When a devastating earthquake struck Haiti in January, the country’s government and relief organizations used services tied to mobile phones to pay victims for clean-up work. The program sought to empower Haitians with a means to buy food and other goods and services.
The phones enabled Haitians to withdraw cash at local banks or access account funds to pay for groceries. Few Haitians had access to bank services before the earthquake, and having access to the relief funds helped enable them to rebuild the economy.
Though the situation that spawned the so-called “mobile money” market in Haiti is tragic, the endeavor illustrates how mobile funds-transfer applications could develop elsewhere. Now card companies and mobile carriers in various parts of the world are coming together to meld the popularity of cell phones with access to financial services.
The number of mobile-phone users globally when compared with the number of individuals having access to financial services is staggering: 5 billion have phones, but only 1.5 billion have access to financial services, according to Obopay Inc., a United States-based mobile money company.
To mesh the two markets, such companies as Visa Inc., MasterCard Worldwide and Obopay have mobile-money initiatives under way all over the world. These include Visa programs in India and Peru, MasterCard’s work in Brazil and United Kingdom, and Obopay’s programs in the United States and Africa.
Mobile money initially started in the Philippines and Kenya and has since spread to surrounding areas in small pockets, says Red Gillen, senior analyst at Celent. But it is evolving differently in developed countries compared with developing markets, he says.
“The simple, common denominator is that consumers in developing markets don’t have a financial infrastructure, but the mobile-phone saturation rates are pretty high,” Gillen says.
Initially, consumers in those areas started exchanging mobile-phone minutes as a form of currency, which prompted companies such as Obopay to develop mobile-money services.
In contrast, developed markets, where financial services generally are available, are having more difficulty convincing consumers to use mobile-money services, Gillen says.
“It’s a very different approach,” he says. “People have payment cards in their wallet, and the system works really well. So mobile money has to be presented as something better than cards.”
No such hurdles exist in the developing world, Gillen says.
In most regions, mobile-money initiatives start almost as grassroots efforts. Such was the case in Haiti, considered a developing market.
Portland, Ore.-based global relief organization Mercy Corps and Voila, a Haitian subsidiary of Bellevue, Wash.-based Trilogy International Partners, earlier this year completed their mobile money funds-transfer pilot, which included about 400 Haitians in the Central Plateau area of the country.
The organizations gave the Haitians subsidized mobile phones to receive payments via an SMS text code for clean-up work Mercy Corps organized, Lisa Hoashi, the organization’s spokesperson in Haiti, tells PaymentsSource.
The companies would not disclose the brands of the phones. However, a full range of phones, from smart phones to basic, no-feature, low-end devices can support the their mobile-money system, according to Pierre Liautau, Voilá’s vice president of product development.
Funds recipients may cash in their mobile funds at a local Unibank branch or use the value stored in an account held in a central database toward purchases at a local grocery store. The merchant only needs a mobile handset to accept the payments via a text message that draws funds from the payer’s mobile-money account, says Liautau.
One goal was to use mobile technology to improve the victims’ situation by helping create a financial infrastructure for Haitians displaced by the earthquake, Hoashi says. “In Haiti, 85% of the people have mobile phones, and hardly any have bank accounts, “ she says.
And the earthquake victims in Haiti responded well to the program.
“The people in Haiti felt really empowered with the mobile-money program, especially women,” says Kokoevi Sossouvi, program manager. “Many of these people had never been to a bank before, and they enjoyed being part of the technology.”
The organizations hope to expand the program in Haiti over the next several months. The players in Haiti are working with the government to hash out plans for a national rollout, according to a Voila spokesperson.
Visa and MasterCard also are working in both developed and developing markets to introduce mobile-money initiatives. Executives from both companies note the need to address the division between the two markets.
MasterCard defines the developed and developing markets as carded and uncarded, according to James Anderson, the card brand’s vice president of mobile market development. In developing regions the goal is to prove mobile money is better than cash and in developed regions to prove it is better than cards, he says.
“The basic concept is that there are lots of developed markets where over the last 40 years cards have been the preferred way to transact,” says Anderson. “For those markets, including the U.S. and Europe, we have to make sure that as consumers transition to mobile that we take the service they are familiar with and bring that to the mobile device.”
For developing markets with relatively few cards and cash use is dominant, MasterCard wants to deliver its card-network strengths and assets to the consumers using mobile-payment devices for the first time.
To bring its mobile-payments services to developing regions, MasterCard in June announced a joint venture with Smart Hub Inc., a subsidiary of Smart Communications, one of the largest mobile operators in the Philippines, to link Smart Hub’s mobile-payments platform to the MasterCard brand. The deal builds the MasterCard Mobile Payments Gateway, an open mobile-payment processing platform the card brand is launching in Brazil later this year with financial institutions Itau Unibanco and Redecard and mobile-network operator Vivo.
MasterCard introduced the gateway in late 2009. The gateway enables issuers, acquirers, merchants and mobile-network operators to access the MasterCard payments network for mobile transactions. Consumers who have card accounts may link existing cards to the network for transactions. MasterCard provides a mobile-payment account to fund transactions for unbanked consumers.
