Billions of text messages are sent from mobile phones around the world daily. Typically the domain of dinner plans or LOL messages, these texts now include a small but growing number of mobile payment instructions.
A developing world phenomenon, mobile payments come in two general forms -- the most popular being person-to-person (P2P) mobile money transfers, typified by transfers from wage-earners in cities to relatives in rural areas. But business-to-business or consumer (B2X) transfers have been gaining traction. Uses for mobile B2X range from collections, both for distributors and small merchants, to salary disbursement to unbanked populations.
Red Gillen, senior analyst at Celent, a Boston-based financial industry consulting firm, has been following the evolution of these payments. In his latest report, he estimated that in the African beer and soft drink market at least $6.9 billion in payments could be made on a mobile phone. But the real whopper of a number was the global mobile salary disbursement universe that, using the Kenyan minimum wage as a proxy, he estimated could total $16.5 trillion in 2012.
Gillen recently discussed his findings and the role financial institutions play in the emerging mobile payments universe with FinanceAsia.
What are the highlights of your findings on mobile B2X payments?
First of all, in a lot of developing countries mobile-based person-to-person payments are being rolled out to the point where you often have multiple players offering these services. What is probably going to happen through increased competition is price compression and then the players are going to look for new areas of expansion. One of those areas is mobile B2X.
The main usages for B2X are retailers paying their distributors, social benefits and salary disbursement. In these three areas, I was able to identify mobile B2X providing value and beginning to percolate here and there.
What are the issues facing mobile B2X payments?
There are a couple of major issues outside the realm of technology that need to be addressed. The first is the mobile carrier's agent network -- the people who sell phones and top-up cards -- that serve as cash out agents in many countries. What's going to happen as mobile salary disbursement volumes increase is that more and more people will go to these agents to cash out their mobile accounts. The agent network needs to be beefed up from where it is today to meet these cash out needs.
The other issue is this notion of interoperability. In any given country you may have two or three major mobile carriers and right now their payment systems don't cross each other. So if I'm a factory owner and I want to disburse funds to my employees, some are on mobile carrier A, some are on mobile carrier B and some are on mobile carrier C, and with three systems in place right now I would probably think twice about adopting the solution. Interoperability is not there yet and I think it has to come for this to really work.
Can you give me some examples of mobile payments in Asia?
One example is Wing, owned by ANZ, in Cambodia. It's basically a mobile payments solution and they've seen salary disbursements growing in Cambodia. I don't see why it could not be replicated in other countries -- maybe Vietnam next door. It's very replicable, you just have to look at countries that have a high unbanked population and mobile phones. That's your total target market for salary disbursement.
Can you tell me a bit more about what is happening in Cambodia?
There are a lot of textile workers in Cambodia. What happens with the pay cycle there is a factory owner or foreperson transfers money to Wing's service from their regular commercial bank account and then, using very basic technology like spreadsheets, they instruct Wing to credit all of their employees' accounts. This is predicated by the fact that the employees are actually Wing customers themselves. After the employees receive their money they can do one of two things -- cash out at a local agent or, as happens quite a bit, send money back to their mother and father in their home village who also have a mobile account with Wing.
Domestic remittances are where mobile payments got started. Now what is happening with mobile B2X is we are just adding another piece. You take the traditional G-Cash or M-Pesa model but get rid of the cashing in at the front end. Payments flow electronically from the employers account to the employee's mobile account.
What role can financial institutions play in the mobile B2X universe?
In mobile P2P, banks are not playing a largely-visible role. It's the mobile carrier that has a mobile payment solution and moving the money around -- tracking debits and credits -- with a big custodial bank account in the background. In these schemes, people tend to identify with the mobile carrier more than they do with banks. It suffices to say that in the mobile P2P space, banks have largely been shut out.
If you move the discussion over to B2X, in all the various usages we identified there is at least one banked entity. Let's use mobile salaries as an example. It's pretty safe to say a factory owner in Cambodia is going to have some relationship with a bank, so they go to a bank and say I want to pay all my employees via mobile message, what can you do for me? This is an opportunity for the bank to step in and offer a service through integrating with a mobile carrier.
You said earlier that ANZ owns Wing. Is this a model banks can replicate elsewhere?
There are several models out there in the world that vary from the mobile carrier offering the whole mobile banking payment solution on one end of the spectrum, to a bank being out in front at the other end. What ANZ is doing with Wing is stepping out in front with the mobile carrier in the background. In the Philippines, you have Globe Telecom with G-Cash putting the carriers in front, then in the middle you have something like MTN Banking, a joint venture between a mobile carrier (MTN) and a bank (Standard Bank) in South Africa.
What banks do you see as being in the front in terms of mobile B2X?
There aren't many. We talked about Wing already and there are some rural banks in the Philippines. None of the big global names are really out in front. What they really have to watch out for is some third party integrator that is going to come in and take this business away -- relegate banks to be just a money warehouse.
How are mobile payments changing corporate treasurers' role?
Traditionally, treasurers have had to take care of salaries at the end of each month by withdrawing it all in cash and then paying employees. This can take days, requiring treasurers to pull their money out sooner than they'd like to in order to make sure the cash is delivered on-time to the most remote factory floor. With the mobile B2X model, depending on the clearing cycles in a country, treasurers can move cash from their corporate account with their main bank over to their mobile account -- in some cases this could be one and the same -- to be debited for payments to employees. Mobile B2X allows treasurers to hold on to their money for a few more days and that makes a difference.
Looking forward, what do you foresee for the mobile B2X universe?
I think it's going to continue to grow, there just has to be some awareness. I would imagine that, after a short amount of time, the mobile carriers -- the Globe Telecoms or the Safaricoms of the world -- are going to start pushing it once they get comfortable with the services, but they have to push it slowly because they don't want to inundate the agent network.
Mobile B2X is completely doable today but the problem is you're going to overwhelm the system, so it has to be rolled out gradually. What I think you're going to see is the carriers who offer these kinds of services will have to beef up their agent network first before they really publicise it. That takes time, there is no technological magic bullet.