We have written extensively in our weekly publication, The Tarifica Alert, about the explosion of mobile money services in developing economies, beginning with the launch of M-Pesa in Kenya, and about how developed economies are now playing mobile money catch-up, with ventures forming to try to incentivize the relatively affluent to use these services. The growth of the mobile money ecosystems is playing out very differently in these different economies.
In developing nations, mobile money was initially introduced as a simple money transfer scheme, targeted at individuals who have no access to banks but own a mobile phone, and furthermore trust their mobile operators more than they would ever trust a bank. Using SMS, with which they are very familiar, “unbanked” individuals are able to transfer money to similarly unbanked family members, friends and businesses, many of which are used to dealing only in cash. The mobile operator charges a small fee for each transaction and holds money, or airtime, in accounts for their customers.
In Kenya, less than 10 years after its launch, Safaricom’s M-Pesa service is being used by more than 70 percent of the population and has completely disrupted the financial landscape, as banks have formed partnerships with mobile operators to get into the game and offer their more traditional financial services, including credit offerings, to this newly accessible population. Leveraging the phenomenal success of M-Pesa, Seattle- and Nairobi-based software company Kopo Kopo has built a merchant platform that includes mobile payments and is now in widespread use by merchants, schools, restaurants and other entities, further changing the way business is conducted in emerging economies. A similar story is playing out in Latin American countries such as El Salvador and Honduras, as mobile operators introduce the unbanked to very basic financial services. We will likely see banks and retailers getting involved there as well, intending to capture a piece of this market by offering more traditional financial services.
By contrast, in developed nations, most individuals are working with banks already, be it through checking and savings accounts or credit cards. As many of these individuals value convenience and efficiency above all, mobile payment technologies will only succeed if they can make life easier. For the less tech-savvy consumer, encouragement may initially come in the form of consortiums of MNOs and retailers offering some value-added aspect—either loyalty points, bonus, or easy payment method. We have seen this with the NFC City Berlin launch and in the U.S. with the recent roll-out of the American Express loyalty program in partnership with AT&T, Macy’s, Rite Aid and others. We also think the speed and convenience offered by mobile wallet apps like Apple Pay and Google Wallet will encourage traditional credit card users to switch to mobile phone payments.
We are beginning to see combinations of players offering different payment approaches, some of which, like the Merchant Customer Exchange are trying to circumvent the 2 to 3 percent fees retailers must pay credit card companies when customers swipe their cards. We predict that these efforts will begin to shake up the strong hold credit card companies have on the retail market. At the same time, third-party apps have been seizing the opportunity to provide mobile money services to a more tech-savvy younger generation and we think these apps will change the way the younger generation views traditional checks, credit cards and savings accounts. For example, the app Venmo allows users to transfer money to friends and keep a balance in their Venmo account to cover future expenses; many users are doing just that, instead of “cashing out” and transferring the payment into their bank account. We expect to see many more mobile payment approaches that will disrupt how we use traditional financial services.
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The Tarifica Telecom Industry Research Department