on mobile money and mobile financial services.

Srinivas, thanks for your time today. Could you please give us a bit of background about your expertise and your role at Comviva?

I head the mobile financial solutions unit at Mahindra Comviva. For four years now, I head the entire commerce portfolio within Comviva. We have 3 verticals that include commerce, content and data, all with the underlying theme of mobility.

Within our horizontal of managed services, our fastest & largest pillar is commerce. I look at the overall opportunity, to grow our operations into a leadership position. I have a background in banking and payments, commerce and smartcards. My last position was at ICICI bank where I was Head of Internet Banking platform and Mobile Banking and worked on the launch of ICICI’s first mobile banking app 8 years ago; further I was involved in a collaborative offering with Vodafone to cater to the unbanked and under banked segments in India.

Could you please give us a brief background about Comviva?

We’ve been around for 15 years, beginning with the Telecom Revolution in India and other emerging markets focussing on products that would help mobile operators, in our capacity as part of the Bharti group.

Our mobiquity® Money solution now has over 50 deployments in 40 countries, enabling over 35 million registered customers to transact approximately USD 13.5 billion transactions annually.

Over the last five years we have streamlined and also broad-based our focus. As a product company we complement Tech Mahindra’s IT services and also obtain access to new geographies, such as our recent forays into North America, Europe and Australia. Further, we have been able to penetrate into Latin America with several deployments on-going across the region.

Could you give us highlights of the kinds of products and services, and the kind of competition you face?

In our mobile financial services unit our philosophy is to leverage mobility, commerce & payment services. What this means is we do not just focus on providing payments solutions but are experts in the whole commerce process. Also we have refocused from mobile to mobility, to cover new devices that I expect will become an active part in the way people transact, for instance through wearables like Apple Watch or Google Glass.

We focus on payments behaviour within each segment that includes consumers, businesses and merchants. So we look at a diverse set of scenarios that range from under banked consumers to evolved consumers to large merchants. We are one of the largest providers for Mobile Money in the world, with services provided to pretty much every major mobile operator.

We are going up the value chain with services such as mobile wallets, mobile payments, and QR codes, BLE, HCE, NFC and Apple Pay and offering these solutions to banks, processors and retail industries apart from the traditional customer base of telecom operators. Our recent customers include banks in the North America and Asia pacific regions as well as a new age retail chain in South America. And further, we are working with a telecom operator in Europe for launching NFC based payments. Our competitors include for instance C-SAM, Toro, Airtag and Monetise.

On the business and merchant side we offer an integrated payment solution payPLUS that allows both large and medium merchants as well as SMEs to use their mobile phones as a POS, and we work with First Data and not just small & medium - there is a market for mobility based for insurance, e-commerce down to small and medium.

We are entering the US through one of the largest processors where competition is different. We don’t really see Square and iZettle as our competition as we don’t go direct to market but rather work with banks and processors. We also face localised competitions such as from Easytap in India.

What are some of the major implementations you’ve been involved in around the world?

We have over 50 mobile money implementations including a number of implementations with Airtel, Orange, Econet Wireless, Grameenphone, Banglalink, Tigo and others. In Bangladesh we are deploying with DBBL, one of the largest banks in the country.

We are working with First Data and other large processors and also with some of the largest banks for HCE, MasterPass. We are with the largest 4G operator in India for Mobile POS and Mobile Wallet. Some of our latest wins include a retailer in Chile, and US work with a processor for mobile POS, and a wallet for a bank in Canada.

In 2014, mobile money service became interoperable in 3 new markets. Could you tell us a bit about how this works and how effective this strategy has proved?

I don’t think every market could be a success. This is a function of multiple factors. In Kenya Safaricom became successful with a position of leader in the mobile business. Now Tanzania is becoming an overall leader in mobile money, but there no one operator has a monopolistic position.

Mobile money has taken off where there is low banking penetration and high mobile penetration. Agents must find it viable. Also the services need to go beyond just P2P or Cash-in/Cash-out. People must not just withdraw cash but make payments through their mobile money account. That is when profitability goes up.

It is also really important to be able to offer remittances. There is a service called Terra that is getting all the operators together for this to make the money flows easier in corridors such as Mozambique to Malawi, Zimbabwe to Malawi and South Africa to Zimbabwe.

If each operator has say a maximum of 40% market share, this means that 60% of the market is excluded, so interoperability is not a luxury but is critical for operators to explore in each market.

What are some of the other trends you observed in mobile money in 2014?

Mobile Money is used in a developmental context, where third party provides bring financial services to people who don’t have access to them.

I observed three key trends in mobile money over 2014.

Firstly, the evolution to cover more services has been recognised to be of huge importance. From cash-in/ cash-out, it is now about enabling every transaction that people have to make. So this is interoperability in the context of payments.

Secondly, there is a focus on interoperability in the context of remittances. We saw a spurt in transactions with Tigo and Airtel making their transactions interoperable in Tanzania.

Thirdly, it’s about how to build a path to offer a full suite of services, not just mobile money. We’ve had to solve for enabling payments, micro-loans, investments and insurance, so as to build a “One-Stop Shop” for all these services.

Did regulations have to change in order to enable these trends and new services added over 2014?

No I think the regulations did allow it, but it was a matter of the maturity level having grown over the last 3 years. As this grows further we’re seeing more such examples in Tanzania, Zimbabwe and elsewhere.

What is the outlook for mobile money going into 2015?

I see an evolution of the services to straddle multiple areas. From over-the-counter and one time transactions it’s now all about the mobile wallet. This needs a better understanding of the end-to-end customer journey and experience.

Srinivas, thanks very much for your time today. It has been a great pleasure speaking to you. I wish you the very best for your success in 2015 and beyond.

Srinivas Nidugondi is Senior Vice President at Mahindra Comviva, based in Bengaluru, India and has led the Mobile Financial Solutions area in Comviva since 2011.

Srinivas brings a keen interest in financial inclusion, especially as enabled by mobile phone and digital channels and has a wealth of experience in banking, payments, Internet and e-commerce. He set up & led the business for online banking and mobile payments in a large multinational bank and has led product management & business development in start-ups and IT product companies.

Charmaine Oak

Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

http://www.linkedin.com/in/charmaineoak

Join me on Twitter @ShiftThoughtDM and The Digital Money Group on LinkedIn

The impact of new technologies on global remittance costs and flows

Posted on April 17, 2015 by Charmaine Oak

A new report from the World Bank shows that alternatives to cash are helping to drive down the cost of remittances around the world. The global average cost of sending $200 declined from 8% in Q4 2014 to 7.7% of the amount transferred in Q1 2015. But is this progress enough?

