Mobile 305 Lesson 3: Emerging Markets Mobile Prepaid Implications

by Tim Attinger

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

Lesson 3 Discussion Board: By 2025, the average citizen of India will be middle class, consumer, under the age of 30, contributing to one of the world’s fastest growing economies, and a resident of the most populous country on earth. Who will be providing this person with financial services and why? Click here to respond.

In our final section on emerging markets mobile payments, we will take a brief glance into the looking glass to see what the future might hold for global consumer payments in the context of a confluence of strong forces: growing emerging market economies, desire by national governments to drive those economies to greater growth and formalization, investment by a number of global non-governmental organizations to ignite growth in financial inclusion initiatives, and the commercial interests of mobile operators to monetize their distribution and communications networks through the delivery of limited-use prepaid payments accounts.

As we have discussed, in the context of traditional electronic payments limitations, and to provide services that differentiate a core mobile telephony offering, many mobile operators in emerging markets have begun to supplement core prepay mobile services with additional payments features tied to the consumer mobile account. These services are almost always delivered as closed-loop remote capabilities within the operator network and consist of fundamental transaction capabilities, such as bill payment, money transfer, and remote top-up. As these services scale in participation and retailer distribution, some operators are beginning to consider provision of interoperable payments, either through bilateral agreements with other operators or through the provision of “semi-closed loop” payments instruments, primarily prepaid, with other payments providers. 

The Global Underserved and their Seven-Nation Army: Looking at the growth of mobile operator payments networks in emerging markets, we might be reminded of a quote often attributed to Chairman Mao, who was purported to have said on the Long March, “A nation is an idea with an army.” Or perhaps, to turn that quote to our PYMNTS U purposes, “A payments system is a network with users.” In Mao’s homeland, this is most certainly true of China UnionPay, arguably among the world’s largest payments systems in number of users. Will the same be true of mobile operator networks in places like India and Sub-Saharan Africa?

And if you are currently managing a global or even regional payments network, should you be concerned? Certainly the forces at work in driving the next billion consumers into electronic payments are forces with which you must reckon. That opportunity the local market mobile operator sees to make money in delivering consumer payments also happens to be a part of the growth opportunity built into the assumptions driving your stock multiple. Do you partner or compete to deliver those services? Partnership is certainly challenging if your business model to date is built on direct relationships with banks, and particularly if your distribution policies reserve direct provision of financial services for banks alone. If you decide to compete, is that perhaps more challenging? How do you close the lead in distribution and access already opened up between mobile operators and your bank partners?

Charity Begins at Home? Perhaps one of the best opportunities to test a business model that would distribute prepaid payment products to underserved consumers in a partnership that ties retailer distribution and mobile operator network access and services is right here in one of the most “developed” payments marketplaces in the world — the United States. Estimates of adults in the United States who do not have access to, or do not use, formal financial services range anywhere from a few million to in the tens of millions. This is, of course, before the potential effects of a new debit revenue regulatory regime take effect, likely forcing the recalibration of core deposit services by the majority of U.S. financial institutions. The effect of which, most analysts believe, will be to drive even more U.S. households out of the current formal financial services structure and into alternate forms of deposit banking.

Might it be a combination of retailer sales and distribution, coupled with mobile account access for information and management, that will become the new debit paradigm for this growing cohort of U.S. consumers? The potential similarities between an emerging markets financial inclusion model and developed market prepaid services are striking: Consumers underserved by core financial institution products and services adopting prepaid payment capability as a new form of deposit account. Retail merchants engaged in the business of selling and servicing financial services and payments, providing cash-in (load) and cash-out (cash back) facilities as well as remittances. Payments acceptance at millions of merchant locations and remotely for bill payment and eCommerce. Remote account access, information, and management potentially via mobile (paging Metro PCS). A notable absence of anything resembling a traditional bank or branch.

Found in Translation: Perhaps the most prominent example of a successful emerging markets business model for managers of global payments networks, and for the non-governmental organizations headquartered in the developed world but focused on emerging markets, will be right in their backyards. Perhaps finding an example of a sustainable model for financial inclusion won’t require a flight to Bhopal but rather a drive to the local grocer in Belleview. Maybe a financial inclusion model learned in an emerging market will translate into a model for banking the underserved in North America. Or perhaps that will work the other way around, with a Wal-Mart Money Center in Austin served up as the financial inclusion model for an RBI initiative in Amritsar. Who knows? Perhaps the world is small, and flat, after all.

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