How Apple play affects The Digital Money Game

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Now that Apple Pay is here, how does it affect the projects in your pipeline? Which should you drop, where should you invest more and who should you look to partner next? We are at the cusp of the creation of a new ecosystem. But will Apple Pay fare better than Google Wallet did when it first launched in May 2011? There is a feeling of Déjà vu and Let’s Wait and See. For Apple as well, Apple Watch was No. 1 – payments was No. 2.

So is this going to ignite NFC payments? How will things change? The short answer is I don’t think anyone knows yet. We’ll what are the mobile operators thinking now – we all know Verizon was not a cheer leader for the Google Wallet. What is PayPal thinking? What if Walmart does not come around?

Why is this important?

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The major factor for any new payment service is adoption. So far adoption of NFC has been a 10-year war between the banks and the mobile operators and has struggled to gain traction.

Then in 2011 we had the entry of the Google wallet, and each of the card schemes with their own wallets. Still consumers and merchants failed to adopt. While contactless cards have gradually crept into use, paying by phone continues to prove elusive, for a variety of reasons, with one of the main ones claimed to be lack of handsets, customer security concerns and business model.

Apple has 800 million customers as “card on file”. Additionally the API will be available to developers. Merchant support has already been announced: Integration with Uber, a food app from Panera, Major League Baseball's app to order tickets from your phone, and Open Table to pay your bill from your iPhone 6 or iPhone 6 Plus. Apple API to be offered in iOS 8 to allow app developers to integrate Apple Pay into their applications.

Apple has a following, so is not dependant on mobile operators to push their phones, however operator subsidies that could be as high as $500 help make them affordable. The rapid adoption of smartphones across the world has changed the balance of power. Certainly in the US, Apple is Top Dog as a smartphone manufacturer, with 42.1% OEM market share as of June 2014 according to comScore reports.

However while in the US and Europe Samsung and Apple dominate, the share of both providers has been dropping in emerging markets where we see a fragmentation emerging. In urban China, Xiaomi with its affordable RedMi model continues to go from strength to strength, securing a 27% share of smartphone sales in the second quarter of 2014, compared with 21.1% for Samsung. And payments by watch + iPhone cannot be a top priority for the masses in emerging markets.

Too little too late?

So far Apple was a late starter where contactless payments are concerned. Like a swan, the movement seemed to be more “under-water”, as news of patents obtained for motion based payments got out in January 2013. Apple obtained a US Patent for a digital wallet and virtual currency. It described a system of managing credits via mobile device. Mobile users would be able to receive credits or coupons stored in their account. Check out Patently Apple for the whole background.

Back in June 2013 Apple released its first mobile commerce platform, called the iCloud Keychain: consumers could an store a variety of information, such as passwords and financial details for use across several Apple devices (Mac, iPhone or iPad) to log into websites or make purchases online. The platform did not support NFC and existed as an application rather than a physical device.

Earlier in June 2012, the Apple bar-code-based Passbook mobile wallet was launched, as a basic mobile wallet without payment functions, using barcodes to store and represent multiple boarding passes, store cards, and movie tickets. It had location-enabled alerts, and real-time updates and it displayed passes based on a specific time or location. When consumers walk into a participating shop the loyalty card appears and can be scanned to pay or check balance. It was expected that this could evolve into a mobile payment service by linking the Passbook to customer credit cards and iTunes accounts.

Effect on the Digital Money Game

Contactless payments that Apple Pay now propose to offer comes as a reinforcement

Online payments and ecommerce in India

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India’s ecommerce market is set to soar to USD 20 billion by 2020 (1), with growth generated, mainly, by the use of smartphones.

 

The USD 4 billion ecommerce is being driven by cheap handsets and mobile data plans that allow consumers to buy from their mobile devices. As we say at Shift Thought, India’s payments market is 'Born Digital Money', and this demands convergent payment services of the variety we describe in our Digital Money in India 2014 Viewport, which reflects our recent market studies in India, and from which this analysis is taken.

I had the opportunity to share my opinion on the direction of the e-commerce market with The Paypers, the Netherlands-based leading independent source of news and intelligence for professionals in the global payment community.

Click here to read the whole Expert Opinion published on 19th September 2014.

 

 

Charmaine Oak

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

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The MMPL Story: Innovating through the Assisted Model for e-commerce in India

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Today I am joined by Shashank Joshi, serial entrepreneur and Managing Director of My Mobile Payments Ltd (MMPL), which he set up in 2010. Today MMPL is one of the companies that are driving the war on cash in India. They make it easier for consumers to keep their cash and cards away and just carry their mobile phones.

 

Through an extensive network of 225,000 small stores and a multi-lingual app that supports 10 languages and a proposed first support for payments through WhatsApp, MMPL today provides 24 X 7 mobile payment services to subscribers and merchants under their ‘MoneyOnMobile’ brand.

It was great to hear of the multiple innovations and the insights that Shashank had that led to his innovations that bring the uniquely Indian ‘Assisted Model’ of service to use in serving the needs of the unbanked, while also creating profitable transactions for merchants.

Shashank, thanks very much for your time today. Could we begin by understanding your main motivation for getting into the mobile money business in India?

I’ve been a serial entrepreneur for 22 years, having started my first company before leaving college. From 2003 to 2010 I was heavily involved in payments in the US, managing the whole merchant acquiring process from card swipe to settlement and underwriting. My first plan was to start a POS solution in India. However when I did my feasibility study in 2009 it was the exponential growth of the use of mobile services that set our direction and this led to my embarking on money on mobile in June 2010.