As development efforts have intensely focussed on driving down the cost of remittances (5% less over 5 years) it raises questions on why more has not been achieved.

Separately a report from World Bank that measures financial inclusion around the world, out this month, indicates that between 2011 and 2014, 700 million adults became account holders, with the number of unbanked dropping by 20% to 2 billion. While 2 billion adults without access to financial services is still hugely concerning, it seems that the 130 live mobile money services have achieved great things within domestic areas. People are increasingly gaining access to basic banking facilities thanks to the use of alternatives to bank branches, such as mobile-based accounts, agent networks, kiosks and other advances.

Domestic remittances (people sending money to other people within a nation) have thus benefited from the use of new technologies, in particular the services that leverage access to mobile phones. While the ownership of fixed line phones remains poor in certain African countries, large numbers of population now have access to mobile phones.

In my interviews with experts who are launching innovative services around the world I understand a lot more needs to be done to make sure that it's not just every household that has access to mobile phones. The key individual who can ensure household money is spent as it should, often the woman of the house, needs control of a mobile phone. This is likely to happen as government benefits and subsidies are routed directly to these individuals, often while providing free SIMs as is happening in Indonesia. This has the important side-effect of bringing down the cost of person-to-person money transfer.

Additional value-added services are being launched, to hopefully stop people from immediately withdrawing the money, and reducing the amount of cash in circulation. The new mobile money and branchless banking services have helped to bring down the cost of domestic remittances – for instance by 20% in Cameroon.

Yet the average cost of remittances still exceeds 8% in East Asia, the Pacific and MENA. In Sub-Saharan Africa, the home of mobile money, costs of sending money across borders remains the highest. Sending money from South Africa to Zambia, Malawi, Botswana and Mozambique are the highest in the region. With the global average cost for sending money standing at 8% in Q4 2014, it is substantially higher at an estimated 12% in Sub-Saharan Africa (SSA).

In the Figure above, courtesy of the World Bank Migration and Development Brief for April, we see just how much higher SSA costs are, and the lift in MENA costs. What strikes me is the sharp decline in cost of SSA transfers over 2009 was arrested in Q2 2010, and sharply rose then. We do not see a similar decline in spite of many new entrants and launches of services by global technology companies, card networks, mobile operators, handset manufacturers, retailers and others – indeed the list of industries alone is endless, leave alone individual providers.

Although there are more international migrants than ever before, with an expected 250 million in 2015, flows to developing countries are expected to slow down to 0.9% growth in 2015, increasing only from $436b in 2014 to $440b in 2015. Global remittance estimated at $583b in 2014 could rise to $586b in 2015, with recovery expected over 2016 to bring the figure to $636b in 2017.

Factors that are affecting these flows include uneven recovery in developed countries, lower oil prices and the Russian problem, tighter immigration controls and conflicts that are driving forced migration.

With an expected slowdown in the remittances market in 2015, it is vitally important that causal factors that stand in the way of better cross-border remittance services be better addressed. These include a number of factors that are well-understood (compliance, regulatory, exclusivity, interoperability) but others that are not yet under discussion, and may prove more critical.

What is your view on this? What has helped in the progress towards cheaper and more accessible cross-border remittances, and what has hindered? With technologies now well-understood, what needs to happen to put people more in control, not just for sending money home, but also for gaining other forms of livelihood in the vibrant, rapidly evolving global digital economy?

Citi’s view on being a global digital bank

Posted on March 24, 2015 by Charmaine Oak

Today I am delighted to share highlights of my interview with Aditya Menon, Managing Director, Digital Strategy at Citi. Citi is one of the largest banks in the world and has long been at the forefront of innovation.

Aditya Menon explains why the bank, already known as the world’s leading digital bank is focusing now on simply being the best bank, backed by the power of technology. We learn of the journey over 2014 and how this is likely to further play out over 2015.

Aditya, I am excited at this opportunity to benefit from your deep knowledge on trends in global digital banking and especially delve deeper into developments in the US and India markets. Could we please start with a bit of background about your remit and the deep experience you have in payments?

As Managing Director, Global Digital Strategy at Citi I work on Citi’s global digital strategy for stakeholders in our consumer bank including card and Citi retail services in the US.

We do 3 things for our internal stakeholders. Firstly we assist them to formulate their digital strategy, particularly on payments, commerce, capability and technology. Secondly, an area in which I am most involved in is informing on the digital capability we need to grow and compete with banks and non-banks. Thirdly, we define and drive alignment around key strategic initiatives including key digital metrics and KPIs – both internally and against competitors.

Citi plays so many different roles around the world in Corporate Finance, Retail Banking, Investment Banking and more. How does your digital strategy support all these areas?

There are three key strategic imperatives for us to deliver on:

Firstly we must be Customer Centric and from a digital perspective this requires that we track metrics such as net promoter score, to recognise and reward the segments we want to serve with valuable personalized services.
Secondly this must be Globally Common. Globally, we serve approximately 200 million client accounts and operate in more than 100 countries. The challenge we address is to deliver globally common services across all these markets. For instance, taking the example of high net worth individuals, they do have certain globally common needs that we identify and help address.
Thirdly, it is about being Digitally Connected and creating digital partnerships. We see financial flows are digitising and we need to be in the middle of those flows, to drive greater access to our core products through digital channels and strategic partnerships.

For each of the three areas we have launched initiatives that help us to further enable our core business, go beyond the core and finally, drive innovation by creating disruption.

What led you to select this digital strategy for Citi?

At Citi we studied how digital disruptions eroded value across multiple industries including news, travel, video, music and advertising. Across these industries we found that over 10 years there could be a substantial market share shift. If we take year zero as being peak of physical manifestation of an industry, we saw a typical trend play out for each. An initial gradual decline was followed by an inflection point between year 2 to 4 and then a rapid transition from physical to digital.

In most of these industries the disruptor was not one of the incumbents. In most cases the total revenue of the entire industry declined over time due to disruption and commoditisation and revenues never really returned to the earlier peaks. This is interesting as it means that fewer players at end of year ten have to share a smaller pie and a number of incumbents make a loss.

Extrapolation to US retail banking made it clear to us what strategy we had to adopt.

We then extrapolated to see what this could mean for the US retail banking industry. We expect to see a substantial share shift over 10 years. Looking at payment and retail banking industries separately we expect retail banking to see even more disruption than payments in terms of value.

