Napoleon Nazareno, president of the Philippines-based Smart Communications wireless-service provider, summed up the mobile-money industry’s greatest need in just a few sentences. "The three rules of retail are location, location, location," Nazareno told an industry conference a few years ago. "In mobile money, they’re partnership, partnership, partnership. We need to create a mesh of partnerships covering various networks of relationships."
As Nazareno observed, a high degree of network interconnectivity is critical to the mobile-money ecosystem. To that end, the ecosystem is evolving worldwide, involving players from global enterprises to small businesses and from established companies to newcomers.
While networks are a critical component to the landscape, traditional industry lines are increasingly blurring, particularly between mobile service providers and financial services companies. As students in MIT’s upcoming financial-technology (fintech) certificate course, Future Commerce, will learn, this transformation is bringing opportunities for new business models as well as competitive threats from unexpected industries. The 12-week course begins on November 21.
The following are some of the key roles in this new landscape:
PARTICIPANTS: Mobile network operators (MNOs) and communication service providers
ROLE: Provide the communication service and infrastructure. In some regions, where legally authorized, they are entering the financial arena by issuing e-money and offering payment services. Additionally, some are serving as advisors on mobile strategy for industries that are new to the space.
PARTICIPANTS: Banks and fintech companies
ROLE: Create and offer banking services that are available for mobile offerings. Fintech startups have been able to move faster than traditional banks, but both are instrumental in providing financial expertise as well as pushing forward new banking offerings.
PARTICIPANTS: Agents and intermediaries
ROLE: Often the consumer-facing touchpoint, usually having a physical presence. They primarily perform cash-in/out functions as well as account openings and other transactions. In developing economies, they play a key role and are often the "face" for a mobile-money offering.
PARTICIPANTS: Retailers and employers
ROLE: Can make payments for business-to-consumer (B2C) transactions. This category can be broad, covering anything from store purchases to utility-bill payments to paychecks, as well as business-to-business (B2B) transactions.
ROLE: Seek to provide a regulatory framework that will protect individuals and offer stability to the financial system, while also providing an innovation-friendly environment. As the term "mobile money" suggests, telecommunications and financial regulators will need to collaborate.
When these players work together, the results can drive significant change.
The M-Pesa Case Study
M-Pesa, an e-money and mobile product offering from KenyaPesa, has driven meaningful adoption. As of 2013, 93 percent of Kenya’s adult population in Kenya was registered for M-Pesa (meaning "mobile money" in Swahili), and 60 percent of this group was actively using the service. M-Pesa’s impact is much broader, as it has facilitated the creation of thousands of small businesses and given nearly 20 million Kenyans access to financial services, including many low-income Kenyans. In fact, the percentage of M-Pesa users living on less than $1.25 a day grew from less than 20 percent in 2008 to 72 percent in three years, according to a Forbes report by Daniel Runde.
As the Forbes article notes, M-Pesa’s origins were in research. The United Kingdom’s Department for International Development (DFID) noticed that Kenyans were bartering mobile airtime as an alternative to cash. Spotting an unserved need, DFID connected with communications service provider Vodafone, which was looking for opportunities to support microfinance through its mobile platform. Vodafone and DFID each made matching investments of £1 million (about $1.3 million in U.S. dollars) in M-Pesa.
MNOs have been able to become fast movers in the mobile-money space via their greater levels of investment and their existing networks and distribution channels. In 2014, there were 255 mobile-money services across 89 countries, with 60 percent focusing on developing markets, according to the GMSA.
The M-Pesa story also highlights some tension between these players, specifically MNOs and finance companies. While MNOs have taken a step into finance, companies in that industry are starting to return the favor. Safaricom has enjoyed a near-monopoly as Kenya’s sole authorized mobile-money services provider. But in 2014, three more MNOs were authorized, including Kenya’s most profitable bank, Equity Group—all of which use the mobile network of Safaricom’s largest competitor, Airtel. Equity Group started offering free SIM cards to drive adoption and acquired more than 650,000 customers by mid-2015. Meanwhile, Bitcoin-based competitors like BitPesa are gaining market share.
While M-Pesa still serves 20 million of the 26 million mobile consumers in Kenya, competition is clearly developing—and that will serve both the private and public good, as Christine Desan, a Harvard Law School professor, noted in Making Money: Coin, Currency, and the Coming of Capitalism (Oxford University Press, 2015).
Mobile money has introduced a business model that works for mass markets: high volume and low margins. And, of course, as the number of smartphones increases on a daily basis, so does the number of potential mobile-money users.
With 500 million smartphones expected to be in use in Africa by 2020, according to the GSM Alliance, an industry trade group, transformational change to the "last frontier market" is potentially at hand.
Entrepreneurial action holds the potential to lead the disruption of the financial ecosystem and deliver better service, at better prices, to consumers. This will come at the cost of stability to the incumbent banks and other financial services market participants.
That raises a significant question: how can we navigate this disruption while doing the least harm to society?
Future Commerce Online Course
MIT’s Future Commerce fintech certificate course, first launched in June 2016, takes a multifaceted approach to examining that question. The online-only course represents a progressive move toward forging a strategic framework for those breaking ground in this exploding industry.
The inaugural presentation drew more than 1,000 entrepreneurs, venture capitalists, and financial professionals from 70-plus countries. It’s not too late to join this global community. Visit our website to learn more and sign up for the second presentation of the Future Commerce course, starting November 21.