Mobile Money Interoperability: Worth the Risk

You probably know that Bill Gates is a very rich man, and that he became a philanthropist after he stood down as CEO of Microsoft. What you may not know – and probably should know given the kind of work you do – is that Gates is putting his money into encouraging the interoperability of mobile money services provided by different telcos. Take a look at this video about mobile money interoperability in Tanzania, as recently shared on social media by Gates’ charitable foundation.

This topic should concern you because the risks surrounding mobile money are an obstacle to offering more interoperable services to more customers, and so delays economic growth for those who would most benefit from it. So anything you do to improve the mitigation of those risks – whether they relate to disputes about settlement, fraud, or overcoming customer doubts about trying a new service – will deliver benefits that extend beyond the bottom line for your business. And mobile money is already big business; the GSMA reported in 2017 that “the mobile money industry is now processing a billion dollars a day and generating direct revenues of over $2.4 billion.”

In 2016 the Bill & Melinda Gates Foundation donated USD6.5mn to the Financial Sector Deepening Trust (FSDT), a body which seeks to increase financial inclusion in Tanzania. Enhancing mobile money interoperability is an FSDT objective. This is how they explain the benefits:

Despite the tremendous progress made on the mobile money front in recent years, there are still significant market inefficiencies. These inefficiencies hinder mobile money from; reaching a greater proportion of the population, enabling a broader range of use-cases, and fulfilling its potential to become a platform for digital financial services at scale, that address the financial inclusion challenge. Among these barriers is the fragmentation of the electronic financial services ecosystem – absence of interoperable electronic financial system, and more specifically mobile financial services – which keeps participants (customers, businesses, governments) reliant on cash.

Unsurprisingly for a man who founded Microsoft, Gates is also backing software solutions that make interoperability possible. The open source Mojaloop software was launched in September 2017 with the intention “to provide a reference model for payment interoperability between banks and other providers across a country’s economy.” The new software was welcomed by Benno Ndulu, Governor of the Bank of Tanzania:

Interoperability is necessary both for financial inclusion and market maturity, but it is a complex thing to achieve. We are excited to explore implementation of this because of how it can simplify that capability for businesses and governments, and speed up access to financial services.

Mojaloop is built on blockchain-like ledgers developed by Ripple. In turn, the Ripple real-time settlement system utilizes the XRP digital currency which reportedly settles payments in just four seconds, which compares favorably to the two minutes needed for Etherium settlements, the hour needed for Bitcoin settlements, and the days needed for traditional transfers between banks in different countries.

Though their business was only founded in 2012, Ripple is being touted as a serious rival to SWIFT, the interbank messaging service which has provided the backbone for cross-border payments for over 40 years. Many of the banks that have started to use Ripple only use its signaling features, but have not adopted XRP because of the feared volatility in the value of digital currencies. But however you look at this, it is clear that new internet-powered technologies like blockchain are pointing us towards a reduction in the cost, and improvement in the speed of payments and transfers. People like Gates want to leverage the potential to increase the accessibility of financial services. All that stands in their way is the adoption of compatible services by the businesses that end users actually deal with. This is why mobile operators, whose networks connect to millions of ordinary individuals, can play a key role in changing the economic fortunes of their customers – so long as we can overcome our fear of the risks associated with these services.

Those who work in risk management may sometimes exhibit a reluctance to embrace change. This is not always the best way to reduce risk. The Economist recently observed that the spread of mobile phones is not just powering a great expansion in who can access financial services, but that mobile-enabled biometrics can also enhance the identity verification procedures surrounding those services.

Biometric-based algorithms always involve a trade-off between precision and ease of use. But when other means of identification are added, security can be far tighter than it ever was in a paper-based regime.

The developers of Mojaloop were cognizant of the need to manage risk, and their software includes tools to counter fraud. But the risks that may delay adoption of mobile money interoperability are not just operational in character. The GSMA’s report on interoperability in Tanzania broadly outlines all the risks that could potentially discourage or hinder interoperability.

Enabling regulatory environment: A constructive dialogue with policymakers, as happened in Tanzania, is absolutely key to ensure there is alignment in understanding timing, benefits, costs, and risks of interoperability…

Appropriate time to launch: Implementing interoperability is complex, both commercially and technically, and also requires resources and investments. Because of these requirements, providers should consider when the most appropriate time would be to launch interoperability. Understanding the market readiness for the implementation is critical.

Solid operational foundations: Strong and secure mobile money operational foundations reinforce not only customer trust, but that of partners. Interoperability requires providers to integrate, and by extension expose, their system. A core tenet for a successful partnership relies in the mutual trust that both providers have robust and reliable systems and foundations…

Risk mitigation and management: Interoperability adds a layer of complexity and identifying and mitigating associated risks is crucial. Providers must have the capacity to develop and agree upon multi-lateral rules to make sure that risks are being mitigated, customers are protected, and settlement is managed properly, among others.

Competitive landscape and choice for the industry: The industry should promote a competitive landscape of financial services providers to efficiently facilitate low-value transactions. Mobile money interoperability can be achieved through different models and the mobile money industry needs to have a choice as to which option to implement.

Delivering a customer-centric experience: Customer experience remains critical for interoperability to scale. If the customer journey is overly complicated, customers will continue to find alternative solutions for cross-net transactions—either reverting to cash or a multi-SIM solution.

The GSMA’s report states that Tanzania is a ‘front-runner’ for interoperability. The experience gained in Tanzania should hopefully set a precedent for how certain kinds of risks are managed in other countries. For example:

Tanzania also yielded lessons on implementation, particularly the positive impact of the providers’ decision to honour a consistent price for on-net P2P transfers and cross-net P2P transfers.

It is worth noting that mobile money interoperability is not just about using mobile phones to provide banking and payment services to Africans. The use of mobile money is growing rapidly in South Asia. Or if you really want to think about the full potential, consider that a 2016 government survey found that 7 percent of US citizens do not have a bank account, and almost 1 in 5 Americans are ‘underbanked’, as blamed on the high cost of maintaining bank accounts.

The preparations for RAG’s imminent conference in Nairobi have led me to engage with Kenyan-based journalists, and this has given me some insight into the barriers that must be overcome for mobile money services to succeed. Journalists want to hear about fraud, fraud, and fraud. If they learn of any fraud you can be sure they will write a headline about it. These headlines will not encourage ordinary people to trust mobile money, even if digital services eliminate a lot of the risks that come with using cash. There will always be fraud, as long as we have to trust corruptible human beings with sensitive information. So there is a great responsibility for telcos to tackle all the flaws that result in fraud, whether those weaknesses lie within systems or human beings. Everything we do can have a positive impact, in terms of changing perceptions and accelerating the economy as well as serving customers.

Mobile money interoperability creates risk at all levels, but telco risk managers owe it to their communities to adopt a constructive attitude to finding good ways to mitigate those risks, instead of delaying or avoiding the adoption of services that will greatly benefit society. We must abandon all prejudice about whose experience we can trust. Because Tanzania has led the adoption of mobile money interoperability, professionals in other countries should expect to learn from Tanzanians and the Tanzanian example. By the same reckoning, Tanzanians should accept the burden and privilege of sharing what they have learned. I am excited about the panel on mobile money risks scheduled for the first day of RAG Nairobi, which will bring together top experts from around Africa, including Tanzania. If we work together as an industry we can contribute to an incredibly positive transformation. And whilst interoperability is still at the experimental stage, the worldwide potential is tremendous.

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.