With respect to mobile payments the critical differences between developed and developing markets is the presence of a mature banking / payments infrastructure and the 700% greater penetration of credit / debit cards compared to mobile phones.
Examining the struggles mobile payments have had in developed markets:
- Mobipay is a mobile payment mechanism that allows customers to pay for goods through their mobile phone using a range of methods, e.g. credit cards, debit cards, or the operator’s account. It supports both in-person and remote payments. The platform is open to any mobile operator or payment issuer in Spain. Each Mobipay customer gets a virtual wallet, which can contain up to nine payment methods. Each time the customer makes a payment, the system will ask which of the available methods the user wishes to use. There are three main ways of initiating a payment. For smaller, in-person transactions, customers can give their phone number to the merchant, who will then issue the payment request. Larger retailers can use a special barcode reader that can acquire the customer’s mobile phone number directly by reading a tag on the customer’s phone. For purchases from machines or for remote purchases, the customer can enter a transaction code that identifies the product to be purchased. Mobipay was trialed in mid-2002 and launched nationally in late 2002. Eight years later, there are only 350,000 registered users, amounting to less than 1 percent of the population, and less than 1800 transactions are processed daily. This poor performance is explained by two main factors: Spain is highly penetrated with banking services and infrastructure, so Mobipay struggled to open up a niche in the retail payments market. Mobipay did not have a marketing budget to promote its own service; it had to rely instead on promotion by its shareholders (who were also its customers). These shareholders, in turn, did not see much benefit in promoting the Mobipay brand, because they felt that their competitors (whether the telecoms or the banks) would benefit equally from their marketing expenditures. As a result, Mobipay has languished in the absence of effective marketing or a “killer application” that can raise public awareness of the service.
- SIMPay began in February 2003, T-Mobile, Orange, and Vodafone formed a the Mobile Payment Services Association (MPSA) with the goal to deliver an open, interoperable and commonly branded solution for payments via mobile phones. In June 2003 the consortium re-branded itself as SimPay. Simpay planned to create a pan-European framework whereby merchants and content resellers would be able to charge for products and services directly to a subscriber’s bill. In June 2005, Simpay folded as T-Mobile pulled out. UK operators created payforit, focused on buying stuff on their portal, but using you mobile account to pay for ringtones is not new. And let’s not forget we use our credit cards to pay the mobile bill at the end of the month anyway.
So now examining M-Pesa which is often quoted as the m-payment solution template, just like DoCoMo’s i-mode is the template for mobile data services. And we’ve seen what happened to i-mode outside Japan. I apologize for repeating myself, but Japan is a unique market, so beware anyone using Japan as a case study for why service X or business model Y will work for you, as mentioned in this article..
M-Pesa avoids being classified as a banking service (under the liberal Kenyan banking regulations) as it does not involve deposit-taking for the purpose of investing or lending. However, for many of its customers, M-Pesa looks and feels like a banking service. In a country where more than 75% of the population does not have a bank account, this service has seen a dramatic take-up since its launch and currently has nearly five million users.
The success of M-Pesa can be attributed to a number of factors:
- Its initial focus on offering a single service mobile to mobile transfer and doing it well;
- An under-developed banking system, average distance to a bank is >500 miles;
- No bank account is required, broadening its reach and appeal to the vast majority of Kenyans;
- M-Pesa makes its money by charging commissions (quite high commissions by developed market standards) on transactions rather than from investing money; and
- Its 3,500 front-line agents countrywide means that even rural communities are benefiting economically.
mPayments in developed markets remains a solution looking for a problem to solve, rather than providing an answer to a genuine consumer need. However, in Kenya its the difference between no bank account and a bank account.
In developed markets we’re unlikely to see operators doing payments for anything more than digital goods bought through their stores. We’ll likely see Google, Paypal and possible Amazon dominate for online payments, of which mobile is just a channel. This goes back to an article earlier this year on the topic that there’s no such thing as the mobile internet only mobile access to the internet, which I’ve been able to do for over a decade.