Mobile Payments: Replacing Cash in the “Last Mile”
Editors note: This post describes the third in a series of panel discussions on mobile payments. The series is organized by MPay Connect and seeks to tap innovators in Silicon Valley and link them to mobile payment pioneers overseas, fostering understanding and discussion of how to apply lessons from the developing world to other markets. See also our Payments Views posts from the first and second events in the series.
Thursday evening a group of Wharton, Harvard alumni and payments professionals met at Google to discuss “Will Mobile Payments replace cash in the last mile?” Money in is the “first mile” of using cash to fund a mobile account and Money out or payment for goods is the “last mile.” Today, typically agents – called human ATMs – are receiving the cash to get it into the mobile payment scheme and a subscriber must go to an agent to get the cash out. Agent commissions make these programs difficult to scale as costs grow as volume grows, unless the mobile money transfer network can move to electronic payments in or out.
The session was moderated by Menekse Gencer from mPay Connect Consulting. The panelists were
- Thor Hauge, Vice President, Digital Ventures at Western Union International
- Toffene B. Kama, President, WillStream
- Benjamin Lyon, Executive Director of Frontline SMS: Credit
There was an interesting discussion of the distinction between the developed and the developing world. The developed world has little friction in the current payment models. Many of the economic models that encourage cash replacement will succeed in developing markets but are not expected to work in developed economies. In many environments where cash is being replaced, the consumers are working in a what is called a “delegated payment” environment. The person funding the transaction and the person in the store making the purchase are different (perhaps a wealthy uncle or an immigrant sending remittances home provides the funding). Mobile wallets can enable control by the funds originator (the uncle or immigrant overseas) of how funds are sent.
An excellent example of the benefits of electronic money transfer comes from Afghanistan. When the payroll for the local military /police force was moved to direct deposit they thought they had received a 40% raise. No one had realized how much the agents distributing the cash payroll were skimming. (See further discussion of mobile payments in Afghanistan from the first in the series of mobile payment panels back in September ’09.)
Thursday’s panel generally agreed that cash might be eliminated for specific types of transactions, but mobile payments will not replace cash more broadly. Perhaps delegated payments is an example of suitable electronic payments but they do not represent all transactions. Cash is frictionless and too well understood to be replaced all together.
The primary challenge in electronifying the last mile is merchant acceptance. The panel discussed the problems of limited merchant acceptance leading to lack of use. In the Philippines with Smart Cash, the users are doing mobile top-up but not necessarily using the card issued with that account. Even though the chip card associated with the account rides the MasterCard rails there still is a lack of point of sale merchant penetration.
Mobile faces the age-old payments problem: you need enrollment of consumers and enrollment of merchants – not just a great network in between. Perhaps some of the payments views readers have thought through the merchant side of this equation… your comments, as always, are appreciated.