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How did things evolve from SMS based payments to the mobile wallet app you support today?

At first we started with text messaging. As you know, India is a highly price sensitive market and back then we could expect zero Capex when starting our business. We planned for something that needed no change of handset, was not operator led and worked on all networks and I’m glad to say we got some great numbers in our first 3 years.

Today we provide a mobile app and our customers are the small retail stores. Consumers go to these outlets to recharge mobile phones, pay bills and buy tickets and more.

 

Please give us a bit of context on the Indian payments scene (especially the PPI business) and share some of your key learnings in bringing services to market

The Indian payments market is indeed pretty unique. I’ll share three of our key learnings to put some colour on this.

 

Key Learning 1: To succeed in India, Apps must be multi-lingual

India skipped the desktop generation, going direct to mobile. So mobile apps are important, but English only on an app is a deterrent as every state speaks a different language. We modified the app we’d launched last year and now support top 9 regional languages + English. (Ed: Did you know there are 1,683 mother tongue languages in India, with 780 different languages in use today?)

We support Android as that’s a more realistic $65 price point as compared to Apple/ BlackBerry. The unbanked is our primary segment and they have been taking to cheaper smartphones with data plans, to avail of WhatsApp messaging. In fact, MMPL expects to be the first company in India to launch on WhatsApp in the near future. We are also the first to have launched a multilingual app of this kind.

 

Key Learning 2: Ability to convert cash to digital currency is a game-changer

 

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We have focussed on building our key asset in terms of cash network. We already have the ability to convert cash to digital currency at 225,000 “Mom & Pop” outlets in every state across India barring J&K. Going forward we are aiming to increase this to a million by end 2015 (we estimate approximately 4 million small stores exist in India just now).

 

Key Learning 3: Move from COD to CBD

You know how India has developed this unique Cash on Delivery (COD) model. Well the thing is, as many as 8 of 10 cases may be impulse buys – satisfying wants rather than needs. By the time the delivery is on your doorstep in 4 days, quite often that impulse has faded.

 

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E-Commerce cannot be profitably built on a COD model alone: it needs to be a payment first model. At MMPL we are building a Cash Before Delivery (CBD) model. This is a payment method in which an order is processed when received, but is shipped only upon receipt of full payment. Consumers pay from money on mobile wallet to the e-commerce provider, who gets a settlement as he gets from Visa and MasterCard. His payment is now in the bank before the goods are shipped.

 

That is fascinating, thanks Shashank. But I’m still a bit confused about B2B v/s B2C. As you mention that your customers are the stores, could you tell us how this unique model works in India?

In India the B2C model is protected by RBI who must protect consumers. On the other hand the B2B model, where we are talking to the stores is not directly regulated by RBI. In India the B2C model is not seeing so much traction due to the current RBI restrictions on Cash Out. It is rather the B2B model that is growing fast. If you put  ₹ 10,000 on your phone, you can only use it to pay for services, not extract any of it back if you need it.

 

Please tell us a bit about the unique “Assisted Model” of service unique to Indians, and how you innovate to serve the payment needs of the people with this model

People have the tendency to come into the store and ask someone to do the transaction. At first I thought this may be a language issue, but it goes deeper. The self-serve model that is popular in the Western world simply does not work here, is not in the Indian DNA. Look at hotels – there is no such thing as a self-check in hotel here. There is not a card on file concept.

The B2B model really facilitates this assisted model. The outlets are not branded; they are small convenience stores which people visit daily. These retailers have a prepaid arrangement with MMPL – I give them a consolidated balance from which they can then do bill payments, top-up recharge and other functions on behalf of consumers. They hang a small sign outside their shop to let people know the walk-in services they offer, as a footfall driver.

 

Shashank, how do you see regulations evolving in India in the near future?

We are currently involved in a pilot with RBI using Aadhaar card authentication. In another 3 months we should heva the results of the pilot. The pilot has seven participating companies and began two and a half months ago. It’s quite low key for now, on RBI’s stipulation – we can’t do a lot of advertising about it. In fact RBI has been very helpful in evolving these new regulations, and certainly the new government and the highly progressive RBI Governor’s vision greatly helps in evolving services in a way that will help the cashless models of the future.

 

Shashank, it has been fascinating to talk to you and to understand your story. Although I am only just back from our detailed market study for creating our “Digital Money in India 2014”, speaking with you has added more dimensions already, and it just shows how fast the market is evolving and growing. Wish you the very best for the rest of the year, and for your ambitious goals for 2015!

 

POST BLOG UPDATE:

Subsequent to this interview MML won the ‘Best Wallet’ award at The Emerging Payments Awards held in London on October 23, 2014, withstanding stiff competition from major international m-wallet brands such as Starbucks Mobile Wallet UK, EE Cash on Tap and JustYoyo. Congratulations to Ashank Joshi and the MMPL team!

 

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Shashank Joshi is the Managing Director of My Mobile Payments Ltd, a leading mobile payments solutions company based in Mumbai, India, which owns the "Money-on-Mobile" brand. A serial entrepreneur, Shashank has over 22 years of professional experience of leading companies in the areas of IT and ITES, Outsourcing, Transition, Management consulting and Mobile Solutions. He pioneered the successful execution of Merchant Cash Advance and Merchant Processing businesses through the offshore route. Shashank studied Mechanical Engineering from MIT.

