Mobile Payments: A New Universal Means of Payment or a Way to Financial Inclusion in Emerging Markets?

In developing countries, the classical banking model does not succeed in satisfying the needs of a widely unbanked population – the density of bank branch networks is low, card payment infrastructures are insufficient and financial services remain costly. Today, the mobile phone can solve many of these problems – a large percentage of the population owns at least one mobile phone and telecommunication networks are extensive and efficient. Technology makes it possible to access daily banking services via the mobile in a secured way. Once fiduciary money is transformed into electronic money, it becomes easy to carry out money transfers, as well as pay for goods and services by mobile phone anywhere and anytime.

Telecom Operators: First Developers of Mobile Payment Initiatives

Telecommunication operators were the first to take close interest in the subject of mobile money, as it seemed easy for them to make the switch from transfer of airtime credit to transfer of electronic money. Setting up an integrated payment tool allowing customers to top up airtime also enables operators to reduce their costs. In addition, it generates new customer traffic, as well as developing consumer loyalty.

Currently several mobile initiatives are operational, such as M-Pesa by Safaricom, Mobile Money by MTN, and Orange Money. However, in many countries operators cannot launch a mobile payment service on their own. For regulatory reasons they have to develop partnership agreements with financial institutions, who ensure the issuance of electronic money and guarantee transaction security and compliance with central bank regulations. In this context, several Société Générale subsidiaries are participating in mobile money initiatives, for example in Ivory Coast and Madagascar.

Telecom operator-led initiatives are closed-loop systems dedicated to their own customers. The operators’ objectives are different from banks’ objectives. Moreover, these projects can eventually become a threat to banks. Not only are bank payment revenues threatened, but also overall banking activity since operators could start using consumer files to commercialise credit and deposit products in partnership with financial competitors. Safaricom, for example, has recently partnered with Equity Bank in Kenya to launch M-Kesho, a banking offer including microsavings, microcredit and microinsurance.

A New Means of Payment: Universal, Handy and Safe

In emerging markets, tomorrow’s banker will surely be the one distributing and processing payments, however the most widespread payment method will probably not be by card. According to several consumer surveys, a payment is considered as a natural extension of everyday mobile use and, therefore, mobile payments are likely to develop on a large scale.

Based on these predictions, Société Générale decided to develop a new simplified banking service that would combine a prepaid electronic money account and related means of payment in order to reach the unbanked segment through a different business model. The new service is built on these five principles:

  1. The service must be open to everyone regardless of the operator and mobile phone, without a need to change the SIM card to access the service.
  2. The service must enable the client to send money to any recipient owning a mobile phone.
  3. The service is shared between partners. In order to be universal and open to a number of uses, it is important to build alliances with complementary partners to create a ‘payment ecosystem’.
  4. The service must be a true banking service because clients must enjoy the same level of security and protection as traditional banking customers.
  5. The service name must relate to the economic and social life of the country where it is marketed because there are strong ties between the access to banking services, economic exchange and economic development.

First Pilot Launch in Senegal

The service was launched was Senegal in June 2010. The mobile payments company Obopay provided the underlying technology and brought to the initiative its expertise in mobile phone transaction processing.

Senegal presented the perfect conditions for success: a largely unbanked population – only about 7% have a bank account – and an extended network of mobile phone users (50%). The service is called ‘Yoban’tel by Obopay’. Yoban’tel means ‘send by telephone’ in Wolof – a name that can easily be adopted by local partners. ‘By Obopay’ is added in order to stress the network that will, in future, interlink mobile phone users across a number of countries.

Currently the service includes person-to-person (P2P) money transfers and bill payments, which were evaluated as the two most important use cases and therefore developed first. Any mobile device can be used to access the service. A simple SMS is enough to send a transfer or payment request, without having to install an application on the phone.

Yoban’tel makes P2P money transfers simple to make. For a person who works in Dakar, it is essential to be able to regularly send money – in a safe, easy and immediate way – to their family living outside the capital. Beneficiaries do not need to subscribe to the service – all they need is a mobile phone.

Making bill payments via the mobile phone has two advantages. On the one hand, it prevents the remitter from having to go to a branch and queue for hours to pay their bill in cash. On the other hand, it is easier for the provider to manage payments, as transactions are automatically processed.

To ensure the development of Yoban’tel, the local subsidiary – Société Générale des Banques au Sénégal – entered into partnerships with major players in the Senegalese market:

  • Crédit Mutuel du Sénégal, the largest microfinance institution in the country with 450,000 customers and 180 branches, for subscriptions and cash-in cash-out facilities.
  • Canal Plus Sénégal for payment of TV bills via the mobile phone.
  • Tigo, a mobile operator, for distribution of the service at its points of sale and for airtime top-up debited directly from a Yoban’tel account.

The Senegal launch is a first step towards a larger deployment first in Africa and then in other parts of the world.

Towards an International Mobile Payment Network?

The idea that an international mobile payment network can be created seems plausible. This is true for sub-Saharan Africa and is also valid for other parts of the world.

In semi-mature and developed markets, such as north Africa and Europe, the payment platform will be enhanced with the internet channel for subscription and e-commerce. For example, portals such as iTunes or Ovi show a growth in purchases of intangible goods, for which payment (especially micropayment) is a compulsory component. This payment platform will have to be able to process such micropayment transactions at a low cost.

In addition, the deployment of mobile payment services offers great perspective for the international remittance market. For Société Générale, this type of service would be valuable as many of its subsidiaries are located in countries with large migrant populations.

A New Banking Distribution Model?

Payments and money transfers might only be the tip of the iceberg. Besides this service, Société Générale aims to offer financial services to everyone, including those who have not had access previously. Based on the initial model set up for payments, the range of products could be extended, for example the disbursement of microloans and repayments via mobile phone, a payment of a premium to customers who keep a minimum balance on their prepaid electronic money account balance, etc.

Present in many developing countries, Société Générale fully assumes its social responsibility and launches progress-oriented initiatives. This is also the essence behind being a bank: to be able to improve daily lives of those who are not (yet) our clients.

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