The Continuing Story of Mobile Money

As mobile commerce grew into filling the void of access and cost efficiency for consumers, telecom operators found themselves at the intersection of sellers, buyers and financiers. This vantage point afforded them some advantages: easy access to a captive audience. Telcos realized that this unique position can be leveraged into higher value products. Instead of just providing mere network access or carrying voice and data traffic, they could enable the transfer of money, which increased voice and data traffic in turn.  Mobile commerce was stymied in developing countries primarily by the lack of banking infrastructure. The gap was very apparent from the beginning. This was the origin of mobile money, which first found popularity in Kenya, with the resounding success of M-Pesa. Then mobile money gradually extended its reach to other parts of Africa. Now Africa is the world leader in mobile money, with 12 percent of Africans using it.

Mobile money is on the rise due to the dire need of simplified financial solutions for transactions such as peer to peer money transfer, small international remittance, and utility transactions. It became popular in emerging markets like Sub-Saharan Africa as a substitute for banking, being positioned as banking for the unbanked. Penetration of banks is poor in many of the African and developing countries. Telcos with their built-in subscriber base easily attracted a good proportion of the populations to avail of mobile money. Governments and aid agencies encouraged this as a way to improve commerce and livelihood.

With peer to peer transactions increasing, even developed countries are showing interest in mobile money. This has led to the next iteration of this technology. The first layer was primarily driven by technology. Now telcos are readying the second generation of mobile money. In this model the telcos themselves are moving up the banking vertical through collaboration with banks or outright competition by acquiring banking licenses themselves. Telcos like Orange France, Altice, and Airtel India now have banking licenses. In India, Reliance Jio shook up the telecom market with introductory packages that provided data plans for free, and they have also introduced a mobile wallet called Jio Money. Telcos are actively trying to bundle offers to make mobile money attractive to their subscribers.

When mobile money was initially introduced, SMS and USSD-based authentication was relied upon for transactions. However, increased smart phone penetration means smart GUIs have become popular. Both banked and unbanked customers can use these apps to make financial transactions. For example, banks are providing options to withdraw cash at ATMs without an ATM card. Instead of using a card, an authorization code is sent to the mobile phone and the user inputs the code into the ATM.

Mobile money is improving and is innovating new concepts too. Over 90 countries offer mobile money, with an average of three service providers offering it per country. Agents and agency networks play a key role and can also be considered as the backbone of this service. More than 50 countries have regulatory frameworks in place. In total there are more than 100 million active subscribers to mobile money services worldwide and this is growing steadily. I believe mobile money will be ubiquitous within a decade.

As new services are offered telcos need to educate consumers about them. For example, there are three kinds of online wallet: closed, semi-closed and open. Closed wallets are issued by businesses to transact specifically and only with their organization, such as Spicejet E-Wallet, provided by an airline to book tickets or purchase other services only from them. A semi-closed wallet can be used within a group of business enterprises. It is a kind of walled garden, as adopted by Ola Money, a cab/car-share operator in India where the wallet can be used to pay for cabs and for purchases from a selection of enterprises. Open wallets can be used to make purchases of goods and services in general, and they permit cash withdrawals. To illustrate, the functionality of Airtel Money includes cash withdrawals, money transfers and other financial transactions with any business that will accept online payments.  Regulators in various countries have defined strict guidelines for wallets and online transactions. But the risks involved in providing open wallets are high.

The business risks for mobile money are very different in nature from those found with voice, SMS and data. Banks have institutional knowledge of risk management that must now be assimilated into telcos. Historic telco norms for know your customer (KYC) verification have not been as strict as those applied in the banking sector. Mobile money requires stringent policies because the financial liabilities are potentially huge. And there are other severe risks; mobile money can be used for terrorist funding if KYC and anti-money laundering (AML) controls are not in place.

Application security must be strongly enforced to avoid any attack by hackers because the money in the wallet can be stolen quickly and difficult to trace.  Frequent SIM replacement and PIN resets could also be a sign of fraud in a mobile money business. With international remittance, there are treasury risks, such as exchange rate fluctuations. Tariffs charged by the operator require sharing between multiple parties and must be calculated correctly. For example, an Airtel customer in Kenya may not be able to transfer money to a Tigo customer in Togo due to a lack of interoperability.

Existing revenue assurance and fraud management solution vendors have started to provide specialized modules to help telcos manage their mobile money risks. It is necessary to protect against fraud which could hurt a variety of stakeholders including subscribers, merchants, dealers, telcos and banks. Solution providers are hiring banking domain experts to identify risks in mobile money and offer watertight control points for the business. The solutions, additionally, provide advanced analytics that include predictive algorithms helpful to various departments within the operator. Telcos should look to augment their existing in-house capabilities.

There is undoubtedly significant risk involved in supplying mobile money services, and not all the risks have yet been fully explored. Despite that, the rapid adoption of mobile money creates tremendous opportunities for positive change, and gives telcos an important new source of revenue.

Daniel Peter
Daniel Peter
Daniel Peter is Vice President of Analytics at Gamma Analytics. He heads Gamma’s Data Science group working with customers in advanced predictive model development, business data analytics, data science, and product strategy. He also has significant expertise working with Fortune 500 companies for Connectiva Systems and Hewlett Packard.

Daniel has a Business Analytics degree from IIM Calcutta, Masters in International Business from Kedge Business School, France, and MBA from Loyola Institute of Business Administration, India. He is the author of: “Corporate Response to Recession (2008-09)”. He speaks and writes on telecom topics and can be reached at