 

Charmaine Oak is Practice Lead of Shift Thought

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

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

Join us to explore ideas at The Digital Money Group on LinkedIn

Write to us at contact@shiftthought.com to share about how YOU are innovating ways for people to pay

How Apple Play affects The Digital Money Game

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Apple has made their play: iPhone 6, iPhone6 Plus, Apple Pay and a wearable Apple Watch. Now that Apple Pay is here, how does this potentially affect retail transactions, e-commerce in general, and the projects in your pipeline.

 

We are at the cusp of the creation of a new ecosystem. But will Apple Pay fare better than Google Wallet did when it first launched in May 2011? There is a feeling of Déjà vu and Let’s Wait and See but also a sense of optimism and expectation of improved retail experience. In the near term iPhone 6 and iPhone6 Plus will be the real winners for Apple revenue, but in the long term Apple Pay will play an increasingly important role in generating revenue from previously untapped sources. As far as the role of Apple Watch itself is concerned, it’s revenue impact in the near term is uncertain but could become more significant as developers bring out apps and its role evolves.

Let us take a look at Apple Pay, as a prerequisite for starting to answer the myriad questions - Is this going to ignite mobile payments? Will it make digital payments more secure? How do the opportunities now stack up? How are the mobile operators likely to react? We all know Verizon, AT&T and T-Mobile were not cheer leaders for the Google Wallet. Softcard (rebranded from ISIS) is readying its own offer. What is PayPal thinking and how does this fit with the Braintree One-Tap announcements? How will Walmart react, and where does this fit with respect to MCX?

 

So why is this important?

The major factor for any new payment service is adoption. Offline retail payments have been sought to be addressed through a variety of methods from PayPal, Google and others, and so far by Apple using iBeacon functionality, BLE and other technologies. So far adoption of NFC has been a 10-year war between the banks and the mobile operators and has struggled to gain traction. It was important for the industry to know Apple’s position with respect to NFC as a standard for mobile payments.

We would all agree that in the current retail and e-commerce arenas one of the most pressing needs is security. The Apple announcement certainly seems to go a long way in addressing this need. For example the combination of its biometric sensors in its devices with the contactless transmission of one-time card number combined with the fact that Apple creates a device-only account number that they store in the secure element, provides a basic foundation for enhanced security. Furthermore as far as customer perspective is concerned, the fact that one can find the phone more easily and take action if it is lost goes a long way towards addressing concerns.

 

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Back in 2011 we had the entry of the Google wallet, and each of the card schemes announced their own wallets as well. Still consumers and merchants failed to adopt. While contactless cards gradually crept into use, paying at retail POS by phone continued to prove elusive, for a variety of reasons. For the longest time, one of the main reasons was claimed to be lack of handsets. However, customer security concerns and more importantly business model were arguably even greater challenges.

And what about adoption?

One of the major challenges in creating a successful service is the ability to bring a large customer base on board rapidly. At the retail level this translates to satisfying consumers both on convenience and trust. In this respect Apple has 800 million customers from their iTune stores as ‘card on file’. However there is a separate step involved to get consumers to start to use Apple Pay for contactless payments as it launches shortly in the US.

This is where the convenience and trust come into play and is something for which we’ll need to wait and watch.

Additionally the Apple API will be available to developers and this is an exciting space to watch. We saw how millions of apps became available for the iPad and iPhone – now Apple Watch is here, and although tethered to the iPhones for the present, it presents a new frontier of innovation. For the present the watch offers an opportunity to integrate a variety of health and fitness related services – something I think we will hear a lot more about shortly.

Merchant support has already been announced: McDonalds, Integration with Uber, a food app from Panera, Major League Baseball's app to order tickets from your phone, and Open Table to pay your bill from your iPhone 6 or iPhone 6 Plus. Apple API is to be offered in iOS 8 to allow app developers to integrate Apple Pay into their applications.

 

So how will mobile operators react?

Apple has a following, and is not overly dependent on mobile operators to push their phones, however operator subsidies that could be as high as $500 considerably help make them affordable. The rapid adoption of smartphones across the world has changed the balance of power. Certainly in the US, Apple is Top Dog as a smartphone manufacturer, with 42.1% OEM market share as of June 2014 according to comScore reports.

Some news is in already as to how mobile operators view this. Softcard (formerly ISIS) have made a statement that they see Apple’s support to NFC as a significant step that sets the stage for rapid scale adoption of mobile commerce.

However while in the US and Europe Samsung and Apple dominate, the share of both providers has been dropping in emerging markets where we see an emerging fragmentation. In urban China, Xiaomi with its affordable RedMi model continues to go from strength to strength, securing a 27% share of smartphone sales in the important China market in the second quarter of 2014, compared with 21.1% for Samsung. And payments by watch + iPhone cannot be a top priority for the masses in emerging markets, although urban, higher income Chinese consumers do seem to be quite interested. 

 

What about the others?

As we describe in great detail in our book, payments has become a hotly contested space. Another fairly late entrant is Amazon.  Just take a look at the Amazon Fire Phone, the first smartphone designed by Amazon. Amazon has vowed to create a whole new shopping experience and until December 31, 2014 the fire phone comes with 800 Amazon Coins to spend on apps, games and more as well as 10% discounted purchase for more Coins. They also offer other benefits including a year of Prime Benefits (Video, Delivery, Books and more).

