Enter your email address:

Delivered by FeedBurner


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


Entries in Mobile Money (4)


Joint ventures and misadventures, regulatory edition

Today in my Twitter feed I saw a number of links to a story indicating that the “Uganda Communications Commission (UCC) is partnering with Bank of Uganda to set new rules that will govern the Mobile Money trade.” The article doesn’t give specifics about how this is going to work, but it is emblematic of an emerging trend in which telco and financial regulators set out to regulate mobile money together.

Unfortunately, this is bad news, for a few reasons.

  1. In general, the only thing harder than getting a regulator to move quickly is getting two regulators to move quickly, together. This will be especially true given that, in every country I’ve worked in, these two regulators have radically different styles and approaches.
  2. Mobile money services are payment services, which financial regulators are competent to regulate. There is virtually no useful role for the telco regulator in such tie-ups, expect perhaps to help their colleagues understand a bit better how mobile networks operate (which of course they could do informally).
  3. The likely outcome of a collaboration between these two regulators is regulation that pertains specifically to mobile money. This is a mistake, because it means the financial regulator will have missed out on an opportunity to put in place more comprehensive payment system regulation that would support not just mobile money, but also other payment services, such as those that are card-based or offered by non-banks other than mobile operators.

Imagine for a moment (you will have to use your imagination, because I don’t think this has ever happened) that a bank decides it wants to get into mobile telecommunications, either by becoming an MNO or an MVNO. Would a special collaboration between regulators needed in order to oversee this novel arrangement? Of course not. The bank would need to apply for a license from, abide by the rules set out by, and submit itself to oversight from the telco regulator, in addition to its pre-existing obligations to the banking supervisor.

A less hypothetical example is Starbucks in the UK. When Starbucks wanted to get into payments, did the FSA need to draft special regulations in collaboration with the coffee-shop regulator? Of course not. Starbucks simply applied for an e-money license from the FSA.

I could go on, because this is kind of fun (what if a pharmaceutical company wanted to offer insurance? What if a cigarette company wanted to start drilling for oil?), but I think the point is clear. Mobile money is just another payment service. That it is offered by a company that is in another regulated business is not a good enough reason for create a cumbersome regulatory superstructure to oversee it. 


Be careful what you advocate for

There is a little back-and-forth in the comments of a recent post by Elisabeth Rhyne on the Center for Financial Inclusion’s blog that exposes one of the most interesting fissures in the financial inclusion community today. As John Gitau frames it, “The whole inclusion space is divided into two—the apologists of the need to design products and services for the BOP at their terrain and as per their needs and those who advocate for inclusion to entail bringing the low income into the light, the light meaning formal financial services.”

Although tendentiously put, the tension is real. The emergence of M-PESA has prompted a rethink what financial inclusion really is, and not everyone has come to the same conclusion. I once wrote on the MMU blog that M-PESA “opened the eyes of many of us to the fact that payments are an important financial need” that could be met by nonbanks. But others have reacted more warily, coming to view payment services as a dangerous detour from the pathway to high-quality financial inclusion, which is understood to feature a bank account as its bedrock. (I am not the first to notice the irony in the fact that a number of those in the latter camp were themselves champions of microfinance in the days when it was the nontraditional upstart fighting for legitimacy in the world of financial inclusion.)

That a debate between these camps is taking place is a good thing. The problem is the way the debate is being refracted in policymaking. Unfortunately, it increasingly seems that the debate among financial inclusion specialists about what would be best has unduly influenced the debate among policymakers about what should be allowed. It is one thing to argue that the poor would be better off with one kind of financial service (a deposit account) than with another (an e-money account). But it is quite another to deprive them access to the latter as a way of encouraging them to adopt the former. I feel increasingly certain that, in a number of countries, mobile money is being suppressed not because regulators fear that it is unsafe but because they fear it will become popular—perhaps even used by some as a substitute for deposit accounts.

This is regulatory overreach. Financial regulators have a duty to ensure the stability of the financial system and the safety of services that are offered in it. If there are those in the financial inclusion community who believe that payment services offered by nonbanks are so dangerous that they fall into the category of products which governments may justifiably prohibit—I am thinking here of assault weapons and (to take a financial example) Ponzi schemes—then by all means let them say so. But if they rather view mobile money is akin to, say, Coca-Cola—not the healthiest choice, but not so damaging that it can justifiably be withheld from customers who want it—then I would encourage them to make themselves more clear on that point, and to be explicit that they do not want policy used as a tool for imposing their preferences on the poor.


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.


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.