Our conclusion is that over 10 years the laggards could lose a major share of their revenues and profits, while leaders will gain moderately. So clearly it pays to be a leader, and as a laggard one could get into a vicious cycle which takes you down a point of no return.

We concluded that Citi must therefore rapidly enact a strategy that would help to best position our bank with respect to the digital disruption trends across the world.

What are some of the important ways this strategy was enabled by Citi in 2014?

Our strategy of globally common enablers has led to the launch of our award-winning retail banking mobile app that we deploy globally. In the area of corporate banking our Citi Velocity digital platform is the world leading FX trading app in terms of volume and value. We also have CitiDirect BE Mobile, which allows our corporate treasurers to use our payments infrastructure to complete payments anywhere.

With respect to driving disruptive innovation, we have brought out the Citi Wallet in partnership with MasterCard. We were also one of the first banks to launch with Apple Pay. The strategy played out in many ways across the world. For instance we launched a contextual offer and wallet platform in Hong Kong that went beyond the ordinary, to create contextual experience using location based services.

I am curious, considering Citi’s size and global footprint, how do you still manage to achieve high levels of innovation?

We place a lot of importance on innovation through a number of initiatives, of which one example is our Citi mobile challenge initiative.

Our US challenge in December was a great success and we just kicked off the same challenge in EMEA.

We have already got innovation labs set up around the world and the work there feeds into our business of crafting new services for the future. For instance our innovative work with our API opens up transformative potential through third party development.

Over 2014 what were some factors blocking the progress of money going digital?

This has continued to be a time when financial institutions must transform themselves in line with the demands of the economy and to support evolving consumer needs. This involves considerable rebalancing within the business.

Regulatory pressures and the need to balance AML requirements and security against innovation and superior consumer experience continues to make this process challenging.

From Shift Thought’s recent work in India we identify it as one of the most complex, yet promising markets for digital money. Please could you share your thoughts on this?

In the Indian market the regulator helped to create clear and transparent regulations for mobile banking, prepaid and agent banking. To my mind we have the clearest set of regulations that exist for digital payments and money anywhere in the world.

Although early services did not take off as the initial players in this space found it hard to sustain repeat usage as customers had no way to cash out But more recently, after giving banks and nonbanks a chance, what has lifted off well is the NPCI IMPS project. There has been steady growth in mobile-to-mobile payments.

What has worked well for India and what are some things the market may not have anticipated?

Perhaps one thing unique to implementation in the Indian market that was a unique requirement, but turned out to be a bit of a sticking point for adoption, is the centricity and early introduction of MMID. To my mind this could be the biggest barrier to adoption, a point I’ve raised in public forums recently.

Regarding unintended consequences, one interesting trend we’re observing is the use of the services for cash to bank account transfer. Consumers are starting to give cash to the banking agents who help to deposit this into their accounts. This use case is seeing a huge volume and value traction over NPCI rails.

What is the key development you expect in India over 2015?

Earlier in 2014, regulators asked for a new kind of institution to be created, that of a payment bank.

Alternate networks did not really work so this new type is expected to greatly help in getting subsidy programs and other important initiatives off the ground. This requires the creation of a massive number of bank accounts through a business model that works with lean 1% commissions to offer services to people who may be on or below the poverty line.

Half a dozen payment banks could be created in the near future and a number of telcos have applied for this. Under this new scheme payment banks will be permitted to operate savings and current accounts but will not be allowed to lend, thereby opening up the possibility of partnerships with scheduled commercial banks.

Aditya thanks so much for taking the time to so generously share with us your thoughts and findings. I have personally benefited so much from these discussions with you over the years and I take this opportunity to wish you every success in your plans in 2015 and beyond.

Aditya Menon is Managing Director, Global Digital Strategy at Citi.

A pioneer in the field of payments and a true entrepreneur, Aditya has helped to shape mobile payments through his work at Obopay and Yes Bank Ltd. Aditya is hailed as a visionary leader who can inspire teams to deliver their best.

Facebook aims to grab a chunk of the US Money Transfer market

Posted on March 19, 2015 by Charmaine Oak

Facebook is to launch P2P Money Transfer from Facebook Messenger, online and via Android smartphones. By the end of the year people in the US will be able to send money with no fees, using a Visa or MasterCard debit card.

If Facebook has not yet made it big in payments, this is not for want of trying. At Shift Thought we've monitored a number of failed launches associated in some way with trying to get social users on Facebook to make payments. So what do we expect to happen, and what’s at stake? Read on!

What’s Proposed

Facebook Payvment launched in March 2011, claimed to be the number one social commerce platform on Facebook, attempting to reinvent online shopping leveraging social conversations. In January 2013 Intuit acquired the Payvment team and closed down the Payvment platform.

Past Experience

Perhaps the best known was Facebook Credits, a virtual currency launched in July 2010 that was available in over 15 currencies including US dollars, Pound Sterling and Euro. This was offered as a secure way to play games and buy digital content on Facebook. While we were expecting this to eventually extend to music, movies and more, as Facebook announced a share in their 2011 revenue of 15%, this was not to be. In June 2012 Facebook announced any credits would be converted to native currency and the service phased out by 2012.

Facebook Card launched in January 2013 as a reusable gift card supported by Sutton Bank. At launch Facebook has over a billion users worldwide, with 618 million active each day. Have you heard much about Facebook Card, or considered it for gifting? Probably not.

Why won’t people bite and will this change?

Why have more people not adopted services that in theory had everything going for them? Why did Amazon close their WebPay P2P Service? Why has Google's gmail money transfer not yet become more used? For me the answer has come through my chats with consumer focus groups over the years. It seems people were not ready to trust Facebook and other social media providers with their money yet. Yet in February this year millions of Chinese used Tencent's WeChat messenger app to send traditional Red Envelopes digitally.

So as Facebook has not had much success in breaking through into payments, what's different this time? In two words: David Marcus. As Chief of Facebook Messenger since June 2014, Marcus brings a wealth of understanding of the money transfer business from his days as President of PayPal.

Who is likely to be impacted?

Domestic money transfer in the US is a core business for the three world leaders in money transfer, Western Union, MoneyGram and Ria Financial Services (Euronet). In April last year MoneyGram shares took a beating on an announcement that Walmart would do this business through Ria instead, with the launch of Walmart-2-Walmart at more than 4,000 stores.

How much is the market worth?