Such bundles of value are what the customer is increasingly coming to expect, and the whole Apple offer will need to evolve to meet the competition.

 

Too little, too late?

Without doubt, Apple is a late starter where contactless payments are concerned. Like a swan, the movement seemed to be more ‘under-water’, as news of patents obtained for motion based payments got out back in January 2013. For instance, Apple obtained a US Patent for a digital wallet and virtual currency. It described a system of managing credits via a mobile device. Mobile users would be able to receive credits or coupons stored in their accounts. Check out Patently Apple for the background on Apple patents for payments.

Yet, little happened until now.

  • Back in June 2013 Apple released its first mobile commerce platform, called the iCloud Keychain: consumers could store passwords and financial details for use across several Apple devices and they could log into websites or make purchases online. But the platform did not support NFC and existed as an application rather than a physical device.
  • Earlier in June 2012, the Apple bar-code-based Passbook mobile wallet was launched, as a basic mobile wallet without payment functions, using barcodes to store and represent multiple boarding passes, store cards, and movie tickets. It had location-enabled alerts, and real-time updates and it displayed passes based on a specific time or location. When consumers walk into a participating shop the loyalty card appears and can be scanned to pay or check balance. It was expected that this could evolve into a mobile payment service by linking the Passbook to customer credit cards and iTunes accounts.

Effect of Apple Play on the Digital Money Game

The contactless payments that Apple Pay now propose to offer come as a reinforcement to the Digital Money Game of some players, but a threat to others.

And it is no longer enough to offer just mobile payments. To gain adoption, Apple must be able to offer a range of ways to pay, across the web and other channels including TV, now being hotly talked about in emerging markets. And they must get the interoperability story right, and rapidly prove the concept beyond the US market.

 

Read all about this, and work out your own strategy with our recently published, highly acclaimed book, The Digital Money Game. Also, if you would like to discuss immediate ramifications on your projects just drop me a line at coak@shiftthought.com.

 

LIDMGCover

A refreshing innovation–The Sinar Sip from Bank Sinar, part of the largest banking group in Indonesia

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Bank Sinar is a part of Bank Mandiri Group and as part of Indonesia’s move towards financial inclusion Bank Sinar worked with IFC and other partners to carry out a branchless banking pilot. Today we are joined from beautiful Bali by Pak Alit Asmara Jaya who shares his expert thoughts on banking the unbanked using mobile phones: where the challenges lie and what his hopes are for mobile banking in Indonesia in 2015 and beyond.

 

Pak Alit, thanks for your time today. We are greatly interested in understanding the branchless banking experience in Indonesia, and your experience in launching the branchless banking pilot. For context, could you please give us a bit of background about Bank Sinar?

 

Bank Sinar is currently majority owned by Bank Mandiri, a state owned enterprise. It has been in operation since 1970, having originated as a peoples’ credit bank. In 2004 we obtained a licence as a conventional bank and then in May 2008 the bank became a subsidiary of Bank Mandiri, the largest banking group in Indonesia. 

The bank focuses on financing micro and small businesses and entrepreneurs. As of August 2014, our portfolio consists of over 80% of micro and small loans, with the rest being loans to medium enterprises.

The bank only operates in Bali for now, with 86 branches and 7 cash outlets. In terms of size, we have nearly USD 110 million in total assets and USD 78 million in total loans.

Our vision is to become the main challenger in financing micro and small business in Bali. Our mission is threefold: Firstly to develop the product and services as per market and customer needs, secondly to grow and develop Bank Sinar in a healthy and sustained manner and thirdly to support the professional growth of our employees.

 

Please could you describe the needs of the market and why you embarked on a mobile money/branchless banking pilot?

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Indonesia has a population of 250 million, being the fifth most populous country in the world. However at present only 60 million people have bank accounts. The rest must depend on informal financial services. In Bali, an estimated 49% of working adults do not have bank accounts. 

We embarked on the pilot with the following main purposes:

  • To renew our commitment to the micro segment and add to our customer base by tapping the unbanked  segment
  • To  differentiate our services in a highly competitive market
  • To serve our existing customers, as the additional services keep  them loyal to Bank Sinar 
  • Over the long term to increase our loan portfolio as savings accounts increase

As a bank, our core business is credit and the main goal of our Branchless Banking service is to provide basic savings and credit products.

 

 

 

Please describe the pilot itself. How many people were involved? What services were offered and how?

 

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We started the project in March 2010 and launched in November 2012, but still without agents because the central bank was still in the process of formulating regulations for Branchless Banking.

At the beginning of June 2013, we started the pilot with agents based on the guidance from our Central Bank. We had 10 agents in 3 districts. Their core business is to run grocery stores and sell mobile phones and airtime top-up. The pilot ended in November 2013 as per guidance. Our project was in partnership with IFC and Axis was our Telco partner.

Our core team consisted of 10 people and was supported by other departments including branch, accounting, finance, operations, legal and compliance teams.

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The services were of three major kinds:

  1. Saving accounts, including opening accounts at the agents, deposits, withdrawals, balance inquiry and P2P money transfer
  2. Payments, including payment of bills, mobile top up and merchant payment
  3. Other services included linking the account to conventional savings accounts

 

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We used USSD technology with the phone number as the account number. A PIN is required for accessing stored funds and carrying out transactions. Once an account is opened at an agent, it is directly active but with limited transactions until full KYC and verification has been completed by Bank Sinar. Transactions are completed in less than 45 seconds. Completion of every transaction is notified by SMS.  

