In the last newsletter of 2009 we looked back at the year that was coming to an end and highlighted some strides that were taken around the world in developing clearer regulation regarding e-money and mobile payments.  Oftentimes, a lack of regulation can impede growth and creativity in new sectors, as companies are wary of investing time, money and effort in areas where rules and roles are unclear.  Last year, however many governments took steps to clarify rules around mobile payments and we are confident that they will continue to develop regulation and clarify the rules in the sector.

 

In addition to mobile payments regulation, we see a number of other areas for future focus. Some of these trends are just starting while others are the culmination of years of work. The following, in no particular order, are themes that we feel will shape the year ahead. 

 

Getting Bigger - Industry consolidation continues as medium-sized companies continue to be purchased by larger companies or to participate in mergers in an effort to survive.  We saw flashes of this last year, with, for example, Western Union and Nokia buying or investing in smaller partners.  Larger players, including those last two companies, global banks such as Citi, and others specialized in a variety of related areas, like Gemalto, are fully investing themselves in mobile payments, and are looking to acquire smaller companies with the knowledge and systems to help them play catch up.  Just this month, Gemalto increased its investment stake in Netsize and has an option to acquire the company outright.[1]

 

Along with this, some mobile payment companies have begun to really step to the forefront aided by programs such as Western Union's Digital Vendors Program, which intends to extend the reach of Western Union Money Transfer services to mobile financial initiatives. The program currently has 5 vendors.[2]  

 

Getting Smaller - At the same time, we see the growth of small, innovative, specialized start-ups.  In an earlier newsletter we talked about how venture funds were drying up because of the economic crisis.  We believe that 2010 will see a renewed interest in the mobile payments space as the economy begins to get back on track. The success of mobile payments in the developing world, and the proliferation of smart phones and mobile applications in the developed world, should entice investors looking to mobile payments for opportunities.  Moreover, we already have better metrics and success criteria for such emerging businesses, so the job of investors should be eased slightly as they can draw upon some comparisons and metrics to measure opportunities better than they were able to do in past years.

 

Budget Making Strategy - Following on the above point, it is equally plausible that some organizations may purposefully neglect mobile banking until it becomes mainstream.  With companies still extremely budget-conscious, some may scrap plans for pilots and continue with existing technology and programs rather then moving forward with what they see as unproven technology for unproven consumer demand.  Some firms that are not far along in the process of implementing MFS, will choose to postpone or scrap their plans for mobile banking until it becomes a commonly accepted practice. 

 

There will be future opportunities for these firms to move forward with mobile banking, but chances are that they will then go with more of an off-the-shelf type option rather than developing a proprietary system and being involved in shaping the industry.  As justification for this approach, banks, for example, look to the case of internet banking; where some believe it to have been purely a cost center and necessary to keep up competitively with other banks' services, but not a driver of revenues.  Ultimately though, institutions that fail to keep up will see shrinking market share, especially those in developing countries where there is already consumer demand for mobile options.

 

Low Cost Network Expansions ‘Going Postal’ – In the remittance industry we expect to see an increased use of other existing networks to handle money delivery. We have seen this borne out over the last few months as MoneyGram has improved its relationship with postal services in Italy[3], Cyprus[4] and with the mobile operator SMART in the Philippines[5] to increase its reach.  At the same time Western Union has a long-standing deal with postal providers in other countries like India.[6]  MTOs will continue to make deals with postal services and other operations with large networks as they look to extend their reach and increase their delivery points while trying to keep costs down.  The risk here is that while postal outlets may dramatically increase reach for MTOs they still only reach so far.  In addition, other, even potentially broader, agent access points need to be considered as well, as ACCION's Amitabh Saxena of the Center for Financial Inclusion brought up recently in CGAP's blog regarding his research paper findings on MFIs as a viable channel that has not gotten enough consideration of late.[7]

 

Shifting Remittance Patterns - As everyone in this industry has seen, the fallout of the economic crisis has exaggerated ongoing changes in remittance patterns.  While remittances have fallen drastically in a number of countries, we have also seen a shift in the sources of the remittance flows.  As the global economic landscape has changed, so too have migration patterns and sources of remittances.  Even before the economic crisis, emerging markets were increasingly attracting migrants.  

 

As a recent Foreign Policy article by the World Bank's J. Humberto Lopez, Dilip Ratha and Sanket Mohapatra, highlights, while the US accounted for 30% of outward remittances in 2001, it accounted for only 18% last year, despite the dollar amount being sent rising over the same period.  Meanwhile countries such as Malaysia, South Africa, Russia, Kazakhstan and Indonesia as well as the Gulf Countries have emerged as major sources of remittances.[8] This 10-year trend is likely to continue if these developing countries recover faster and offer more opportunity then developed countries, and as people continue to migrate towards greater opportunities. 

 

P2B Value-Added – While some mobile transfer services like SMART and M-Pesa have seen success in the P2P transfer space, they have also realized there is potential in other value-added services.  M-Pesa initially launched a bill-pay service in April 2009 and now has deals with 65 companies, including the electricity operator, Kenya Power and Lighting Company.  Bill payment and commercial interconnections will be an increasingly relevant area of mobile payments in developing countries; as paying a bill by mobile device is easier and faster than doing so in cash (often with an inefficient wait to boot).  Globe Telecom in the Philippines already offers similar services, and Nokia plans to offer bill-pay options with its Nokia Money service.  While P2P mobile payments services are important in the cash-based economies of developing countries, being able to pay bills via mobile phones will become an increasingly important service offering as well.

 

Increased Comfort With Mobile Payments - Last year saw a number of companies start offering mobile payments services, focused on P2P payments, such as remittances, charitable giving, airtime top-up and mobile ticketing.  None of these programs really seemed to quite catch on, however.  While we saw this as an emerging trend over the course of the year, specifically with initiatives in Europe to use mobile devices to pay for parking, bicycles, movies and other activities, the earthquake in Haiti has triggered an explosion in mobile giving, as over $30 million has already been pledged in this manner by Americans alone,[9]  perhaps signaling at last a turning point where the average mobile user in the developed world (specifically North America) becomes comfortable with using their device for micro purchases and giving.  While many of the programs in Europe are still in pilot stage, and there have been some intermittent concerns expressed over how charitable funds are being used, mobile payments may at last take off in the developed world.

Mobile Saturation Rethink - Calculations that the developed world was saturated with mobile devices have turned out to be false.  Now most device manufacturers are concentrating on smart phones (HTC, Nokia, Apple, LG, Motorola) targeted at sophisticated users and are trying to build an open market for applications (some more open than others).  

 

In the developing world, on the other hand, progress in phones has slowed down.  Since mobile payment systems often have device dependencies, a lack of technological progress in the phone means that for 2010 we do not expect to see new mobile payment technology requiring much beyond basic device capabilities to be deployed in developing countries. Rather, planned deployments based on previous technologies will proceed to their launches. In a sense this is a pity, since there is room for better transaction efficiency and much of current technology is missing flexibility for more sophisticated transactions and compliance with the changing regulatory environment. 

What could change our view?  More value transfer from developed countries to developing countries may change the willingness to invest in better mobile payment solutions. However, economically speaking, a recovery in value transfer is unlikely to be immediate, even while further significant contraction is also unlikely.  So at least in the first three quarters of 2010, we predict slow expansion of mobile payment systems around the world.
  

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[1] http://www.nytimes.com/2010/01/19...

[2] In 2008, the World Bank reported Haiti’s GDP and remittances were USD$6.953 billion and USD$1.3 billion respectively 

[3] http://www.nytimes.com/2010/01/27...