In 2014, market leader Western Union generated revenue of $5.6 billion. Consumer-to-consumer revenue from North America constituted 19% of this, so I estimate US domestic money transfer revenue for Western Union to be $1 billion. Home to over 46 million international migrants, the US is the largest Send Country for remittances, and both domestic and international migrants form an important part of the money transfer market. While international remittances is going to prove a harder market for Facebook, actually domestic remittances outside of the US is a very hard market for international money transfer operators anyway.

What to expect next

For me money transfer via social media could be set to take off. So it's not just Facebook. Expect to hear more from Skype, Viber and all the various messenger apps that have been taking the Asian markets by storm. Definitely a space to watch! What do you think? Do share your thoughts on this rapidly evolving space.

Charmaine Oak is Author of The Digital Money Game

and co-author Virtual Currencies – From Secrecy to Safety

http://www.linkedin.com/in/charmaineoak

Join me on Twitter @ShiftThoughtDM and The Digital Money Group on LinkedIn

New Regulations enable Digital Financial Services in Indonesia

Posted on March 13, 2015 by Charmaine Oak

There has been a remarkable achievement in Indonesia over 2014, as the national poverty level reduced to 11.25% from 13.33% in 2010 and the Unified Database (BDT) launched as a single source for targeting social assistance programs. TNP2K is the Indonesian National Team for the Acceleration of Poverty Reduction (TNP2K) and co-ordinates this work, as part of their duties relating to poverty reduction.

I recently caught up with Michael Joyce, Mobile Money Policy Advisor at TNP2K as part of our research work for our soon to be published viewport “Digital Money in Indonesia 2015”. In this blog I am pleased to share highlights from our discussions, to reflect on important regulatory changes from 2014 and consider how they are likely to impact the adoption of digital money service in Indonesia.

Michael, could you please give us an introduction to TNP2K and your role there?

TNP2K is the Indonesian Government initiative to improve delivery of poverty related programs. It operates to promote financial inclusion with the support of Australian Government through Australian Aid (DFAT) and USAID. It maintains a key database that targets poverty reduction through work promoting electronic payments to improve financial inclusion for poor households.

I’ve been here for two and a half years, and work on regulatory and implementation advice for different parts of the Indonesian Government, to try to improve the financial inclusion benefits.

Could you provide some background on the Indonesian context and developments over 2014?

In terms of a review of 2014, there has been a lot happening with OJK work, payments for some subsidy relief programs and in summary, a significant drive towards e-payments.

Indonesia is an interesting market, with officially only 20% financially included, though anecdotal evidence points to around 50% included. There is a strong savings culture and willingness to save. However the tools and price points are not geared towards reaching the large informal sector. Until 2014, digital finance initiatives were slowed down by regulations.

Although E-money licenses were issued there were restrictions on how these could be used in terms of cash-out services at agents. So banks had not been able to use agents up to now. There is a highly fragmented market, with over 17 e-money licenses, but none gaining traction or able to offer a full suite of services.

We started to see a change in 2013, with pilots geared towards reaching the unbanked. In 2014 the results of the pilots were enacted through a law on electronic money and the concept of LKD or “Digital Financial Services”.

Can you tell me why a new regulator was needed and how this has panned out?

Otoritas Jasa Keuangan (OJK) was created as a new Financial Services Authority in December 2013, and this is similar to the UK and Australia model. This separates monetary policy from prudential regulation. Prior to this, Bank Indonesia (BI) was the single authority that combined roles of a central bank (such as monetary and interest rates) with responsibilities with regards to Payments.

OJK is now the prudential authority. It has proved to be a good thing, as the role has expanded a lot. While Bank Indonesia had more of a bank-related focus, OJK is now better focused on additional areas such as the non-bank financial industry. OJK looks at microfinance (MFI), rural requirements and non-bank providers and this opened up a new potential to bring lots of areas under one roof.

It always takes time for dust to settle, and establishment of the new regulator and transition to them did slow things down in terms of financial inclusion – for instance the pilots had to be terminated in terms of better transition to OJK.

How have the new regulations changed things?

The e-money regulations issued by BI tend to favour the four big banks against smaller banks and telcos. Larger banks can offer a wider range of services through agents. However smaller banks and telcos are restricted to using formal entities as their agents. This proved to be a real restriction as it limits small banks and telcos to formal retail chains, co-operatives and pawn shops, but excludes the mom-and-pop stores that are more commonly found in Indonesia.

The new regulations recently released by OJK provide for a much broader set of services and allow a variety of banks to offer services through agents. OJK was able to obtain and act on industry feedback since the first draft in August, and the final release addressed concerns from a range of stakeholders.

This will let a variety of banks offer effective basic banking account services. There can be a nil minimum balance and they can charge transaction fees lower than normal. At the same time KYC provisions are strong and it properly lays down mechanics of a financial inclusive bank account. There are provisions for microcredit and a whole suite of products for the poor, and interest can be paid and charged.

So what does this mean in terms of the agent network? How many stores and outlets could potentially be utilised?

I could not give a figure for this but certainly big banks are looking to have combined agent networks of over 100,000 locations. This is required to cater to the needs of a population of 250 million. Although Indonesia has banking infrastructure in terms of ATMs/POS this does not reach the areas where it is needed. Also it is based on bank accounts rather than E-money, so as to work with existing systems. Now additional over-the-counter (OTC) services at banks and ATM services could also be available. Certainly the potential is huge!

But where does it leave the telcos?

Telcos are an important part of this but they cannot participate directly in government payment schemes, which are only to be managed by banks and post offices.

In that case would the same problem faced in India not be encountered? In remote areas typically there are airtime top-up networks that banks find hard to control, as compared to telcos

They do, but banks are now learning to manage agent networks. In any case telcos don’t necessarily control their own networks. In Indonesia top-up is now managed electronically and not by scratch cards. This is complex and margins are smaller, but the potential is there.

Are there any further plans for regulations over 2015?

Bank Indonesia (BI) and OJK now want to harmonise regulations. It can tend to be confusing with two similar schemes when there are differences. This will take time some time to be achieved.

By far the biggest activity will be the launch of branchless banking and G2P payments (government-to-person). The most important so far is the recently launched KKS (Family prosperity card).

In Indonesia since the new president came into power, one of his big challenges has been to more effectively manage subsidies. The fuel subsidy previously took up almost 20% of the national budget, and this does not benefit the poor. Consequently there is a focus on reallocating funds to cash transfers to the poor.

The database that TNP2K maintains has data for over 15.4 million households. Today the majority of these are paid through OTC. As of the end of 2014, 1 million are paid electronically. This is paid in E-money from Bank Mandiri using the Post Office as an agent and through SIM cards of the three largest telcos. This now delivers funds smoothly and is really a huge achievement. In less than 2 months Bank Mandiri created so many accounts; mobile operators manufactured and distributed so many SIM cards.