How did the pilot help, and what feedback did you receive?

 

We had a list of things to be tested and studied during our pilot. These included product positioning, speed of transaction, pricing/charging, fees paid to agents, agent incentives, customer education by agent, agent training and programs to register and activate customers.

 

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Of the lessons learnt from the pilot, some key ones include the following:

  • Consumers do have  a need to save after working hours and on holidays
  • The majority of customers who opened accounts at the agents were previously unbanked
  • We need more Telcos to join the service
  • Pricing was not an issue, in fact it was considered affordable
  • The majority of the transactions consisted of deposits
  • Agents who managed phone shops were able to more proactively sell products and they registered many more customers
  • There was a strong demand for more billers to join the service
  • Incentives for agents and customer worked well to increase transactions and accounts opened. 

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What are some of the challenges you faced in making such a service successful?

 

Getting this service to be successful requires attention to a number of different aspects. Some of the areas we have been looking at include the following:

  • Telco coverage is still a challenge. Even the biggest Telco has some problems to cover the whole of Bali
  • A lot of consumer education is required to convince people that use of the service will benefit them. Cash is still very much king
  • We need to work with many more billers
  • We require the ecosystem to include many more merchants
  • It is hard to get agent commitment. Half of our registered agents were not able to make much progress in terms of registering accounts and encouraging transactions
  • So far regulation only allowed Banks with category book IV to have the service and the product is only for e-money, not saving as Bank Sinar requires to do
  • We would benefit from the involvement of the Central Bank and Government to help our campaign
  • The Government must support through their policy to distribute subsidiary payments through mobile money
  • Renewed long term commitment and budget from management

What are your hopes for 2015?

Our partnership with Bank Mandiri with the co-branding model using the e-money product of Mandiri will continue. We are in the process of preparing for it. The model will be the same with the name Sinar Sip but powered by Bank Mandiri. The service will be e-money phone-based service with the use of agents. Bank Mandiri has a licence to go for branchless banking based on e-money. So far this is allowed by regulation.

At present OJK (The new Financial Service Authority of Indonesia) is drafting branchless banking regulations based on basic savings account product and hopefully will release it this December. Bank Sinar looks forward to having our own branchless banking service. We can then reposition the Sinar Sip e-money into the Sinar Sip savings product. This would allow us to pursue our initial plan of outreach to the unbanked for increasing our savings customer base and micro loan portfolio.

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I GN Alit Asmara Jaya is currently Managing Director of Bank Sinar, which is the micro-banking institution in Bali and a part of Bank Mandiri Group, the biggest banking group in Indonesia. Having worked in the industry for over 30 years, his wide experience includes operations, risk management, credit, export import, accounting and finance and branchless banking for the last 3 years. He is in charge of the Branchless Banking project of Bank Sinar.

 

Why don’t we let our youth manage bank accounts?

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In my recent interview of Brian Richardson, co-founder of WIZZIT in South Africa, he asked a question: Why should a 16 year old be expected to look after a family, but not have access to a bank account?

I have been unable to forget that question – hence this post. I thought I should check with you – is it that we are underestimating both the capabilities and the needs of our youth, who must cope with the tremendous fallout of the world financial crisis (not of their making, I should add), and who are the architects of the world’s future.

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Take what is happening in India, Indonesia, Vietnam and elsewhere in Asia. I was recently in some Asian countries to conduct research on the way people pay and was pretty amazed at what I saw. It is the youth who are leading trends in paying online. Who orders on Flipkart in India, to cover the needs of the whole family – for their grandparents and parents alike? Who buys pizzas from Domino Pizzas using their iPads? In fact, I found it was often the teenager in the household who was actually in charge of the families new payments card and trusted to buy on behalf of everyone. As they also manage the families Wi-Fi and are the most computer literate, little wonder this is the case.

 

This got me thinking. Was this just an emerging country phenomenon? Is it confined to urban areas? I’m concluding it is not. I see similar behaviour in households here in the UK. Across the world, and across income groups, there is a section of trusted young people who need access to financial services of all kinds, indeed it is fairly critical to consider their needs, not as exceptions but as well-designed, mainstream services.

Remember, a 50 year-old saw the Internet invented in their lifetime, as also mobile phones. Our kids on the other hand grow up taking these things for granted. As money goes digital, digital wallets and mobile phones offer new capabilities to design in checks and balances, while more effectively supporting what young people need.

So what would happen if we ignore this issue? Could we be driving the youth into the fast growing informal digital economy and could this create problems for the future? Unregulated digital financial services have little or no restrictions – surely using these would be worse, not better.

 

Business-savvy youngsters are not a new phenomenon, but the technology revolution of the past years has greatly empowered their ambitions. The recent BBC show Million Dollar Intern, which I much enjoyed, had Rich Martell, Gary Martin, Ross Bailey, Juliette Brindak, Suleman Sacranie and Fraser Doherty who run million dollar enterprises to go in and give some pointers to established, struggling businesses. Fraser Doherty started age 14 and made a million before the age of 20. Each of the others has a similarly inspiring story. Do we really feel that at age 16 these entrepreneurs were incapable of managing their own bank account?

