Electronic Money

I remember that a few years back quite a few people started talking about how the retail telecoms sector and the retail banking sector would start merging into one. The theory was that telecoms had the devices in people’s pockets and the systems to handle an awful lot of microtransactions, whilst the retail-oriented financial institutions had the big, and profitable, business of managing people’s money and charging them to move it around. Mobile phones would not only support mobile banking, but would also replace cash and credit cards. Because you can communicate with a mobile phone, and because the phone has a display and can present information to the user, a phone should be the safest and most secure way to handle money. Once mobile operators had gone to the trouble to implement systems to manage prepay account balances in real-time, it seemed like a small step to allow those balances to be used to pay for anything and everything, not just for phone services. 3G would supply the necessary bandwidth, and mobile payments would generate some of the money to justify the investment in 3G. As a result some phone companies started talking about and getting banking licenses. However, progress has not been as rapid as some people expected. Many years on, and use of electronic money is nowhere near as ubiquitous as cellphones are. In fact, the growth of mobile payments has in some ways been most popular in the developing world. Take a look at this interesting blog for a discussion of reasons why.

One challenge to mobile electronic money is that not many people are confident about the know-how possessed by many telecoms firms. Concerns about security and data integrity in telecoms mean that online payment systems that treat electronic communications as a bitpipe have made far more ground than any attempt to integrate banking with the process of managing and settling phone bills and accounts. I suspect part of the reason for doubts over telcos is that, in the final reckoning, operators are just operators – the may just about know how to run things, but they rely on other, bigger, companies to do the R&D, development and even install of the technology they use. Cisco and Nortel are to operators what Boeing and Airbus are to airlines. In the end, the operators are all pretty undifferentiated – at least the airlines decide what selection of meals to serve during a flight. The pace of change is more likely to be set by the push from the big network and technology vendors, and less likely to be set according to the limited pull of most operators. Only the really big players like Vodafone set the pace with vendors. Another, but somewhat related difficulty is that customer interest is modest. Ambitious projects to get more and more products and services on one bill have received only lukewarm interest from customers, and is not helping to generate significant additional revenues. More importantly, customer distrust of the track record of telcos has guaranteed they will be suspicious and fearful of using telecommunications to manage money. Telcos are not going to push furiously and invest heavily in services which customers seem reluctant to use – they have done so plenty of times in the past, and been burned as a result. Customers are not just distrustful of telcos, but their reputations are no better than anyone else’s, and increasing numbers of high-profile stories about lax data security will just encourage people to take a blanket negative attitude to any new technology for managing money that has not already been adopted by their friends and neighbors. However, I think these problems are surmountable, and more progress could have been. In the background, it would not surprise me if exec egos are another real obstacle. Until recently, the banking institutions were the ones with all the profits and the execs with the egos to boot. Recent events have laid the finance sector low, but you can still expect they would think of themselves as the senior partner in any hook-up with telecoms. In turn, I imagine the telco execs are less than keen to get themselves in deals where they risk being treated like backwoods cousins on every level from marketing to technology.

Whatever the reasons for the relatively slow transition to electronic money, it is coming, and I recommend you keep aware of progress by reading this very good blog on electronic money from a firm specializing in that sector. Electronic retail payment poses a new challenge for telecoms revenue assurance, but not for the reasons that might first come to mind. I also remember that when the merger of banks and telecoms was taken more seriously, a few overeager souls were looking forward to a future where banks would be turning to people from telecoms revenue assurance to help them with integrity. Having seen a little of what big financial institutions are like from the inside, I always thought that was fanciful. The banks have processing integrity hard-wired into their mentality. The war stories and case studies of a few rinky-dink telecoms revenue assurance guys are hardly likely to impress businesses that live and breath reputations for handling money without mistakes. No, the challenge for revenue assurance in telecoms is going to be more subtle. In a world where error rates and integrity expectations are set by the big retail banks, telcos are going to have a tough time to persuade them they can meet those expectations. If they do not, the operators will end up being junior partners and maybe just the bitpipe providers. The trick will be to turn around the win most, lose a few attitude to data and revenue integrity found in most telcos into the failure is not an option culture that the banks demand. Either revenue assurance will be at the forefront of that transition, or the transition will brush current revenue assurance practices aside, turning them into a sideshow. I know which I would prefer, but I also know that many in revenue assurance are simply not ready or qualified to lead the fight for error-free transaction management. The slow transition to electronic money has bought telecoms revenue assurance some time to prepare for the onslaught, but it will come, and when it comes, given the current state of revenue assurance progress in most operators, there will be casualties. Now is the time to toughen up, before it is too late.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.