What is the total volume of G2P?

Well, I can’t share a total amount, but it is on an average 200,000 rupiah per family per month. This year payments will be significantly more, with the offset gained by the reduction of petrol subsidy.

How does the model work operationally with SIMs?

It has been really useful to test this out 1800 households. We firstly found one major problem – when surveyed, every family of beneficiaries had a mobile phone. However, often the lady of the house did not have one. In order to ensure control of the subsidy goes to mothers, we gave them SIM cards.

However, to achieve this we ran into two further obstacles. Firstly, obtaining a photo id for them and registering new SIM cards proved to be a major logistics effort. Secondly, the SIM expires very soon in Indonesia. If you don’t talk or add credit, the SIM could expire in as little as a week. With a top-up of 5$-10$ it lasts but then people put in just cents and that expires in days. That is a major problem for distribution of money. When it’s time for the second payment, the SIM may have expired already.

With this learning from the 1800 household pilot, all the telcos co-operated and gave SIMs with a 5 year expiry period. Although top-up would continue to expire, the SIM card won’t.

Could you please share a bit about the business model?

Bank Mandiri is the contracting agency. They use the Post Office as their agent, for which they give them a fee. The whole business model is yet to be finalized.

Telcos earn through SMS charges to Bank Mandiri, but again this needs further refinement for a sustainable long term business model.

How many have formal identity in Indonesia?

It is difficult to get this information. We find that a majority have Id - Over 90-95% had formal id in our studies. The problems are more that this may have expired when they moved house and have not updated the Id. This is not a big obstacle. Indonesia does have a national ID project, but it is still underway and the supporting infrastructure for reading and using the cards isn’t fully in place.

What distinctive changes do you see in developments in Indonesia as compared to the rest of world?

Firstly there is a strong banking sector as compared to Sub-Saharan Africa. So the Telco model is not appropriate. With 50% urban population there is strong role for banks in urban areas and it’s not just a rural problem. We will see more channel infrastructure develop, with POS, ATM and mobile phones.

When I first arrived here we felt that the appropriate regulations were around the corner. However this took time to improve but the industry learnt and readied itself while waiting, so now providers are ready to roll out the services quickly. The E-money program proved that when the country wants to do something quickly they can. So this is an interesting place to watch.

Yes, we saw a similar pattern with Prime Minister Modi in India. How about retail payments?

Yes, there is a lot of activity planned in this area. The first step is to encourage more consumer payments through formal instruments. There will be a wider use of the debit card as BI rolls out a national non-cash initiative.

Banks that issue debit cards are committed to working together. There are a phenomenal number of POS terminals, yet they are not used as the market is highly fragmented. In one case we noted a record number of 12 POS in one place – this was at the airport so not really representative, but it’s not unusual to see 4 POS at a single location. There is far too much use of cash, and this is now set to reduce.

Thanks so much Michael, this is an incredibly interesting time in the development of Digital Money in Indonesia. I wish you all the best for your projects in 2015 and beyond!

Michael Joyce is Mobile Money Policy Advisor at TNP2K where he supports the Vice President’s National Team for the Acceleration of Poverty Reduction with advice on policy and implementation of mobile money initiatives to assist in poverty reduction and alleviation across Indonesia. Michael has a background of working within mobile money and financial inclusion for over six years, previously at WING in Cambodia and with ShoreBank International at Bangladesh.

Charmaine Oak is Author of The Digital Money Game, co-author Virtual Currencies – From Secrecy to Safety

Contact Shift Thought for details of our recently published unique “Digital Money in Indonesia 2014” Viewport.

The impact of HCE and Tokenisation on the US Payments Market

Posted on February 19, 2015 by Charmaine Oak

Host Card Emulation (HCE) and Payment Tokenisation (or Tokenization for readers in America) are two highly significant new developments from 2014 that have the potential to radically change the way online and mobile payments are carried out and address some of the issues regarding security and fraud. These are not just about technology but about creating shifts in the control of payments that could impact the business models of key players.

As part of our review of the key developments in payments over 2014, I had a really interesting discussion with Sai Casula, a payments expert and Banking, Cards & Payments Consultant for Tech Mahindra. Sai shared his thoughts on Digital Payments, Tokenisation and HCE: What these mean and how they may affect the US in particular, as well as other markets world-wide. Below I share highlights from our discussions, to offer a basic introduction to these two important areas that are poised to bring about big changes in the way we pay.

Sai Casula, thanks for your time today. Please could we start with a bit of background about yourself and your organisation, Tech Mahindra?

I work for Tech Mahindra where we support customers worldwide, and in particular I am engaged in key projects with MasterCard. With the acquisition of a majority stake in Comviva in 2012, Tech Mahindra gained a strong foothold in Digital Payments space including mobile wallet, mobile POS and Cloud Payments technology. Mahindra Comviva has over 120+ deployments across 55 countries. Our mobiquity® Wallet and mobiquity® Money platform supports 2 of the top 5 Mobile Money installations globally. mobiquity® Wallet supports NFC, QR Codes, BLE and other contemporary technologies to enable mobile commerce.

HCE is an important development going back to end-2013. Could you share a bit about what HCE is?

Host Card Emulation (HCE) was introduced by Google in November 2013 as part of their Android 4.4 KitKat update. It allows for cards to be issued from the cloud and used by mobile payment transactions anywhere. This was a highly significant move from Google, who had earlier faced a pushback from mobile operators in the US at the time of the launch of their Google Wallet in May 2011. It is significant because it for the first time created a level playing field for all to participate in NFC.

Prior to this it was mobile operators who could dictate terms, thanks to their control of the SIM and hence ability to own and control the Secure Element (SE) in the Universal Integrated Circuit Card (UICC) which is the smart card used in mobile phones.

With the introduction of HCE consumers with Android devices could make NFC payments using Visa or MasterCard cards provided by the consumer’s own banks. This gives banks the freedom to deploy mobile/digital payment systems everywhere.

Thanks for this background on HCE. Could you shed some light on tokenisation?

Historically there is too much fraud involved in online payments and card not present (CNP) scenarios. Consumer concerns of fraudsters stealing and using their cards online have historically inhibited people from fully enjoying online shopping.

Merchants and Card issuers in particular bear a high cost from fraud relating to payment cards. Apart from the online fraudulent transactions we also see large scale security breaches similar to Target and Neiman Marcus where the card numbers are stolen in millions and the card issuers incur an extremely high cost to replace all the cards.