 

You might argue that the million dollar interns are the exception and not the norm. Left to themselves youth may have less control over themselves than adults do. Or they may earn small amounts that are unprofitable for banks to support. Or they are not accountable for their actions. However many trends are creating valuable market segments: international students studying abroad, music and gaming users and more.

 

Today however, in the new branchless banking and mobile money scenarios there are ways to address each one of these concerns. Yet the new services invariably continue to have the same restrictions: You must be 18 and over to be entitled to use them.

 

In the absence of mainstream financial services a variety of prepaid cards are offered. However the cost and inconvenience (limits, difficulty of topping up), restrict their use as a way to manage business or household needs.

I believe this may be an idea whose time has come. Why don’t we investigate the great new features digital money services offer - Double sign off to protect youth from using illegal substances or falling for scams (though I may add, some adults may need to have a similar sign-off from a youngster as well!).

 

Similarly the retail industry needs to consider some changes. Secure certification systems and better universal and global standards for classification for products online can restrict purchase of certain products rather than remove capability to buy.

 

Just as there is a fortune at the bottom of the pyramid, there is a goldmine of the architects of tomorrow, waiting to climb the banking ladder – or a non-banking ladder. Our decisions and actions will determine which it will be.

Why should a 16-year old be expected to support a family in Africa, but not open a bank account?

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As part of Shift Thought research into the progress of branchless banking around the world, it was my privilege to speak to Brian Richardson, a pioneer of mobile-based branchless banking, who co-founded WIZZIT in South Africa back in 2004.

 

WIZZIT BANK 104Through our discussion, we uncover how Mr. Richardson and team opened new doors to banking services for the unbanked of the world.

In pursuit of his vision of making economic citizens of all, he embarked on a 10 year journey, innovating in the commercial use of USSD and building models similar to those being implemented around the world, in places like Pakistan, Bangladesh, India, Indonesia, Nigeria, Mexico and Brazil, with varying degrees of success.

We learn how WIZZIT International now deploys through leading banks in emerging markets, building on a blueprint tried and tested in the South African market.

With operations in over 9 countries, WIZZIT International offers services to over 6 million people and lays down a challenge to banks around the world: If you really want to succeed in moving people away from cash, partner with WIZZIT and have something up and running in 12 weeks.

State of financial services in South Africa

As a pioneer who has driven financial inclusion initiatives since 2004, please paint for us a picture of the state of financial services in South Africa. What are the achievements since 2004 – what still needs to change? If you had a chance to do it over again, knowing what you know today, what would you have done differently?

WIZZIT BANK 095We started in 2004 in South Africa. FinMark Trust, with whom we work closely, loved the idea of what we proposed - no one in the world was talking about such a service. In fact, they warned us against attempting to launch in the highly challenging South African market.

However, we wanted to prove the concept in our home market first. From the start we had a strong focus on financial inclusion and empowerment and saw an urgent to get banks to think differently and see that there was a business case.

The South African landscape is dominated by 4 major banks. We had the task to firstly convince banks on the idea of partnership and once they were convinced of the need, we then had to convince them why they needed us rather than going it alone.

We could not afford our own bank license, nor did the South African Reserve Bank (SARB) offer such licenses at the time. A new level of banks was proposed to be created to cater to the then 70% of the market that was unbanked. We were advised to wait for this Dedicated Banks Bill that was expected, to lower the entry requirements in the Banks Act (94 of 1990). Ten years down the line people are still waiting for the bill to be promulgated, fortunately we launched through an Alliance Banking relationship with one of the smaller banks.

GE1O7885Such a relationship was essential to gain access to the bank-owned Payments Association of South Africa (PASA) for being able to directly deposit into Wizzit accounts. We are grateful to the bank, but in hindsight we would have got to scale much quicker if we had the opportunity to have partnered with a big household name bank, as trust and credibility is important, and establishing this needs a big above-the-line marketing budget that we just did not have. We had to do things differently. We created a win-win through employing WizzKids who were largely unemployed people who could be opinion leaders and advise their friends and communities in soccer clubs and church and savings groups.

Banking and deposit-banking is the responsibility of banks, but regulation is geared for the high-end, especially things like know-you-customer regulations. Lower income consumers did not have what was needed. With some effort and lobbying we got Exemption 17 promulgated to make it easier.

We were the first to launch services under this exemption and although this was made available to the whole industry, not one of the banks offers an Exemption 17 account – a lot more needs to be done. Interestingly, six months after our launch, two of the big banks launched mobile banking but that was additive, rather than transformational in nature.

Being one of the early pioneers, we were one of the first to commercialise USSD that was critical for dealing across all segments of the market. To get new handset, SIM card or change network would be an additional barrier – does not seem fair to bank on the basis of network.

Uncertainties and how to overcome them

What are some uncertainties regarding financial services in Africa?  What should the industry do more of? What should we stop doing?

WIZZIT BANK 052Today there seems to be a lot of confusion between mobile banking and mobile payments. M-Pesa, successful in Kenya is about mobile payments, ours is about mobile banking. For mobile operators the service is strongly geared towards reducing churn. Many new entrants are entering, each with a different perspective: there are the retailers, the tech companies Google, Amazon, Apple and more.

With all of this, there is scope for enormous confusion, not just for consumers, but for would-be providers too. Often I encounter banks who believe they too need to apply for licenses for certain mobile money services for which, being a bank, this is not needed.

