Mobile 305 Lesson 1: Emerging Markets Mobile Prepaid Landscape

by Tim Attinger

Mobile 305 (elective. Mobile 205 and Debit 201 recommended): Emerging Markets Mobile Prepaid

Lesson 1 Discussion Board: What has been the biggest challenge to financial services distribution to emerging market consumers? Demand for core services from a rising middle class, distribution networks to reach those consumers, or desire among financial services companies to reach the next billion banking consumers? Click here to respond.

Our course this week will focus on what may be the most significant opportunity in mobile payments — the convergence of mobile telephony access to the majority of the world’s population, the gap between a need for and access to core financial services for over a billion global consumers, and the role mobile networks and financial services companies can play in filling that gap. There may be no bigger question for the coming decade than “who will bring electronic financial services to the next billion consumers?” A host of organizations are lining up to support that effort.

A Growing Need: Global players like the World Bank, FINCA, The Gates Foundation, and others are pushing an agenda of “financial inclusion” in emerging markets to drive access to core services that many in the developed world take for granted — the ability to put money away, value it forward, access it remotely, use it to gain more. Micro-lending organizations are working overtime to find ways to connect small business owners in places like Kenya and the hinterlands of the Andes with well-meaning private lenders in Kansas City and Los Angeles. Binding together the developed world and the developing world economically is a noble cause, and everyone from Bremmer to Bono espouses the virtues of getting engaged in the effort. A noble cause indeed, but sadly, noble causes, dire needs, and good intentions do not often a strong sustainable proposition make.

There is no arguing the social and economic benefits of financial inclusion in the developing world, nor the opportunities that simple access to core financial services create for anywhere from 1/6th to 2/3rds of the word’s adult population. However, the challenges of access to and inclusion in core electronic financial services do not stem from a lack of desire in the developed world to see those services more efficiently distributed to the global populations that need them. Nor is it necessarily the case that the national and regional governments presiding over the collective futures of those populations are indifferent to the cause. Quite to the contrary, most governments in emerging markets clearly see the benefits in the growth of a formal economy — and its taxable traceability — that broader distribution of core financial services and electronic payments may create.

Charity Begins at the Corporate Home? Challenges with distribution of, and access to, core financial services have never come from a lack of charitable desire in the developed world nor from a dearth of high-minded civic intent within local governments. The major challenges stem from the fundamental mis-match between the financial services establishment in most emerging markets and the consumer populations that need them the most. The manager of a major financial services organization may find himself poorly positioned to reach the mass of consumers in-country directly. He may sit headquartered in a major population center atop a financial infrastructure engineered to serve major corporations with commercial lending products and to serve that company’s top layer of corporate executives and managers with traditional consumer financial services. Electronic payments are absolutely a part of that capability, but their distribution and acceptance are tied to the distribution and processing networks that serve the banking core — distributed through a branch banking network or corporate facility correspondent relationship within the city and corporate centers and accepted in the major retailers and hospitality sectors that serve that corporate population. The products serving those consumer populations are the traditional electronic credit and deposit access vehicles that the majority of developed-market consumers would recognize. Sales and servicing of these products would also be quite recognizable to the developed market consumer-branch banking, online access, ATM, and acceptance network function, etc.

This manager finds himself poorly equipped to deliver products and services to the populations outside of the city center and corporate spheres in which his company operates. His core distribution and servicing network do not adequately nor efficiently reach the next tranche of consumers rising into the middle class — the call center workers, the programmers, the small business entrepreneurs — much less the local businesses and service workers who live among them who constitute the “working poor” in the city centers and the smaller outlying villages. His product set, comprised of core credit and deposit access card-based accounts tied to credit histories and regular electronic payroll data, are also ill-suited to serve a population with little or no credit history and irregular, almost exclusively cash-based, income.

Project RED? Or Green? So, this local manager of a financial services powerhouse may be challenged to develop, price, deliver, and service the right products to the consumers who most need access to financial services. His distribution and delivery network, his electronic payments infrastructure, and his core product sets are all established to serve an entirely different population in a very different way. The local government may want that bank in the business of delivering services to consumers, but regulatory mandates are a less than ideal way to go about it. And most unfortunately, no amount of software mogul charity money, high-wattage rock-star power-brokering, nor well-intentioned large contributions from laudable Land Rover liberals in LA can overcome the challenge of delivering a self-sustaining infrastructure that will continue to deliver economic benefits for the decades to come, long after the press conference is over and the cameras are gone.

In our next class, we will explore how financial services are beginning to reach the next billion consumers who need them through the networks and distribution systems they already use. Local retailers and mobile operators are driving a creative commercial model for delivering financial services into the local markets and target consumers that global charities, established banking companies, international networks, and local governments have struggled to reach. And they are doing it in a way that may be both sustainable and profitable. Could this be the future of banking? Let’s talk about it tomorrow.

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