Visa's Mobile Money Play Portends a Larger Push for the Unbanked

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Visa's introduction of a global mobile money program doesn't make it a pioneer in using handsets to tap underserved locales, but it does bring scale, open-loop flexibility and likely a lot of future bank issuers to a market that's currently heavy on regional telecom partnerships with closed-loop systems.

"As Visa acknowledges, companies like M-Pesa have paved the way for lower cost mobile based payments initiatives. If they put the right energy against this initiative, Visa should be able to bring many banks into this new payments ecosystem," says Philip Philliou, a payments consultant.

Visa, which has been gradually building up to target underbanked consumers, can use its new system to host and fully manage all aspects of a mobile money platform on behalf of the provider, including user interface design, consumer enrollment, transaction processing, authorization, clearing and settlement—targeting domestic or globally interoperable mobile money services.

The Visa service will debut in India, via a partnership with mobile carrier Aircel, and in Rwanda through partnerships with Bank of Kigali and Urwego Opportunity Bank. Those banks will offer financial accounts linked to consumers' mobile phone numbers. Aircel is India's fifth largest and fastest growing GSM mobile service provider.

"Over time as these consumers become more experienced with electronic payments, they will want to participate in more of the financial value chain and can move into savings, and lines of credit" and other services, says Ashwin Raj, Visa's head of mobile products for emerging markets.

Visa faces stiff competition, particularly as larger players cast more attention on underserved markets.

"I would say that Visa is not alone, as MasterCard also appears to also be focused on reaching millions of lower-income [consumers] through mobile banking solutions," Philliou says. "My hope is that both Visa and MasterCard will prove that there is nothing wrong with being fast-followers."

MasterCard's Mobile Money Partnership, a program aimed at providing access to underserved consumers globally, is targeting a market of about 2.5 billion consumers. MasterCard has also entered into preferred partnership deals with the mobile-money providers Comviva Technologies, Sybase 365 and Utiba.

"MasterCard is working with these and other partners to enable consumers to purchase goods and services via their mobile phones at millions of brick and mortar and online merchants worldwide, as well as transfer funds and pay bills," said Marcy Cohen, a MasterCard spokesperson, in an email.

American Express' underbanked initiatives include Serve and Bluebird, prepaid products that don't require a credit inquiry.

Visa's Financial services will include cash-in and cash-out transactions at agent locations, bill payment, remittances, topping-up air time, and buying train tickets.

"Visa has captured the three main functions that will drive adoption of mobile money, the mobile access, the ability to pay utility bills and the ability to send money to others," says Arkady Fridman, a senior analyst at Aite Group.

The system will be hosted in Visa-managed data centers, and will use technology from Fundamo, a mobile money company Visa bought in 2011 as part of the card network's strategy to extend services to underbanked regions. The scale should also aid cross-border finance, since it brings more standardized processing protocols to different markets.

"This is a sign that Visa's recent investments in mobile technology such as Fundamo are starting to bear fruit. Interoperability of various money transfer systems is a big issue, so the solutions that can help solve that challenge are positioned well for success," says Zil Bareisis, a senior analyst for Celent.

The platform offers a local connection to Visa's global payment network, VisaNet, and allows Visa, on behalf of the provider, to manage customer enrollment and mobile wallet user interface, fees, commissions and taxes, as well as apply risk management and reporting.

Providers can also enable transactions across all mobile channels via Unstructured Supplementary Service Data (USSD-a protocol used by mobile phone operators), xHTML (Extensible Hypertext Markup Language, a key language to enable mobile commerce), and IVR (Interactive Voice Response). It also supports bulk registration, balance inquiries, PIN and account management.

"Visa is addressing many of the issues that I've encountered over the years due to the lack of a word-class [technology network] to leverage. Visa is providing that [system]," says Philliou, who has worked with Grameen Bank's micro finance banking, H&R Block's underbanked prepaid card initiatives and developments of products for low-income people in Brazil, the Caribbean and Mexico.

Visa's new tech also differs from earlier plays in that it supports both open-loop and closed-loop payments, which provides greater flexibility, says Mary Monahan, executive vice president and research director of mobile for Javelin Strategy & Research.

"To date, almost all of the mobile network operator (MNO) implementations in the emerging markets have been closed loop. This makes sense from an MNO perspective, because they are offering these services to increase customer acquisition, reduce churn, etc.," Monahan says.

If payments are open loop, then the customer is not required to stay with the specific MNO to retain the benefits of the service, Monahan says.

"But Visa's new platform will support both open-loop and closed-loop payments. Thus, this new service starts to pave the way for cross-platform and even cross-border transactions over Visa's network, at some point," she says.

Visa plans to make this openness a selling point to acquiring banks.

"In India, we launched with banks, and one of the key reasons they chose the platform is its degree of openness," Visa's Raj says. "Consumers can't be told, 'You can only use the card in this environment.' "

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