Expanded Frontiers in Mobile Payment
One of the payments obsessions here at Glenbrook is understanding the ways in which mobile payment and digital financial services are taking hold around the world. Once effectively limited to the early success of M-PESA and P2P payment in Kenya, today there are a number of services underway. M-PESA itself, in around a decade, has evolved to offer bill payment, savings options, small loans and is also working on merchant payments.
The models that such services are based on vary considerably. Kenya is a classic example of mobile carriers like Safaricom stepping into the void left by banks that were not providing affordable financial services to the vast majority of the population. While all of the M-PESA services involve a bank in one way or another (for example, the value loaded on mobile wallets is on deposit at a commercial bank), the services are driven by the mobile carrier as a service offering to their customer base.
More recently banks like Equity are challenging M-PESA for a piece of this growing market. Equity’s Eazzy 247 is notably carrier agnostic and therefore available to anyone who has a mobile phone, not just Safaricom customers. As well, the Kenya Bankers Association is developing a real time switch that will allow all banks to offer the immediacy of payment via M-PESA.
Two years ago, in this post, we shared the developments underway among the 15 countries in the Southern African Development Community (SADC). At that time, the SADC payments initiative had created a settlement system for high-value payments among banks and were preparing to extend the functionality to low value or retail payments. SADC is different than other initiatives because all payments in the SADC scheme are cross-border – the objective is to improve the efficiency and reduce the risk of the growing number of cross-border transfers that occur in the closely-knit region.
In addition to the fifteen country framework, also notable about the SADC project is that it is an interoperable scheme, using a common payment standard (ISO 20022) to transact between providers. Even more notable is the more recent move to include non bank payment providers such as authorized mobile money operators in the SADC scheme.
While Europe introduced the concept of “payments institutions” in 2009, having banks and non banks interacting in the same scheme has not gained traction elsewhere. Mexico allows authorized non banks to access its payments system but very few have chosen to participate. More recently, Brazil created a similar category but the development is too new there to measure how widely used it will be.
At a recent meeting for the SADC initiative, several banks and non banks elected to participate in a pilot or proof of concept of cross-border retail payments focused on the mobile channel. Here mobile money operators will have the opportunity to easily transact with mobile money operators in other SADC countries. Similarly, banks will be able to exchange mobile initiated payments with banks in other SADC countries.
The truly novel aspect will be the opportunity for banks and non-banks to transact with each other in the multilateral scheme. This opens up the possibility of wallet to account as well as account to wallet payments. While this may already occur in a handful of bilateral arrangements between banks and mobile money operators, the SADC framework offers the opportunity to scale this regionally.
It has taken two years for the SADC project to reach the point where the SADC scheme, regional regulators and participants are aligned and ready to launch a proof of concept. This is an ambitious endeavor that will be watched by many observers.
The interest in the project and the need for lower cost cross-border transfers has also started a discussion about introducing additional settlement currencies into the regional settlement system. Today the system, called SIRESS, only settles in Rand which is used in only 4 of the 15 countries.
Getting to the proof of concept is effectively a new starting point but this is only the starting point for what can be achieved. What we will be looking for out of the SADC mobile payments efforts:
- Can banks and non banks truly cooperate?
- Will end users be primarily consumers for family remittances or can the transfers also be attractive to small businesses who have high volumes of cross-border trade?
- Will we see the number of payments decline that are transferred by bus or other courier type arrangements?
- Will this type of collaboration lead to more transparency and lower prices for consumers? South Africa has the most expensive transfers among leading economies, according to the World Bank.
- Can the concept be successful in currencies other than Rand?
- How would multiple currency settlement work among the countries?
- Is the regional regulatory and policy environment sufficiently harmonized such that it is effectively seamless to transfer from one country to another?
- Can the introduction of affordable remittances be a gateway to improved financial inclusion among the SADC countries?
- Will we see the SADC model being adopted by other regions?
We plan to report back on these topics. In the interim, we’d love to hear your thoughts on SADC and other noteworthy developments in the mobile payment space.