So the big uncertainties are regulations, interpreting these and building sound business case around mobile and provision of services to the under-banked segment, while making these interoperable.

Africa versus other regions

With your transition from WIZZIT Payments (Pty) Ltd to WIZZIT International and now that you are working outside of Africa as well, how do you compare developments in other regions against progress in Africa?

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Having recently entered into South America we see tremendous untapped potential – in Mexico, Brazil and elsewhere. We are working with banks in many parts of the world, including:

  • WIZZIT and Sure Bank(South Africa)
  • Zanaco (Zambia)
  • NMB (Tanzania)
  • BCR-Erste Bank (Romania)
  • BPR (Rwanda)
  • Bank Windhoek (Namibia)
  • Bank Gaborone (Botswana)
  • Bancode Occidente (Honduras)
  • Stanbic IBTC (Nigeria)

We find technology is easy, and what we have translates well across countries. It is the regulations, the business models and processes that need expert understanding, and where we add value.

A blueprint for success in emerging markets

Please tell us about your change of focus to WIZZIT International, and how you plan to deploy your model with leading banks in emerging markets. What do banks need to do and how do you propose to help?

We believe that banks must act. What options are open to them? Firstly, they could build their own platform, which could take a good 24 months or more. Secondly, they could partner with a mobile operator, but this involves separate partnership agreements before they can cover the entire market as they should. Thirdly, they always have an option to ‘do nothing’, but that’s probably the worst and most expensive. Saving the best for last, I’d like to think, is the fourth option – partnering with WIZZIT.

In 12 weeks we could have something up, and offer not just technology, but a whole set of services around business case, and including strategic advice at CEO level. We deploy our platform that can be linked in to core banking platforms, making it easier to implement.

Expectations for changes in 2015

What is the biggest change you hope to see in financial services over 2015?

WIZZIT BANK 041As far as retail payments go, only around 0.2% of mobile payments in Africa represents purchase – it is largely for purchasing airtime of transferring money. People withdraw cash and then immediately use it around the corner to buy something.

But cash is costly, and it is also bad. I welcome a broad spectrum of innovations that help to move people from use of cash – initiatives by the governments to stop accepting cash payments in many parts of the world. This involves a change in behaviour though – this means incentives and punishment.

I look forward to a world where when at 16 years of age an individual must fend for an entire family, support structures exist to provide that individual every care and assistance. Not a world that cordons off financial services from such disadvantaged people with pressing needs, who need these services the most.

The Digital Money Game as affected by the newly launched Twitter payments

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As the world waits with bated breath to hear from Apple, I thought we should take a moment to consider Twitter today. With so much in their favour, and so much already clear about what to do and what not to do, will they get payments right this time?

 

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This morning, while contemplating what the Apple mobile payment announcement holds for us today (will it change mobile payments forever?), I found a Twitter policy update in my inbox. So I thought we could pass the time until we learn the REAL TRUTH about Apple by contemplating what Twitter Payments may mean to mobile operator PSMS revenues and indeed to other providers in the vibrant new digital money ecosystem as described in my recently published book, The Digital Money Game.

Back in the early 2000s I worked with the company that invented SMS. later, as product manager at one of the leading mobile operator groups in the world, I had a lot to do with generating revenue from premium SMS. This remained our “Killer App” for many years, despite the best efforts to generate revenue from so many other payments initiatives.

Naturally therefore Twitter’s email this morning piqued my interest, to say the least:

“We've updated our Terms of Service and Privacy Policy to reflect new features we're testing (starting in the U.S.) to allow you to buy merchandise from some of the most popular names on Twitter, without leaving the Twitter experience.”

Twitter’s new policy covers the use of their commerce offering, that they are currently rolling out in the US. As people will now provide payment details, shipping address and more, the privacy policy has changed as well.

The privacy policies are also affected as they relate to personal data regarding location and individual and aggregate data that we share on twitter.

Over the next few blogs I will investigate what this may mean and how it relates to other newly launched initiatives from around the world. Will it fizzle out, like some services launched by Facebook and Twitter have done in the past? Or this time, is it a real threat that can take a bite out of providers revenue and steal your partners away.

  • Will Twitter payments deliver a blow to the payments revenue generated by mobile operators?
  • How does Twitter’s strategy fit in to The Digital Money Game?
  • Where does it leave the other players in the ecosystem
  • How does it affect projects you have on the boil – should you abandon them or invest more?

The Digital Money Game is growing more complex and exciting by the day, and with the Apple announcement expected today, by the hour I would add. If you’ve bought our books you may notice they are packed with very recent analysis and references, literally to the day they were published. Additionally we have a splendid ability to roll out updates to our books. And with so much changing I expect we will have plenty to discuss. Do join us to explore ideas at The Digital Money Group on LinkedIn.

f you’d like to be notified of updates and additional resources specially created for readers of our books, please drop us a note at contact@shiftthought.com mentioning the book title, date of purchase and country of purchase.

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

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Want to read our books but cannot get a copy? Let us know and we will do our best to help.

Security is not safety

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Dr Neeraj Oak explains the first of the three themes of the new book: “Virtual Currencies- From Secrecy to Safety”. In this post, he covers the ideas of secrecy and safety, and considers why they may not be able to coexist.

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It’s often said by proponents of cryptocurrencies that the design of such systems makes them safe to use. Is this really true?