Tokenisation is a model that stands to change this. Payment tokens are surrogate values that replace the Primary Account Number (PAN) with the alternate card number or “token” in the payments ecosystem. Tokens are mapped to the funding account, leveraging existing payments infrastructure and messaging formats for authorization and processing. Tokenisation reduces fraud for the entire digital payments ecosystem.

How is Tokenisation being received by the various players in the US payments ecosystem?

This brings advantages to a number of players across the ecosystem.

Firstly, the Bank Issuers really like this. When issuers provide a token to a consumer for the purpose of making a payment, this limits the use of that token to a single transaction or context, as appropriate. If there is a breach then, it is only that token that is compromised, and not the original payment card. This is also an opportunity to extend the existing card business in digital space, with more secure transactions and fewer chargebacks.

Secondly, The Networks also like this as it benefits their customers the Bank Issuers, and helps bring down the cost of fraud, within an established card scheme model.

Thirdly, any mobile wallet can accept a token, Itworks seamlessly with existing mobile payments systems and needs no changes to the Point of Sale (POS) Fourthly, merchants like this as the same token can be used on the internet as also across other channels such as mobile and POS. This brings the advantages of reduced chargebacks, faster checkout, more security and more payment options.

Last, but by no means least, consumers benefit due to better user experience and added peace of mind as they would be spared the anguish connected with a loss of a payment card or worse still the wider effects that this may have on their identity and credit history.

So there is an immediate business case and ROI for the key players through the potential reduction in fraud and the reduction of friction in Ecommerce.

What is the importance of HCE and Tokenisation in the US in particular?

Given the high-profile breaches suffered for instance by Target, Home Depot and Neiman Marcus in 2014, merchants are very concerned and anxious to reduce their exposure that comes from the existing card-on-file model. That is where Tokenisation has a welcome role to play.

The implementation of Apple Pay is an interesting case of HCE principles and Tokenisation that come together to create a seamless payments experience.

How is all this likely to affect the adoption of NFC in the US over 2015?

NFC has had a good ride recently. After a slow and unsteady history over the last 10 years, Apple Pay has created a resurgent interest in NFC. The strong user experience with Apple Pay has also increased the adoption rate of Mobile Wallets in the US Market.

Of course, NFC has a number of uses beyond payments. For instance Apple’s new iOS 8.0 is geared to health care applications.

I think the biggest war in 2015 is going to be the tokenisation war.

The big questions are who will own the key positions in the newly developing value chain? Who will manage tokens? Who will issue them? So apart from the payment networks such as Visa and MasterCard, there are many more players lined up for this. The Clearing House – Secure Token Exchange, Mahindra Comviva, Gemalto, FIS, Fiserv and First Data are all keenly interested.

At Tech Mahindra we feel uniquely position to provide an “End-to-End Cloud Payments Solution” including Cloud Payment HCE/Module, Tokenization and Mobile Application Module. We believe that our expertise in Mobile Cloud Payments, out of the box solutions and Integration expertise can help Bank Issuers bring enhanced digital experience to their customers in short time span.

So all in all we agree this is a very important space to watch then! Thanks so much for sharing your very interesting thoughts with us and I wish you every success in the key projects you are managing this year.

Sai Casula is VP and Banking, Cards & Payments Consultant for Tech Mahindra, and is currently based in the Greater New York City Area.

Through years of experience in the banking, cards and payments industries, Sai has acquired a deep understanding across these connected areas, with strategic and operational working experience across several regions worldwide.

Charmaine Oak is Author of The Digital Money Game and co-author of Virtual Currencies – From Secrecy to Safety

Shift Thought is a UK-based consultancy that offers subscriptions to a unique, constantly updated portal that covers a set of 32-key services we include under Digital Money.

To commemorate Chinese New Year 2015 we have just released “Digital Money in China 2015”, a 380 page report that completely dissects the progress of money going digital in China, and the shadow this could cast on your plans, wherever you may be in the world today.

Contact us today at contact@shiftthought.com for details on our unique resources that you can leverage to stay ahead of competition in this important, fast moving industry.

Disruptive innovations in remittances in the US-India Remittance Corridor

Posted on February 9, 2015 by Charmaine Oak

The US-India Remittances Corridor is arguably the most important one in the world today. The US is the most important sender to India, the largest receiver of remittances. A disruptive service such as the one just launched by Remitly is therefore highly significant. I caught up with Matt Oppenheimer, one of the innovators of our time, to understand what motivated him to launch the first mobile only remittances firm, congratulate him on his entry into the US-India corridor and find out a bit about how it all works. I hope you find this of interest, whether or not you are a specialist remittances firm, as money transfer is now an important component for any digital wallet service.

Matt, could you please tell us a bit about yourself and your mission at Remitly?

Sure. I started Remitly after graduating from Harvard Business School and running mobile and Internet banking initiatives for Barclay’s Bank in Kenya.

Living abroad I experienced first hand how difficult and expensive it can be to send money across borders. That’s why I started Remitly as a secure and convenient way to send money abroad.

Our mission is simple: to build the easiest, most affordable and secure, mobile device oriented international money transfer service.

Could you share a bit more about Remitly?

Remitly is a mobile payments service we launched in 2012, for consumers to make person-to-person international money transfers from the United States. Our digital service leverages the latest technology to eliminate the forms, codes, agents, extra time and fees typical of the traditional money transfer process.

We are authorized to operate in 41 states and we currently send over $100 million dollars annually.

We are proud to be backed by industry-leading investors, including Trilogy Partnership, QED Investors, Founders’ Co-Op, Bezos Expeditions, and TomorrowVentures.

We are headquartered in Seattle, WA with additional offices in the Philippines.

What has been your experience so far, in bringing out a mobile-only remittance service in the US?

As a banker I was aware of the regulatory hurdles and importance of security inherent to building a robust money transfer service. Accordingly, we took a measured and systematic approach from day one, while at the same time always maintaining a customer centric view.

The response from our customers has been fantastic. Since 2012, our convenient and reliable Apps have enabled thousands of customers to send millions of dollars to the Philippines.

What are the advantages of offering a service that leverages the mobile channel in USA?

Well, I believe the time was perfect for us to build a mobile remittance company in the USA. Here’s why:

There are now over 188 million smartphone users in the USA. This is up by 21% versus the prior year. It is part of a worldwide trend, with 1.7 Billion smartphones globally, up 28% from the prior year.

And consumers are increasingly demonstrating their keen interest in using their mobile phones for remittances. Over 48% of smartphone users have used mobile financial services in the last year.

