Why is the chicken afraid to cross the road?

Mobile operators and banks are hesitant to take lead on digital financial services. This blog takes into account the reasons behind the reluctance and lays out a way forward.

In midtown Manhattan, native New Yorkers and veteran commuters like to play a game called “chicken” with oncoming traffic, especially at rush hour. They step off the pavement as the light is turning red, or simply because it’s been red for an unacceptable waiting period, and stride fearlessly into the car lanes. They make no eye contact with drivers. They ignore the horns and screaming epithets. Victors reach the other side unscathed.

Out-of-towners look on appalled that anyone would be so reckless—and so determined to get to the other side faster than the rules allow.

In mobile payments and digital financial services in general, mobile operators and banks are engaged in another version of chicken. Credit-card companies, technology service providers, even handset manufacturers and the Post are also queuing up to cross, but most of these are waiting to see which of the key enablers goes first (and who “owns” the customer, makes money, does not get run over, etc.)

Both banks and MNOs hesitate for the same and different reasons.

Same: Have you ever worked for a commercial bank or a phone company? If yes, you already know the reasons. If not, you can guess. Both are heavily regulated, conservative, careful institutions. One is tasked with protecting your insured deposits; the other manages the telecom networks you depend on almost as much as your money. “Reckless” and “determined to get to the other side faster than the rules allow” are not descriptors most people want applied to either.

Different: MNOs can’t really get to the other side safely without the retail banks and their deposit guarantee insurance right behind them. And though the banks need phones to be the digital wallets, they remain deeply uncertain whether these new markets, comprised mostly of low to very low depositors, offer sufficient rewards.

So, for the moment, in countries not named Kenya, most either remain huddled on the timid side of the street or move forward, cautiously, with pilot projects and pauses.

  • Several GSMA mobile money “sprinters”—Telesom Zaad (Somaliland), Telenor Easypaisa and UBL Omni (Pakistan), Orange Money (Madagascar)—venture across with alacrity, but more regulatory support is critical to ensure against fraud, money-laundering, terrorism, and all the other spectres banks like to invoke … after the sprinters have taken off.
  • Sometimes they just bicker (DRC, Mali, Rwanda, Zambia, most of Eastern Europe).
  • The most famous bank-led model is India (with close to half a billion unbanked potential customers). The more sophisticated NFC and internet-based mobile payment systems in the US, Europe, and Japan all involve bank sponsors or partners. But no one is making real money yet, quite a few are still losing money, and even Bank Technology News is getting nervous.

Another reason both sides can be forgiven for vacillating is the markedly lower customer adoption figures than anticipated. Somewhere between 200-300 million, mobile money subscribers were projected for 2013 by the likes of Jupiter Research, McKinsey, and CGAP. Meanwhile, the GSMA MMU 2012 Global Money Adoption Survey shows only 30 million active users. In a recent Intermedia Financial Inclusion Tracker Survey which focused on Pakistan, findings indicate 87% of mobile money transactions in their study are still conducted over-the-counter via courier and similar services. Reasons include:

  • Account opening with one of the “sprinters” (see above) is too difficult.
  • OTC services already reliably connect senders and their extended family and social networks at relatively low cost.
  • Marketing and promotion remain limited, and at least 40% of the sample is not even aware of the alternatives.

Nevertheless, despite this and other pertinent evidence to the contrary, MicroSave’s bet is on the mobile carriers and the ultimate success of mobile money. Mostly because (1) MNOs actually want these customers and the banks don’t, and (2) barring a new device that suddenly and unexpectedly enjoys 86% global market penetration, phones will, in fact, be the easiest, fastest, cheapest way to move money around—P2P, G2P, and internationally—for at least the next ten years, and probably longer.

For more on mobile money transfers and RBI’s recent new policies, please see MicroSave’s blogs on Mobile Money: Rosy vs. Real and Financial Inclusion Just Became More Inclusive…Maybe.

The telco business plan depends on volume and ever-increasing usage. Operators are thrilled by Cisco’s prediction that mobile phones will outnumber the earth’s population by the end of this year. Banks need high deposits, low withdrawals, and less than 2% fraud to make money and cover their ever-escalating deposit insurance costs. Their goal is rich people using retail banking services infrequently. (For more specifics on these very different approaches to the best bottom line, please see here.)

Mobile Money–Influencers of Success is a deeper analysis of numerous other factors that are easy to overlook but matter just as much as the numbers. They include:

  • Regulatory environments (why India, for example, is less favorable than Kenya, Senegal, or Egypt for mobile operators offering payment and banking services);
  • Financial/technical literacy, access, and social norms (Easypaisa and Omni may be sprinters, but many poor Pakistanis still prefer the more familiar OTC service);
  • The right accounts and services for these customers (hint: “Tiny” and “No Frills” accounts have failed to win hearts and minds);
  • The cash-in/cash-out problem (Western banking and credit cards needed 30+ years to induce commercial, educational, health, and most other small and large business concerns to fully participate in digital payments. The rest of the world may take at least as long to catch up. And we will most likely always need some CICO agents.)

Tomorrow is harder to imagine than we sometimes think. Six years ago, the top ten phones sold around the world were Nokia’s. All ten. Then in 2008, Apple’s iPhone moved into first place and everything changed. New technology and unlikely business models will continue to disrupt our assumptions, so those noted above are indeed suspect.

What won’t change any time soon are people, affluent or indigent, and their attitudes toward money. Digital financial services (mobile banking, branchless banking) will only work if customers trust it and think it’s better than what they have now. Banks and operators and all the other potential enablers matter, but they will never matter as much as they think they do.

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