It’s easy to confuse the idea of a secure system with that of a safe one. In reality, these terms mean very different things. A secure system is one that is locally resilient to errors or malicious attack. A safe system is a much more all-encompassing idea, describing an environment in which users can make payments with confidence, knowing that their money and personal information cannot be stolen, leaked or lost.

To illustrate the difference between security and safety, I like to use the example of putting a padlock on a live bomb. A padlock is a security device; it stops people from tampering with whatever object it is attached to, protecting it from potential attackers. But does it make the bomb any safer? Perhaps a little, since someone trying to set off the bomb may have a little more trouble doing so. However, the bomb still remains as dangerous as it was before; if it were to go off, it would cause no less damage.

How does this analogy fit with the cryptocurrencies on today’s markets? I’d agree that the security features are impressive, indeed many of the methods they use are ahead of their time. But safety has still eluded many cryptocurrencies, as several incidents ([1],[2],[3]) in the past years have shown. The problem is that while the security provided by cryptography and the blockchain is strong, attackers find it easy to bypass these by targeting individual users.

Attacks on users include phishing, communications exploits, keylogging and mining clipboards and computer data. These types of attack predate cryptocurrencies and are often used against services like online banking. The difference is that centralised organisations banks will often take responsibility for flaws in their security systems and go to a great deal of effort to ensure customers are kept safe. This could include providing memorable information, tying online banking to email or telephone banking to force attackers to break two levels of security or using physical devices such as card readers to verify transactions. In a decentralised system like Bitcoin, there is currently no provision of such features, nor is there likely to be one in the near future.

Beyond the means of attacking users, the consequences of attacks are also reduced in cryptocurrencies. Anonymity means that attackers find it easier to hide their true identity, giving them safe havens to store stolen funds. Further, transactions cannot be reversed without the explicit consent of both parties, so once a user has lost money to a thief or scammer, there really is no way of getting it back. In the case of online banking, there may be some means of halting transactions or compensating users. This is not the case in many of today’s generation of decentralised virtual currencies.

While there is certainly a vulnerability in the safety aspect of virtual currencies at the moment, this need not always be the case. Allowing anonymity or secrecy is a choice that many of these virtual currencies make, and is not intrinsic to their operation. Anonymity has been one of the most attractive features to the early adopters of cryptocurrencies such as Bitcoin, but it is not the only reason to use such technologies. Decentralised cryptocurrencies could potentially be faster, cheaper, more accessible and more convenient than centralised payment services. Abandoning anonymity could be a drastic step in the eyes of many current users of cryptocurrencies, but if it has a positive effect on the safety of the system, then it is a step that both current and future cryptocurrencies should consider.

Join me for the next post, in which I look at the consequences of trading secrecy for safety and the importance of attracting mainstream users to cryptocurrencies, which are still considered by many to be a fringe movement.

Why we wrote “Virtual Currencies- from Secrecy to Safety”

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Virtual currencies have been grabbing headlines since the release of Bitcoin in 2008/9, and not always for the right reasons. Like any new technology, virtual currencies offer an equal share of promise and danger, creating opportunities for those locked out of today’s financial services and threatening to bypass incumbents.

In my role as Chief Analyst at UK-based consultancy Shift Thought, I have often been faced with questions from our clients about virtual currencies, such as: “How do they work?”, “What do they mean for my business?” and “How will they change the economy of my country?”, “Should I be worried”, “Where are virtual currencies headed” and “What are the regulatory implications”.

As a mathematician, scientist and engineer, I have come to depend on the availability of reliable books as a means of quickly getting a grasp of a new field. However, in the field of virtual currencies, I struggled to find reliable resources and this led to our efforts into building such a resource ourselves. There is a lot of raw information out there, but it is often hidden away in white papers and government studies. Some of the information also seems biased. Virtual currencies seem to have a way of encouraging fanatical loyalty or extreme loathing. Considering the disruptive potential of virtual currencies, it is critical to have some form of unbiased, comprehensive guide in order to rapidly understand the opportunities and challenges they represent.

At Shift Thought we research how people pay in each part of the world, and how this is changing. Utilising the architectures and proprietary technologies created by our founder Dr. Raju Oak, we have been able to create a constantly updated picture to inform the Digital Money Game described in the first book in the Digital Money Series.

In this second book, we wanted to create a guide for readers who are interested in understanding the multiple facets of virtual currencies, and a vision of where the virtual currency market is going, and how best to profit from its trajectory. If you work in financial services, telecoms or retail, this book will help to inform strategy with respect to virtual currencies. If you are a merchant or consumer, we hope that you will discover any potential advantages virtual currencies now offer. More importantly you should be able to understand the How and Why and also see potential risks from dealing with them.

We address questions from a wide cross-section of interest groups and perspectives. Dealing with the opportunities and challenges that virtual currencies represent will be crucial to the world economy. Providing a clear picture to those outside the virtual currencies community is vital in informing balanced decisions in the years to come. We wanted to create an easily accessible resource for young entrepreneurs and innovators around the world to explore this exciting space.

Our book Virtual Currencies - From Secrecy to Safety is available at Amazon sites across the world. You do not need to buy a kindle device as Amazon provides a free Kindle app for the PC as well as tablets and mobile devices. Do register at our Shift Thought portal to get access to more content and join us in The Digital Money Group on LinkedIn.

Join me for the next three posts, where I plan to cover some of the major themes of our book: The move from secrecy to safety, the importance of the mainstream user and the implications of decentralisation.