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This is a personal blog. Although the authors are affiliated with Coda Payments, the views expressed here are their own.


Why don’t mobile money providers own their product?

[Quick note: We have a shiny new comment management system (Disqus) and hope you will use it. Unfortunately, with apologies to Ali, Michael, and Harold, the comments made on our old system were lost in the switchover.]

Paul and I are the founders of a mobile payments company in Southeast Asia. Long before we started, we decided that we wanted to build our own transaction-processing platform rather than license one from a vendor. It’s a decision that has had profound implications for our company. And it got me wondering why it is the case that the majority of mobile money deployments use off-the-shelf transactional platforms.

Traditionally, when it comes to software, you buy it if your requirements are standard and stable and you build it if they aren’t. This is why Silicon Valley startups build rather than buy: Mark Zuckerberg never had the option to buy an off-the-shelf social networking platform. Conversely, this is why banks buy rather than build: banks tend to want the same things from core banking systems, so it’s more efficient to buy them from specialized vendors rather than build for scratch.

Vendors in the mobile money world did a good job of persuading mobile operators that their needs were predictable and standard, implying that it would make more sense to buy rather than build. They were helped by the fact that mobile operators tend not to have strong software engineering or product management capabilities in-house. Off the top of my head, I can think of only one MNO, and just a handful of third-party services, that have build their own platforms from scratch.

Increasingly I wonder if this was not a mistake. Building your own platform allows you to take ownership of it in a way that is otherwise impossible. In Silicon Valley, startups are taught to constantly iterate their products in order to attract more users and engage them more deeply. This is impossible to do if you have licensed a platform from a third party. At MMU I talked to countless mobile money managers who were banging their heads against the wall because even the simplest “change requests” would take months and tens of thousands of dollars for a vendor to implement—not exactly conducive to rapid prototyping.

It’s become increasingly clear that for mobile money to succeed, it must become more responsive to the wants and needs of customers, which increasingly seem to vary significantly across markets. The idea that M-PESA clones would succeed everywhere has now been thoroughly debunked; yet most mobile money providers are still running transaction-processing platforms that essentially replicate the functionality of M-PESA. This suggests to me that the adoption of standard mobile money platforms around the world was, at best, premature.


Driverless cars and the pace of regulatory change

The following piece of news caught my eye this week:

The California state legislature just [approved] a bill paving the way for driverless cars to be allowed on Golden State freeways.

The bill, authored by State Senator Alex Padilla (D-Van Nuys), was passed by the state Assembly on Wednesday and then given the overwhelming thumbs up by the state Senate the following day.

If signed by Governor Jerry Brown, Padilla's bill would legally allow autonomous vehicles on the road and charge the state's Department of Motor Vehicles with determining the standards for self-driving cars, rules which current do not exist under the present vehicle code.

Pause for a moment and consider how remarkable this is. Driverless cars, like their human-operated forerunners, will, from time to time, almost certainly be lethal. Even the cleverest algorithm cannot bend the laws of physics to, for example, stop a car more quick than its brakes are capable of doing when a pedestrian unexpectedly steps into traffic.

On the other hand, not even the most implacable foe of allowing non-banks to offer payment services would charge that mobile money kills people. And yet, between the time that Google started working on driverless cars and the time that it secured regulatory approval for them, the global campaign to open up payments to nonbanks has proceeded agonizingly slowly.

So how did this come to be?

Bay Area tech giant Google has been leading the way in self-driving cars. The team behind the project asserts that the technology is largely already there and their self-driving cars are ready to hit the road right now.

Earlier this year, Google took a number of state legislators on a test non-drive of their driverless cars.

"I had the pleasure of going out for a drive on the autonomous vehicle," California state Senator Alan Lowenthal told Reuters. "I have to say that there are some still issues with it, but it's a better driver than I am.”

Google got its way on driverless cars not through the famous skill of its software engineers, but rather the old-fashioned way: lobbying. It organized a concerted campaign to persuade lawmakers of the proposition that driverless cars are likely to be more, not less, safe than human-operated ones, because they will eliminate accidents caused by human error. And because the regulator in question (the Department of Motor Vehicles) was unwilling or unable because of the limits of its mandate to act independently, Google made its case directly to lawmakers.

Do mobile operators, other nonbanks interested in payments, and the financial inclusion community have anything to learn from Google's victory, I wonder?

Update: Here is a story about how Google did it.


Innovation in branchless banking in Malaysia

I spend a lot of time in Kuala Lumpur, and have been struck by the pervasiveness of Easy by RHB outlets around town. Easy is a “community banking” model that one of the big Malaysian banks, RHB, introduced in July 2009. It’s a lovely and potentially disruptive model that illustrates what a bank that’s serious about leveraging its assets to serve the low-income segment can achieve—but only if it’s willing to turn its ordinary business model inside out. The highlights: 

  • Targeted marketing: most banks in Malaysia, including RBH itself, advertise in English, which is widely spoken by elites. Advertisements for Easy by RHB, by contrast, are mostly in Bahasa Malaysia, the native tongue of ethnic Malay—the largest and lowest income group in Malaysia.
  • Distinctive and attractive branding: Easy’s advertisements and outlets are fun and attractive, in stark contrast to the rather sober image of most banks. But there’s nothing about the branding that suggests a cut-rate product. (It reminds me of AirAisa, another Malaysian company that has pulled off the branding jujitsu of making a no-frills proposition glamorous.)
  • Streamlined KYC: for most products, customers need only show their national ID card. This is in marked departure from opening a normal bank account in Malaysia, which entails producing a mountain of documentation plus a personal reference from an existing client of the bank.
  • A killer app—with a broad product suite to back it up: Easy by RHB’s flagship product is a personal loan that can be approved and disbursed in 10 minutes. But beyond the hook, Easy offers a full range of products, including structured savings, pre-paid debit (that includes a unique save-as-you-spend feature that deserves a blog post of its own), and insurance. There are no remittance services.
  • Convenient and accessible outlets with extended operating hours: outlets, of which there are nearly 300 across the country, are small—often large enough for only a couple of extended-functionality ATMs, meaning most transactions can be self-serve, plus a single bank employee focused on sales. They’re tucked inside public-transit stations, food markets, and post offices and open extended hours, seven days a week.

