In the space of only a few decades, various communications technologies have become essential lubricants to oil the wheels of commerce. While developed countries can already rely on a highly-evolved infrastructure to support communications and finance at both enterprise and personal levels, the picture is very different in developing countries.
With over four billion people – nearly two-thirds of the world’s population – now owning a mobile handset, these devices are fast becoming almost universal. In developing regions or in developed countries, such as the United Arab Emirates (UAE) in the Middle East that host significant numbers of migrant workers from developing countries, mobile handsets provide their owners with instant access to a range of branchless banking services that are quickly transforming lives and communities. This is particularly true when it comes to interacting with those without a bank account but with a mobile phone. While health, education and information remain important issues, it’s in the area of finance and trade that some of the most potentially revolutionary mobile applications lie.
Here, many opportunities for positive change are now emerging for businesses around the world. In particular, their treasury operations must start to see mobile communications as another strategic tool that can be used to move money and information around between themselves and their suppliers, customers and employees. What is particularly significant is that, in some parts of the world, governments have already recognised the strategic benefits of combining e-money initiatives and mobile communications. This not only to increases the transparency of transactions for tax and national financial management purposes, but also serves to protect employees and corporations against fraud and embezzlement.
Mobile Money: An Idea That is Taking Over the World
From basic beginnings during the very early days of mobile communications in the mid-1990s, mobile payment (m-payment) and mobile money (m-money) transactions have started to flourish around the world, using a variety of different systems and technologies. Take-up has been particularly large in those regions where an established banking infrastructure is lacking outside of the large cities. Additionally, there are also developed countries where sectors of the population – such as migrant workers – don’t earn enough or have a stable enough income to justify having a standard, full-service relationship with a bank. In these situations, there is still a need for people to be able to transfer comparatively small sums of money securely and reliably. This is especially true where migrant workers have moved to cities, or even to other countries, in search of employment.
In the early days at least, many of these payment systems were created from the ground up. Simple money transfers became possible by taking the inherent capabilities of mobile phone billing systems to aggregate, divide and move call credits in pay-as-you-go systems from one user to another. More recently, the mobile service providers themselves have targeted these markets, using their existing local sales channels in smaller towns and villages to begin to offer basic banking services to the mass market.
This in turn has created challenges for mobile service providers. The complexity and rigour of banking and financial services legislation and compliance, particularly where international transactions are being made, is far outside the usual skill-set of most mobile operators.
The banking sector, too, has faced its own issues in attempting to fulfil this huge and unsatisfied demand for mobile banking and commerce services. Often they would attempt to build their own systems on the back of existing in-house systems, only for these to founder in a combination of technological complexity, a lack of understanding of the mobile – as opposed to the online – environment, and an inability to properly engage with their target markets. Issues such as these have led to partnerships with mobile payments solutions providers, which able to provide truly integrated solutions that combine the best expertise in financial services and systems, as well as mobile technology, to provide telecommunication operator-agnostic platforms.
Mobilising the Entire Financial Value Chain – From the Top Down
Because of some highly innovative legislation passed in the UAE last year, mobile payments solutions made further giant leaps and could provide a blueprint for change in other countries. And, while on the surface an apparently complex story, the outcome highlights how a series of incremental technical and regulatory developments can change the lives of millions of people for the better.
On 1 September 2009, the first phase of a project called Wage Protection Systems (WPS) began, initiated by the Ministry of Labour Affairs in the UAE. Controlled by the Central Bank, the initiative legally compels all companies incorporated in the UAE to register and electronically pay wages to all employees through agents, which traditionally are local exchange houses and banks. Information flows back and forth between agents and the Ministry to ensure that workers are paid on time, that no unlawful deductions are being made or additional fees extracted, and that defaults are quickly identified. Penalties are built into the overall process to punish any attempts to evade the system or avoid paying full salaries.
While a major step forward in creating a fair and equitable job market and employment regime within the UAE, a few major issues identified fairly early on in the planning process were that many of the employees didn’t have bank accounts and many payments didn’t fit a pattern of regular salary transfers. These problems affected around 2.5 million employees, often migrants, in the country.
Fortunately, a solution – or, more accurately, a series of solutions – were on hand and these have led to the evolution of a mobile payments and money transfer environment that could set the stage for similar initiatives elsewhere.
The solution began with the National Bank of Abu Dhabi (NBAD) and its NBDirect card. This was one of the first co-branded payroll direct debit cards that gave account holders access to ATM systems and Visa services, allowing them to transfer money internationally to families back home.
The next stage came shortly after, following the success of the NBDirect card, when both NBAD and other financial institutions began to offer payroll cards to the unbanked, allowing them to receive their wages electronically via a registered agent. The idea was that they could then make the appropriate electronic debits, purchases or transfers via ATMs and point-of-sale (POS) systems anywhere in the world.
The success of this solution was explosive, with both employers and employees enthusiastic about the freedom and flexibility – as well as the security and transparency – that it gave them, while also fully meeting the regulatory requirements of the Ministry of Labour Affairs.
The next link in the chain – the use of mobile handsets and communications – was established with the involvement of mobile payments solutions provider Luup in a partnership with NBAD in 2007 and the setting up of NBAD’s SMS-based banking service called Arrow.
Given the presence of so many under-banked people in the UAE, the success of both Arrow and Ratibi – NBAD’s own payroll prepaid card brand – along with the new regulatory environment, the next logical step was to link their two functionalities together. This would allow users to transfer funds, carry out basic banking transactions and purchase things, simply through using their mobile phone and SMS exchanges – all without the need for a bank account.
And on to the Next Stage – From B2P to B2B
The growth of platforms that can successfully merge the banking and mobile worlds has huge potential.
While there are obviously important immediate implications for treasury operations when it comes to managing payroll applications, it’s also easy to see that the next evolutionary stage for this type of platform is to extend it to transactions between companies or to person-to-government (P2G) and business-to-government (B2G) exchanges.
In the UAE example above, the government has led the way within the e-money space, launching the e-dirham back in 2001. This is a secure payment tool that uses prepaid cards from banks like NBAD, which can be loaded with money and then used to pay for government services. Recent legislation stipulates that government services in the UAE can only be paid for using these accounts. The addition of mobile payments into the equation increases flexibility still further for both small and medium enterprises (SMEs) and individuals.
Specifically in the business-to-business (B2B) space, Luup’s introduction of secure and reliable mobile payment solutions in the region means that a corporate treasurer can authorise payments or invoices via their mobile. This is particularly useful when multiple signatories are required and the logistics of getting all these signatures from remote executives is difficult. Similarly, information on payment and invoicing status becomes instantly available, while changes in orders can be quickly implemented as trading conditions change. Given the continuing trend towards outsourcing company functions and the need for the entire metabolism of corporations to speed up, mobility can deliver agility to financial decision-making.
The ability to take cash out of the entire system also reduces risk in a number of ways and this can be especially relevant. By reducing the ‘friction’ inherent in the old ways of doing things, mobile payments and management functions can add some much-needed drops of oil to help the wheels of personal, national and international business turn more freely.
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