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Expanding the Ecosystem of

Mobile Money: Considerations


for Interoperability
Author: Gunnar Camner
1—2 GSMA — Mobile Money for the Unbanked
Expanding the Ecosystem of Mobile Money:
Considerations for Interoperability

Introduction
What are the objectives that Direction of the market today –
interoperability can help achieve? have mobile money providers been slow
in capturing these opportunities?
In this note, we discuss interoperability in broad ■ The maturity of mobile money deployments The three objectives presented below highlight
terms as the interconnection of mobile money within a market need to be carefully areas where partnerships and interconnections can Mobile money providers are already beginning to
services with external parties, with the aim to create considered in any discussion of mandated contribute to a greater mobile money ecosystem. pursue interconnections with external parties.
value for both customers and commercial players. interoperability. Prematurely pushing These objectives are not exhaustive; however, they More than two-thirds of deployments worldwide
Interoperability is increasingly cited as a solution to the market towards interoperability has provide examples of objectives that might be met are connected to bill payment partners and
increase transaction volumes and extend the range the potential to negatively impact further through greater interoperability. around 50% have some form of bulk payment
of financial products offered through the mobile investments and financial inclusion. functionality.1 Connections to financial
phone. While interoperability is seen by some as a Product innovation beyond domestic remittances institutions are increasing across deployments.
“silver bullet” for greater financial inclusion, it is and airtime top-ups. These two basic transactions
not a given that interoperability will lead to that make up almost 95% of mobile money Despite these efforts, transactions that require
goal. To successfully implement interoperability, Focus on the objectives and transactions, according to the 2011 Mobile Money no external interconnection – airtime purchases
consideration must be given to the current state of Adoption Survey.1 By inviting banks, microfinance and domestic remittances – account for almost
the market. This note serves to promote discussion incentives for interoperability institutions and third parties to innovate using 95% of mobile money transactions globally.1 Have
within the industry about how to evaluate mobile money and its infrastructure as part of their mobile money providers been too slow to capture
opportunities for interoperability and how more solutions, providers could make a greater range of the opportunities offered by greater
of these opportunities could be realised. Opportunities for interoperability arise where consumer financial products and services interconnectivity? Given the youth of mobile
interconnections with external parties can accessible for their customers. money and the complexity associated with
Some important considerations on this subject are create greater value for customers and service offering these services, the current pace might be
as follows: providers than a single mobile money service Enabling cost-efficient payments to and from the well justified.
provider can create alone. The emphasis on value unbanked population. Distributing physical cash
■ The objectives of implementing for the enterprises involved, as well as for the to the unbanked (e.g., through salary payments Mobile money is a young industry, with over
interoperability and the benefits that could consumer, is an important point to bring to the or government welfare programs) remains two-thirds of all deployments launched during or
be achieved from it must be established interoperability debate. Once an opportunity expensive and insecure. Governments, after 2010.1 The youth of the industry is important
before deciding which assets (e.g., the agent for interoperability has been identified, it needs employers and other large bulk payers should be in the context of the operational complexity
network or mobile money platform) should be to be strategically or financially compelling able to use mobile money as a cost-efficient and involved in launching a mobile money program.
interconnected or shared in a market. for all parties involved to jointly pursue it. reliable payment channel to reach this population.
Agent networks need to be
■ Given that mobile money service providers are Industry collaboration in a country could have built from scratch and nurtured to profitability.
The strategic and financial incentives for
making significant investments into developing the potential to facilitate these large bulk Customers, many of whom have never before
interoperability need to be identified to ensure
the infrastructure for mobile money, external payments more efficiently. Mobile money is also used an electronic account, need to be taken
that there is appropriate value for all players.
parties who want to use those assets need to available for companies that want to accept through a complex journey. Technical platforms
■ These incentives are more likely to become payments from customers without bank accounts need to be customised to match the specifics of
bring appropriate incentives to motivate service
available after the foundations of a mobile providers to connect with them. or easy access to a physical bank branch. each market. Fraud and risk procedures and
money deployment, such as a functioning agent customer care facilities needs to be put in place. A
network and an active customer base, have Focusing prematurely on which assets a Replacing cash with electronic means of payment handful of markets have demonstrated that these
been established. Most deployments today are mobile money deployment should share with in day-to-day transactions. The current dominant challenges can be successfully overcome,
still occupied with building this base. other parties, or which components it should use case for mobile money is still a money however many are still working hard to clear
■ More established mobile money providers interconnect with its peers, can potentially transfer followed by a complete cash-out. By these hurdles.
have recognised the opportunity for have unwanted implications in the market. For providing tailored solutions for retailers, and
interoperability and are already pursuing example, many mobile money providers are establishing interoperability with existing and Allowing mobile money operators to build a solid
some form of interconnection with financial still investing heavily in recruiting, training and future retail payment infrastructure, operators foundation and teach customers how to use the
institutions and other external parties. As more branding their agent networks as distribution is can enable more frequent and proximate service before laying on more advanced
deployments mature, the number of external a competitive element of their service. If these transactions using stored value on the mobile interconnection is essential. Ensuring the
connections and partnerships can be expected assets were to be shared by their competitors, phone. This would make the service less reliant reliability and availability of the service takes
to increase through market forces. the competitive aspect in distribution would on cash conversions, provide convenience for precedence for operators. A strong foundation is
disappear and there would be less incentive for customers, reduce costs for operators and necessary not just for the success of the individual
individual players to invest in increasing access increase the relevance of e-money. deployment, but for positive network effects
to their service. following interoperability as well.