As with mobile money, Easy’s most important business model innovation is radically reducing the channel costs associated with service delivery. Celent, a research firm, estimates that an Easy outlet costs just 15% of what a traditional RHB branch does. By operating its own premises and employing its own (skeleton) staff, however, it exerts more quality control over the retail experience and can more effectively cross-sell products. As such, it offers an intriguing alternative to banks that want to go downmarket but are squeamish about outsourcing cash-in/cash-out to third-party agents.

Unlike mobile money, however, RHB is playing to its strengths by offering a broad product portfolio, rather than trying to beat pure-play payments providers on their own turf.

The model seems to work. Easy’s loan book exceeds US$1.3 billion, and the CEO of RHB Bank claims that the Easy operating division edged into the black in Q1 2012, less than three years after it was launched. 


Diagnosing the mobile money innovation deficit: it’s genetic

It has become a mantra in financial inclusion circles that innovation in mobile financial services has stalled. Especially when it comes to products, there is a growing frustration about the fact that new offerings have failed to emerge. It remains the case that most new services look dispiritingly like M-PESA in Kenya—and that M-PESA looks dispiritingly like it did five years ago.

What explains the mobile money innovation deficit? I think it’s pretty simple. In most places mobile money is run by MNOs. And by and large, MNOs are not distinguished by their capacity for innovation.

At their core, MNOs offer the same services everywhere in the world: voice, SMS, and data connectivity. Mobile operators think they’re in the business of innovation, of course. First and most obviously, they are constantly upgrading their networks to offer more capacity and better data speeds. But mobile operators don’t drive this innovation agenda; their suppliers, like Huawei and Ericsson, do. (You can measure this investment by the magnitude of these firms’ R&D budgets. MNO’s don’t have R&D budgets.) Some of my readers might protest that MNOs have big product teams that are endlessly churning out new services. This is true, but when you evaluate the relative importance of these services (on the basis, for example, of revenue contribution), you’ll find that they pale in comparison to the old workhorses of voice, SMS, and data.

Some argue that it is for just this reason that we need the banks more involved in mobile money. But this is a non sequitur. Banks show even less of a propensity to innovate than MNOs. The product line of a retail bank in Cambodia is almost indistinguishable from that of one in Nigeria. Incredibly, this homogeneity persists even when you compare developed and developing markets. The products that Citibank offers me in the United States and the United Kingdom are hardly different than those that they offer customers in emerging markets. Product managers at traditional retail banks spend their time doing things like tweaking interest rates—on products that have been around for decades.

Banks and mobile network operators alike have achieved global growth primarily through replication, not innovation. So it’s no surprise that this same approach has characterized the international rollout of mobile money. But replication as a growth strategy only works when customers want basically the same thing everywhere, and when the product you’re selling meets that need. That’s true of mobile connectivity, and it’s true of banking. But if there is such a universally attractive formula for mobile money, it hasn’t yet been found—which means a little less replication, and a little more experimentation in the service of innovation, is called for. But let’s be realistic about where that innovation is likely to come from.



These days there’s a lot of talk about mobile operators entering the payments industry. From international transfers to bill payments, with every passing month there seems to be a new announcement – each bolder than the last – from an operator declaring that they’re staking out a place in the payments value chain. 

These are often heralded as bold new steps for operators. But in reality operators have been in the payments industry for many years. And outside of a handful, most should be at least as worried about their existing payments franchise collapsing as they are excited about seeding a new one.

Today every operator in the world runs a payments business: they enable third parties to charge their customers for things like ringtones, wallpapers, and games using premium-rate SMS. The fee levied by operators for this charging mechanism is regularly well north of 30%. That’s correct, the fee merchants pay to use premium-rate SMS is often an entire decimal place greater than what they’d typically pay for charging a customer using a credit card.

For a long time, this model worked well: many customers desperately wanted a horoscope delivered to their SMS inbox every day, and premium-rate SMS was unquestionably the best way of charging them for it. Horoscope companies rationalised the lofty fee charged by operators by reminding themselves that it took two minutes (and perhaps a gin and tonic) to create their product. And, of course, operators did well: its not been uncommon for value-added services to account for several percentage points of an operators’ gross revenue.

But then something happened: the Internet. Suddenly, customers no longer needed to pay to have a horoscope delivered to their SMS inbox every day – they found one for free on the mobile web. And with that, the cracks began to form in what had been a lucrative payments endeavour.

Operators in developed markets know this story well; their peers in emerging markets are only now beginning to watch it unfold. But to be sure, the appeal of better content at a lower price is global – and the rise of the mobile web (not to mention camera phones) has meant that customers are less interested in paying for ringtones, wallpapers, horoscopes, and the like. Sooner or later, this trend will apply to every market in the world.

Of course, this doesn’t change the fact that premium-rate SMS is an excellent way of charging customers: in most emerging markets, its scale and simplicity remain unrivalled. But it does change the way that operators will need to deploy this valuable asset. Outside of East Africa, operators have begun to realise just how difficult it is to generate any meaningful revenue from new payment endeavours. Surely a bit of energy spent preserving the one that’s already working would be justified. 

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