I understand you have just expanded into India. I am curious to understand a bit about how this works

We are excited to now offer our services to the those in the U.S. wishing to send money to India.

Customers can use our iOS and Android Apps, or our website, to send money to any major bank in India. As always, they can pay using their bank accounts or debit cards.

We believe these new customers will enjoy the ease of our digital experience, along with 24/7 customer service.

With Remitly, every money transfer carries a unique delivery guarantee: We deliver on time, or your money back!

Our service is also great value for customers. Transactions under a $1,000 are free and transactions above that amount are only $1.99. We also offer some of the best foreign exchange rates in the industry.

Matt, I think those are great consumer advantages, congratulations on implementing them! I am curious to know more about your service to India, announced last week

We are proud to welcome India as its newest destination country. Our coverage in India spans a network of over 120 banks and their branches.

Instant direct deposit is available for many banks year-round, 24/7, including ICICI, Yes Bank, and PNB.
Four hour deposit is available during regular Indian banking hours for all other banks.

Our customers in the US can use our popular IOS and Android apps for sending money to India. We’ve had great feedback from customers who have told us they love the user experience. We continue to add innovative features to enhance speed, reliability, and usability.

For instance, iOS users can now sign in using Apple’s Touch ID, while Android users can review foreign exchange rates in real time by simply adding a widget to their Android home screens.

Senders can also visit www.Remitly.com/india to send money online via desktop computers and other devices.

The Remitly app is available to download from the Apple Store and Google Play.

What are the unique opportunities you see for Remitly over the next few years?

Remitly is already sending over $100 Million annually. We are growing over 400% year over year. With the launch of our service to India we are now in two of the largest U.S. remittance markets. We strongly believe that Remitly is uniquely positioned to exceed customer expectations in these markets and others.

Although we’re confident we already have an industry leading mobile based product, and offer the best deal for sending money to India and the Philippines, we really are just getting started.

Matt, I take this opportunity to say how much I appreciate the work you are doing in changing the way migrants can send money home. I wish you, and Remitly every success for the future and will be on the lookout for more announcements!

Matt worked for Barclays Bank first in London and then Nairobi, Kenya where he oversaw mobile and internet banking initiatives. It was there that he became passionate about solving the difficulty in sending and receiving money from overseas.

Matt launched Remitly in 2011, with the mission of leveraging mobile phones to build the best and most affordable way to send money across borders. Matt has an MBA from Harvard Business School and a BA from Dartmouth College. He's a 5th generation Idahoan and avid traveller. Follow him on Twitter at @matt_oppy.

Charmaine is author of “The Digital Money Game: Competing in the multi-trillion dollar payments Industry”

Shift Thought is a UK-based consultancy specialised in payments and remittances. We have built a unique 360 degree view across 32 key services we term as Digital Money for which we maintain a continually updated knowledge base that we share through our portals and Viewports (Portal in a Report). Our latest Viewport “Digital Money in China 2015” is just out and offers highly important insights into the trends, opportunities and risks, ecosystem and digital money initiatives in China.

The War of the Red Envelopes in the Year of the Goat

Posted on February 3, 2015 by Charmaine Oak

From the land that brought some of the most remarkable inventions in the world between 2000 BC and 200 BC, such as cast iron and the suspension bridge, the new frontier for modern day innovation in 2015 is Digital Money.

There is a drama unfolding in China with continued strategies and lobbying between the top players – Alibaba, Tencent, Baidu, China UnionPay, the banks, the regulators and others. Like a jigsaw puzzle, each large group is assembling their “armies” – a number of different companies, groups of companies and partnerships that will help them obtain dominion over the fast evolving digital money market.

We will soon be in the midst of one of the greatest migrations in the world, as Chinese from around the world travel home to celebrate the Year of the Goat. While I wish my dear Chinese friends a wonderful New Year, I am keenly interested to see who will win the War of the Red Envelopes or 'Hong Bao' as it is called.

What is Hong Bao?

In China it is a very important tradition to gift money in red envelopes to children and younger members of your friends and family. The envelopes are red, as are most things associated with the Chinese New Year.

Last year, for the Chinese New Year, Tencent's WeChat (similar to WhatsApp) stole a march over Alipay by launching a viral and hugely enjoyable way to gift red envelopes electronically.

Tencent's WeChat got 5 million customers to send over 75 million red envelopes within 24 hours, through an electronic substitute for the centuries old tradition of Hong Bao.

This was just one in a string of digital money initiatives from the Internet Tech Giants of China. However it was highly significant in terms of gaining adoption for the WePay mobile wallet service.

What made Tencent's Hong Bao click?

In the year when the mobile internet overtook the PC internet in China, the market was just ripe for this service and Tencent pulled off a classic marketing promotion.

For me, the primary innovation was in the manner of embedding this into normal social interactions that had soared in popularity, not just in urban areas but across most of China.

The second innovation was in offering an alternative means of paying by getting people to link in their bank accounts, something we may find commonplace in the West but was quite an achievement in China at that time. Of course, now WePay had customers with means of paying, not just for the New Year but as a strong base for all the various services they launched subsequently. In 2014, China became the largest online retail market in the world, and many of the transactions now take place using smartphones.

And of course last, but by no means least was the way that the giving of Hung Bao was turned into a game. As my dear friend Michelle Zou explained to me, it was great fun for her to send money this way as an element of suspense was introduced in the way the allocated money was shared out between the designated receivers of red envelopes.

How did Tencent build on this success?

Soon after the New Year Tencent established the Weixin Group on May 6, 2014 and rebranded to create Weixin Payment services.

Last month WePay’s WeBank became the first online private bank to launch in China. One step led to another and an important first step was their New Year Hung Bao service.

So what could we expect this Chinese New Year?

So what may competitor Alibaba do this year? Their recently created ANT Financial Services Group (that includes Alipay) is well poised to counter this success. Alibaba has many significant achievements as I've described in my previous posts, and the group is shortly to launch their own private online bank.

How will competitors stay in the centre of Chinese New Year celebrations? And will one of the many other new third party payment providers (our report out this week describes 264 licenses/extensions) also have some tricks up their sleeves.

We'll know soon enough, and it is bound to be interesting.

Have you tried the new Hung Bao services?
Has anyone outside China thought of doing this for the extensive communities around the world?
What innovations do you expect to happen this year?
Have you seen a mobile wallet that achieved similar traction to what Tencent managed last year? I believe such adoption rates are very hard to achieve.
Would you use electronic red envelopes, or must it be cash?