Does solving the problem How could partnerships


What is the perceived
bring value to both and interconnections
opportunity (or problem)
a) consumers and b) help achieve this
in the market?
commercial players? objective?
1 “State of the Industry: Results from the
2011 Global Mobile Money Adoption
Survey” by Neil Davidson and Claire
Pénicaud, 2012. (http://www.gsma.com/
developmentfund/state-of-the-industry-
results-from-the-2011-global-mobile-
money-adoption-survey/)
2 “The Case For Interoperability: Assessing
the value that the interconnection of
mobile money services would create for
customers and operators” by Neil Davidson
and Paul Leishman, 2012. (http://www.
gsma.com/developmentfund/wp-content/
uploads/2012/06/mmu_interoperability.pdf)
3—4 GSMA — Mobile Money for the Unbanked
Expanding the Ecosystem of Mobile Money:
Considerations for Interoperability

The GSMA Mobile Money for the Unbanked In other industries, the use of conventions and
team previously investigated the value of standards has created an enabling environment
interconnecting mobile money wallets in a for third party companies to add value, as they
market, enabling transfers between different could develop solutions for an industry and not
service providers to originate and terminate in a only for individual deployments. In the card
mobile money account. This differs from the payments industry today, standards, such as
current scenario, where customers receiving EMV (chip and PIN) and common protocols,
transfers through service providers other than have allowed external players to add value to the
their own are given a code and required to industry. While card companies are not
cash-out the money. Although interconnected interoperable with each other, they are so with
mobile money wallets seem attractive, the value the same third parties. One example is the
for consumers and enterprises had not been point-of-sale device, which can initiate
strong enough to be pursued in any market. This transactions with different card payment
was due, in part, to a lack of markets with networks due to same security processes (EMV),
multiple established deployments and size of the card, etc. This example illustrates that
unarticulated benefits for customers at the time of interoperable environments can be accomplished
the study.2 While this has not happened yet, the in more ways than connecting platforms.
incentives to pursue similar implementations
may become available in the future.
Conclusion
How will the industry achieve these The road to financial inclusion through mobile
objectives in the future? money has so far been market-led, and this
should continue to be the case when it comes to
So far, operators have had an incremental interoperability. As an increasing number of
approach towards connecting to external parties, mobile money deployments become successful
where the commercial deals and technical and reach maturity in their markets, more focus
integrations are negotiated on a case by case will go towards pursuing greater connectivity
basis. This allows greater control for the operator, with partners, third parties and financial
as specific business rules and pricing can be institutions. Sharing assets is likely to happen
tailored for each connection. However, due to the when it creates customer value and also makes
capacity constraint of operators, not all players commercial sense for the stakeholders involved.
who want to access the platform are granted it. In As such, regulatory and top-down interventions
some markets, operators have brought in regarding interoperability that have strong
aggregators to help handle their business commercial implications are encouraged to be
development with third parties to address this made with caution and in dialogue with the
constraint. An open question is whether, going industry to achieve the intended results and
forward, operators will chose control or openness avoid unwanted ones.
around managing connections to third parties.

To accelerate the connection process and reduce


development costs, technology platforms will
have to enable flexible and efficient technical
connectivity, most likely by establishing common
and standardised APIs. Making them available to
developers, financial institutions and businesses
allows these players to incorporate mobile money
into their business solutions and apply it to the
more niche, or long tail, opportunities in the
market that a single provider has difficulty to
cater for.

The MMU programme is supported by The Bill & Melinda Gates Foundation, The MasterCard
Foundation, and Omidyar Network
For further information please contact
mmu@gsm.org
GSMA London Office
T +44 (0) 20 7356 0600
http://www.gsma.com/mmu

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