Among the developed markets, MasterCard has made strides in the United Kingdom. MasterCard last year became part of the contactless mobile-payments effort involving the UK’s Barclaycard and the Orange mobile operator (see story). http://www.paymentssource.com/news/barclaycard-orange-uk-contactless-cobranded-3000267-1.html
MasterCard will use its backend card-processing system to support the mobile transactions, though it could not provide further details on the project.
Visa also has been busy in the mobile-money market in both developed and developing markets.
In the developing market, Visa has partnered in India with Bharti Airtel, ICICI Bank, HDFC Bank, Standard Chartered Bank and payment-platform provider mChek to launch mobile prepaid top-ups, bill payments and other transactions, such as transit ticketing. In Peru, Visa and Visanet Peru have teamed with Telefonica Movistar to launch Visa Pago Movil, which enables Visa debit and credit cardholders to make mobile payments for products and services, such as mobile air time, taxi rides, and food and flower delivery.
The Visa programs enable the banks that hold the funds to access and process transactions through Visa’s existing VisaNet network.
“The network we utilize for the mobile transactions is the existing network,” says Ginger Baker, Visa senior business leader for emerging markets innovation. Once the transaction goes through the mobile network, banks still communicate through the existing backend payments infrastructure, she says.
“That’s what is so wonderful about this opportunity–you have two existing, well-positioned networks. When you couple the banking network with the mobile-telecom system, you get the reach of the market,” Baker says.
In the developed market, Visa earlier this year announced a collaboration with DeviceFidelity Inc., which uses its technology to transform a mobile phone with a microSD memory slot into a contactless payment device. Three U.S.-based banks, including U.S. Bank, Bank Of America Corp. and Wells Fargo & Co., are partnering with DeviceFidelity to test the contactless mobile-payment technology, Visa says. No details were available at PaymentsSource deadline.
The major card brands have been testing the waters of mobile payments in recent years, but Obopay was one of the first companies to launch a mobile-money product in the United States.
Obopay’s beginnings actually were derived from activities in Africa. Carol Realini, the Redwood City, Calif.-based company’s founder and CEO, was struck by how individuals in Africa used cell-phone minutes as a currency and would walk for miles to phone stores to purchase them.
“Mobile-phone minutes were almost a more-stable currency than money,” says David Schwartz, Obopay head of product and corporate marketing.
Like the major card brands, Obopay believes developed and developing markets have different dynamics, and companies should create the right ecosystem for mobile-money initiatives, says Schwartz.
“In developing markets, it’s about financial inclusion,” he says.
In Kenya, only 24% of the population had access to bank accounts four years ago, Schwartz notes. But since mobile-money programs, including Obopay, have launched there, the percentage has grown to 35%.
When Obopay brought the mobile-money concept back to the U.S., it took on quite a different flavor.
Mobile money empowers consumers in developing countries who lack access to financial services, but those in the U.S. and other developed countries view mobile money as more of a high-tech perk.
“In the U.S., we found that having mobile money is about adding convenience to people’s lives,” says Schwartz, noting younger consumers are more likely to adopt the technology. “Younger people think this is the way to do things because they have no problem using a mobile phone.”
Obopay’s own research suggests that 12-year-olds provide the best results because they seem most likely to accept and adopt mobile payments, Schwartz says. Obopay’s success in the U.S. mainly has come from its family concept in that the service enables parents to give funds to their kids via cell phone, he notes.
Many U.S. merchants that sell goods and services do not take cards for payments, and that is another of Obopay’s target audiences, says Schwartz.
Of the 30 million merchants that sell goods and services, such as housekeeping, day care, plumbing and other businesses, 24 million are cash-only, according to Obopay. “We’ve found that these businesses are the early adopters,” says Schwartz.
Obopay does not release its numbers of users or transaction-volume data for its mobile-money service. The company markets its service through such firms as MasterCard and Fidelity Information Systems, or FIS, which in turn offer it to banks.
Obopay’s latest effort to drum up support for mobile money in the U.S. is a new text service that enables consumers to donate funds to charities.
The company in October announced a partnership with Benevity Social Ventures Inc. to enable consumers to donate via text message. Obopay will provide the mobile-money function to make the donation, and Benevity will handle donation management, tax receipting and corporate-matching functionality.
Any charity in the U.S. may sign up to accept the mobile donations through Obopay, the company said in a statement. The interest in donating to Haitian earthquake relief spawned the new service, Obopay says.
All told, the mobile-money market for both developed and developing areas is wide open, and which players emerge as leaders remains to be seen.
In developing areas, those with the most remote reach to provide mobile-money services to consumers likely will gain the most acceptance. So partnering with the existing mobile operators in those countries is the most likely way to rollout mobile money.
In developed regions of the world, the best partnerships may be the deciding factor. Mobile-money efforts should focus on bundling services to tie in with the existing card-based payments environment, Celent recommends. The key for developed markets is to build on the existing reliance on credit and debit card systems for payments.
