Ovum recently took part in the GSMA’s NFC & Mobile Money Summit, which addressed the development of mobile money services in both emerging and mature markets.
We left the event with the impression that the telecom industry has a shared vision of what successful mobile money services will look like and what user experience they will provide.
However, it is less clear how the industry will reach this vision, including how it will address the problem of convincing retailers and users to embrace on-premise payments. In addition, the business model that the industry will need to employ to make and share revenues remains vague.
Despite these concerns, we are optimistic about the future of mobile money services in both mature and emerging markets, with the latter having greater potential in the short to medium term.
The mobile money vision is crystalizing…
The NFC & Mobile Money Summit was the first major event where mobile money services were discussed in the context of both mature and emerging markets. Listening to speakers from companies such as Telecom Italia, Vodafone, Visa, Mastercard, MTN Uganda, China Mobile and Smart, it was apparent that there is an increasingly clear and shared vision of what mobile money services will look like in the future.
That vision is for the mobile phone to take on the role of a digital wallet that enables users to pay for goods, travel and tickets; transfer money; and receive promotional offers and store loyalty points. This will be assisted by the fact that a growing number of smartphones are being shipped with NFC technology.
In many emerging markets, the majority of adults don’t have access to banking services but do have access to a mobile phone. As a result, mobile money services are providing previously unbanked consumers with access to financial services.
Kenyan operator Safaricom’s mobile money service, M-Pesa, is the leading example in emerging markets, with 15 million users transferring the equivalent of 10% of Kenya’s GDP over the service each month, and increasingly using it for savings, loans, and insurance products. The vision for the telecoms industry is to have a service like M-Pesa for all unbanked users in emerging markets.
…but the road to get there remains uncertain
The event also underlined the fact that this vision will not be quick or easy to realize, particularly in mature markets. However, the industry is making progress as demonstrated by the promising NFC trials in Italy, France, the UK, Sweden, and the Czech Republic, and the ISIS venture and Google Wallet in the US. Telcos, banks, and financial services companies, such as Visa and Mastercard, are also beginning to make significant investments in the mobile money space to establish themselves in the new ecosystem.
Besides telcos, banks, and financial services companies, the ecosystem includes two other key stakeholders: retailers and consumers. Our research indicates, and the event confirmed, that most retailers and consumers are yet to embrace mobile payments. This is largely because of a classic “chicken and egg” scenario, whereby users are not looking for NFC-enabled devices as there are still relatively few retail outlets in which to use them; and retailers are not enthusiastic about investing in NFC point-of-sale equipment as few users are demanding it.
Mobile money services, technology, and business models are far from fully settled, and there continues to be a large amount of fragmentation across the space. While this is understandable at this early stage of market evolution, it further confuses retailers and users. The way that the industry makes and shares revenues from mobile money is a particularly hot issue at the moment.
Industry players have yet to decide whether revenues will come from transaction fees (as is the case with card payments), mobile wallet access/rental fees, advertising, or a combination of these approaches.
While M-Pesa has shown that mass market adoption is possible in a single country, no operator has yet managed to achieve the same level of success in another market. There are still a number of barriers that operators need to overcome, chief of which are interoperability and agent incentives. If these two issues are not effectively addressed, most mobile money services will have limited potential and act as “service islands” that do not gain significant traction with consumers.
The future remains bright
Despite all of the challenges, we remain optimistic about the future of mobile money services. There is no doubt that emerging markets hold significant potential for mobile money services in the short to medium term as the demand from unbanked consumers will continue to drive adoption. When interoperability is addressed, service providers will have access to a considerable new revenue stream. This is demonstrated by the fact that Safaricom already generates 16% of its total revenues from M-Pesa.
Creating mobile money services in mature markets that attract skeptical consumers and retailers while still making a satisfactory return for service providers will take more time and effort. However, increasing smartphone penetration and strong growth in e-commerce payments (20–30% of all card payments are for online purchases) are promising signs. These factors demonstrate the latent demand for mobile wallet services, which the relevant stakeholders will be able to exploit and grow, either as cloud-based services or on-device wallets.
Angel Dobardziev is a practice leader for telecom emerging markets at Ovum. For more information, visit www.ovum.com/