NEW BLOG: Sirgoo Lee, the co-CEO of Kakao, used his keynote at last week’s Mobile Asia Expo to announce that the high-flying messaging app is planning a move into mobile money. It was one of those moments – as reported by Mobile World Live – where news seems completely obvious once you hear it.
Mobile money makes sense for Kakao, or appears to. The company has millions of users and is looking to add more services alongside its messaging app. It already has music, photo-sharing, games and gifting. Now the company wants to allow its users to send and receive money. It has been working with South Korea’s banks over the past year to make it happen. The service is likely to launch in July.
However no more details were forthcoming last week, like for instance how Kakao envisages the mobile money service being used. There are a couple of possibilities. One is when friends and other family members want to send cash to one another, for instance to share a bill for drinks or a meal. A few other big names are already sniffing around this market, including Google which has a service that involves sending cash as an attachment to Gmail messages.
And banks have woken up to how, in the long run, such services could evolve into a full-blown threat to their core business. Hence, initiatives such as Paym in the UK which enables money transfers between individuals but where the recipient only needs to share their mobile number to receive cash.
Alternatively, Kakao’s new service might be for remittances where a migrant sends money home, either domestically or internationally.
Remittances are very big business. Global payments sent to Africa by migrants in 2013 were $32 billion, or around two per cent of GDP, according to the Overseas Development Institute, a UK think tank. That figure could rise to $41 billion by 2016, it said.
But the Korean firm is not exactly alone in sensing an opportunity there either. This is a market which interests Facebook as a bridgehead into emerging markets. One of the companies with which it talked about a money partnership was Azimo, according to a recent report.
Michael Kent, Azimo’s CEO, told Mobile World Live that remittance offers a twofold challenge. One is authentication. The second is ‘information flow’, meaning informing the recipient when cash is on the way, and how they can pick it up. Like Facebook, Kakao’s strength would lie in the second category.
But mobile operators are eyeing this market too, hence the growing focus on striking interoperability deals between operators’ domestic money services. The first such deal in Africa was struck recently.
In addition, newcomers such as Azimo or WorldRemit have developed apps and put in place the underlying systems to enable cash transfer between mobile phones.
And incumbents Western Union and Moneygram are hardly likely to sit still while their margins are under threat.
The reason for all this interest is not hard to deduce. The Overseas Development Institute report pointed out that many of the benefits for Africans from remittance payments are lost because of the high level of charges levied by incumbents. The think tank dubs it a ‘super tax’. Successfully undercutting those charges could reap big rewards for a newcomer.
The report gives the example of the UK from where $5 billion was remitted to Africa in 2012 but charges are higher than many other countries. A reduction in average UK remittance costs to the global average would increase transfers by $85 million a year, rising to $225 million if charges were even lower at five per cent. Those numbers show the impact a successful new service might have. And how it could put some money in the pockets of the people who need it most.
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