I would love to hear your thoughts!

We are proud to announce that our latest Viewport “Digital Money in China 2015” has just been launched this week. Do drop me a line at contact@shiftthought.com to know more about this report that is not just relevant to those doing business in China but is a must-read for anyone interested in the fast evolving Fintech, Payments and Financial Services markets.

Check out our “Focus on China” posts created in honour of The Year of the Dog, Chinese New Year 2015. Happy New Year to all our valued Chinese customers and friends around the world!

A deep dive into China’s innovations in Mobile Payments, Internet Finance and Banking

Posted on February 2, 2015 by Charmaine Oak

It is easy to write-off what is happening in a market far away from you, and to believe that somehow your services are not affected. After working on our latest in-depth study of the People’s Republic of China (PRC), I believe this would be a fallacy. If you are offering or intend to offer digital money services of any kind, you really need to be aware of what’s happening in the most populous country in the world, and now the largest online retail market. Here’s Why ..

On a trip to Beijing a few years ago I found myself on a main road trying to hail a cab in the evening at rush hour. After moving to several different locations and not succeeding I finally walked the long distance to my hotel and put this down to one of the most difficult travel experiences ever. Now, though, you can simply order and pay for a cab from your mobile phone, and this is just one of a set of highly convenient mobile payment services now available.

An immense change has taken place in mainland China over the last 5 years over which we have carried out in-depth studies of this market. This has positioned China as the largest online retail market in the world, and a leader in the use of Digital Money. Services started strongly on the Internet and have now gone mobile and offline, in contrast to a number of African countries that grew on the M-Pesa Kenya model.

A strong focus on innovation

Over 2014, the downturn in traditional sectors such as real estate and slower growth in exports resulted in Q3 2014 economic growth sliding to 7.3%, the lowest growth level since the global financial crisis. This prompted the China State Council to promote innovation especially in the MSME sector, with a new 40 billion yuan ($6.5 billion) venture capital (VC) investment announced in January 20154. To place this figure in context, since first launch of the VC program in 2009, just 9.1 billion yuan was allocated.

Shift Thought sees this as one more indicator of how China is reinventing it’s positioning in the global business value chain, and digital money services are an integral part of this plan. Several large IPOs are expected as the large Chinese banks continue to restructure and go public, with a reported 5 banks doing so since Oct 2013.

Over the past 4 months Shift Thought has completed an immersive study and analysis of the highly complex China financial services market, leading to the publication of our 380 page in-depth report on every aspect of money going digital in China, including details on regulation and sizing of the various different sub-markets. I share a few highlights in this blog, as the first in our “Focus on China Series”.

Historic changes in regulations

As the market has demonstrated a voracious appetite for the new services, regulators have struggled to stay in control and also safeguard the existing licensed players in the market. In rapid succession we’ve seen regulations that brought in new third party providers, online banks and agent banking. New regulations are imminent that will have wide ramifications for start-ups and existing players alike.

First online private banks

Last month we saw the launch of the first private online bank WeBank, and there are a number of other newly licensed banks about to launch. What is interesting is the strategic potential this creates for the category Shift Thought terms as the ’Internet Tech Giants (ITG)’ of China: including groups such as Alibaba, Tencent, Baidu and others. We see huge M&A activity and rebranding activities that are readying these groups for the next level of strategic expansion over 2015.

Internet Finance

With the rapid increase in the use of the Internet, especially through smart devices, the most important trend we saw in 2014 was the meteoric rise of Internet Finance including a range of online financial services such as online payment, crowd funding, P2P Lending and others. This prompted the banks to jointly issue limits on the amount that could be transferred to investment funds such as Alibaba’s Yuebao, with P2P regulations expected shortly.

Third party providers deepen services

In 2010 the PBC released regulations to allow third party non-bank providers of payment services. Since then over 264 licenses or extensions were granted to third party payment institutions, of which over 97 supported online payment and over 30 (including the 3 mobile network operators) have permission for mobile payment services. Favourable tax treatment for online transactions has further ignited this market.

Online Payment market slows down after meteoric rise

Over the last 4 years along with massive growth, there has been stiff competition in the online payments market, with some of the providers already forced to close down. However the achievements have been phenomenal, leading to the creation of the largest online retail market in the world, and digital wallets transforming into mobile wallets.

The rise of O2O services

Both online payment and mobile payment grew strongly over 2014, with mobile payment substituting offline payment and new O2O services emerging that connect online and offline services in a manner that has been uniquely innovated in China. These O2O services allow consumers to find and use products online and offline in new ways that support their lifestyles and completely shake up the existing retail market, with strategic partnerships being formed to reposition and link retailers and online providers.

Financial inclusion

A key concern of senior Chinese Government, working with development groups this year has been for the 400 million unbanked/under-banked in China, and the 100 million under the poverty line residing largely in rural areas. Other underserved segments include migrant workers, MSMEs and unemployed workers, with recent lay-offs from state-owned enterprises (SEOs). We explore each of these segments at length, to look at the services now available to them and how these are changing – including domestic remittances, inward remittances, lending and branchless banking services.

Focus on rural areas

Some of the most interesting innovations we saw were those that are now going into rural areas, with the rapid spread of the mobile internet. In a manner that creates rich scenarios for The Digital Money Game as described in my recent book, providers are targeting multiple services over multiple channels in a bid to cement their market shares and create and grow new markets through their innovations. Our report details these innovations, such as a unique green telephone that has been adapted to support Point-of-Sale and banking transactions and was distributed free to rural households.

So why is this important to you?

This is not just important from the perspective of making an entry into the largest digital money market in the world – a feat not for the faint-hearted, I’m afraid.

As we saw Chinese goods flooding Western markets in the past, the new digital channels are enabled a new Chapter in Chinese export capabilities. We see a number of services already extending across South-East Asia. With the benefit of massive IPOs (such as Alibaba’s $25 billion, the largest IPO of it’s kind ever), providers are readying themselves to travel further afield, and you may need to compete against these new services in the US and European markets and not just in Asia Pacific.

Digital Money in China 2015

We are proud to announce the release of our globally unique report “Digital Money in China 2015”. This is essential reading for anyone who offers, or plans to offer any one the 32 key services we cover under Digital Money: including Online Payments, Mobile Payments, P2P Lending, Digital Banking, Remittances and more. Contact us today to look inside this report and learn more. Our team is ready to support you in your plans for China and elsewhere in the world. Drop us a line at contact@shiftthought.com to arrange for a call to discuss your unique requirements.