By Isabelle Berner
Today very few mobile money services have succeeded in allowing customers to spend their mobile money in stores or on the web. Historically, retail has been the key to unlocking the potential of banking and card-based financial services and yet this facet of mobile money remains largely untapped.
For most services, mobile money must be “cashed out” via an agent to then be spent on various goods and services. This extra step is inconvenient for the customer and discourages them from keeping money in their account instead of as cash which can be readily available to pay merchants with. It is also expensive for the service which must pay the agent for cash-out transactions. Introducing retail transactions completely changes the mobile money business model as well as the value proposition for end users.
This blog describes why retail transactions hold the key to unlocking the potential of mobile money schemes in the developing world and discusses why retail payments are rarely included in such schemes.
If users can spend the money on their account directly with a merchant without having to withdraw it first, the cost of paying an agent for cash-out is eliminated and replaced by a new revenue source. Following the card payment business model, retailers pay the service provider fees ranging between one percent and four percent of the transaction amount.
Retailers have much to gain from accepting mobile payments in their points of sale. Cash handling is risky and expensive for retailers; in contrast, mobile money is a more secure and transparent payment means.
The growing numbers of mobile money customers will prefer to purchase from retailers who accept mobile money. Those retailers will therefor attract new customers and retain the loyalty of their existing customers.
Customers who use their mobile money accounts regularly will better manage their finances and ultimately have more money to spend.
From the user’s perspective, being able to spend their mobile money in stores makes a lot of sense and is an incentive to open and use a mobile money account.
For many, carrying cash is dangerous and cumbersome but not having money when needed can be equally problematic. By merging phone and wallet, funds are secured and impossible to access without the mobile and password or PIN. Users no longer depend on agents and can avoid the cost and hassle of withdrawing cash.
With a large network of retailers accepting mobile money, users are motivated to keep their money on the account and to use it frequently. A service’s success depends in large part on the active use of the service, and retail transactions are closely tied to user activity.
Once users are keeping money on their accounts, mobile money schemes are positioned to provide other key financial services. They can facilitate tracking and management of finances and create innovative tools for financial responsibility. For example, savings accounts, credit lines, loans, and other financial services represent interesting business opportunities for mobile money service providers and their partners.
Several services such as Mobipay in Namibia, Celpaid in Ivory Coast, and MPeso in Nicaragua are offering the ability to pay in stores and on the web with mobile money and this element of their service has been instrumental to the adoption of their services and the revenue they generate.
However, many services have not yet succeeded in including retail transactions in their offering and this failure can be explained by both practical and technical challenges they face.
On the practical side, retailer acquisition is really a banker’s job. Mobile money services run by operators lack the relationships and experience to manage an acquiring network. For example, Safaricom’s M-Pesa service in Kenya tried unsuccessfully to use its P2P money transfer service for retail payments. Retailers were quick to reject M-Pesa as a means of payment when they discovered that customers could reverse transactions easily and that the transaction itself was long and complicated (compared to cash). Without a way to separate business transactions from personal M-Pesa accounts, retailers could not properly manage their employees and business accounting.
Despite M-Pesa’s impressive success as a service, their failure in retail illustrates how far mobile operators are from the world of retail payments and are a good argument for keeping bankers and payment service providers in charge of merchant acquisition.
The ability to offer retail transactions as part of a mobile money service depends on the availability of an appropriate technology to facilitate such transactions. Using your phone to pay in a store must adhere to the same security standards as card transactions and must be at least as quick and convenient.
Technical constraints prevent many operators from including retail transactions in their mobile money schemes. The device used to accept transactions must be: secure, fast, and inexpensive to deploy. The security requirements rule out SMS; speed rules out USSD/SMS/STK; and low-cost rules out NFC and smartphone applications.
There is an alternative. Today sound-based technologies such as Tagattitude’s Near Sound Data Transfer and Naratte’s Zoosh make it possible to bring mobile money to the point of sale. By using sound frequencies to sign transactions between a merchant and a customer, these sound-based technologies make contactless transactions possible with any phone.
We think that such sound technology has proven itself to be the most secure and adapted technology for the task when services must cater to both high- and low-end phones. Looking forward we can expect these technologies to play an increasing role in mobile money services throughout the developing world and may leapfrog NFC over the long term.
Isabelle Berner is the Head of Marketing at Tagattitude and the founder of the TagPay Community Empowerment Program designed to accumulate and leverage experiences and expertise of mobile money service operators.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members.