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Mobile Money presents a significant opportunity for Operators to develop new revenue through uplifted ARPU. More significantly there has been a dramatic reduce in churn documented from Operators who have deployed Mobile Money offerings resultant from tying a consumers mobile to their banking account.

Figures from the Philippines published a World Bank and GSMA paper, documented a churn reduction from 3% to 0.5% for Mobile Money customers . There is also an associated ARPU uplift with increased text and voice minutes.

The Mobile Money Ecosystem

There are three main requirements for Operators to offer Mobile Money services. The technology piece is the least complicated and is referred to as a mobile wallet or mWallet.

Regulation is the most challenging piece for an Operator as this is a non traditional relationship with the Financial Service Regulatory Authority. The regulatory environment dictates the required relationship with a Financial Institution which is the third component of the Mobile Money ecosystem.

mWallet

An ‘mWallet’ is essentially an aggregator of payment instruments. It is a data repository that houses consumer data sufficient to facilitate a financial transaction from a mobile handset, and the applicable intelligence to translate an instruction from a consumer through a mobile handset/bearer/application into a message that a financial institution can use to debit or credit bank accounts or payment instruments.

An mWallet includes functionality such as:

• Authentication of the consumer
• Storage of billing and shipping addresses
• Storage of details of bank account, payment card, payment purse or any other payment instrument
• Storage of transaction history
• Integration to a bank, perhaps through a financial switch, for purchase, payments and transfers

Regulation

Mobile Money is a convergence of Operators and Financial Institutions product offerings. The Financial Institutions regulatory environment is often unfamiliar to Mobile Network Operators and complex for an Operator to move into.

MNOs offering Mobile Money services will be exposed to some parts of compliance with the Financial Institution Regulatory Authority. As such an Operator is likely to require a banking partner or banking license to meet this compliance requirement.

An alternative would be for the Mobile Operator to acquire a banking license but due to the cost and strategic nature of such an acquisition this is unlikely.

Financial Service Provider

As outlined above, a partnership with a bank or Financial Institution will be a requirement in the majority of markets around the globe. This partnership aids in the delivery of financial services to the consumer through mobile by:

• Complying to each markets specific regulation in financial services
• Leveraging the connection to the global payments network
• Creating trust with the consumer that their money is within a bank, though this may not apply to all developing markets where Operator brands may be more trusted
• Leveraging the core systems, resources and processes already in place at a bank
• Enabling a faster path to product delivery

The GSMA believes that the last point is key for the success of Mobile Money. The service needs to be developed and deployed now, rather than waiting for the regulatory regime to change in a market. In parallel and Operator can lobby the regulator and launch independently when compliance is not an issue.

The Value Proposition for Operators and Banks

In assuming the model outlined above the graphic below outlines what each party brings to Mobile Money. As mentioned above, an Operators may play the role of the Bank should it see the strategic value of this and is willing to make the necessary investment to do so.

The next section investigates the differing business models for Operators in Mobile Money and the outlines the challenges associated with each. However, the graphic below shows the value proposition for both Operators and Banks dependent on the model selected.

The role of an Operator

As mentioned above, Operators can play a variety of roles in Mobile Money according to their local situation specific strategy. As you move from the most simplistic model, that of a bearer, towards becoming a financial institution there is more complexity and commitment required from the Operator, but also more potential rewards in terms of customer ownership.

In some examples, the MNO has delivered a MNO branded bank/banking application to the consumer, however the MNO has had to still partner with a bank for their financial license or processing capability or acquire a banking license and source bank processing capability.

In some cases, the Bank has delivered a Bank branded mobile banking application to the consumer, however the bank has had to make use of, or partner with the MNO for its infrastructure to provision the application and for ongoing financial transactions.

There is often a debate as to who owns the customer for a mobile financial service. The key is to create a win-win partnership for both parties, leveraging their respective capabilities and reach.

Choosing the Right Model

Bearer Channel Only

This model offers low MNO impact/involvement where a MNO only supports the bearer channel or normal consumer voice/data usage and the mobile banking application is built away from the MNO and does not require the MNO for provisioning or support.

An example of this would be a JAVA application built by a vendor, where the download of the application is dependent on the network supporting packet data access (eg. GPRS or EDGE) but not necessarily facilitated by the MNO.

This environment fosters an easy consumer churn as there is no lock-in to the MNO and no benefit to the MNO over any other network in the market. It is a fairly network agnostic environment.

Bearer Channel and Application Development

This model is an example of fairly low network involvement is where the MNO is required to complete some of the application development due to the bearer channel supported.

An example of this would be where the vendor/bank makes use of the MNO’s hosted USSD2 gateway or IVR platform in the provisioning of the service. There is a dependency on the network to develop the USSD2 menus or the IVR voice flows.

This environment assists in creating value for the MNO in the service offering, but is not much of a competitive differentiator as most MNOs would be able to offer similar solutions.

Within this, SIM Application Provisioning requires a large amount of MNO involvement, but results in ownership of the application residing on the SIM, which is MNO real estate. This adds value to the consumer’s SIM and assists in prevention of Churn and perceived value from the MNO to the consumer.

The MNO would need the application embedded in the SIM prior to shipping and/or have OTA technology in place to get the application onto the SIM. The MNO would also need data encryption on the SIM and integration into a financial institution for the processing of transactions.

Bank Integration and MNO with a Mobile Banking Hub

This model is requires fairly high levels of integration and network involvement is where the network operator would facilitate the implementation of a Mobile Banking platform or Hub and offer the solution in a hosted environment to the banks in market.

This would require integration into the banks, customer data repositories, financial switches, etc. The solution would also require auditing and certification.

This model requires a high level of MNO involvement and also control over the application. This option gives value to the banks and to the MNO consumers and thus preventing churn and generating new revenue streams.

MNO as a Financial Institution

This is the highest level of MNO involvement in Mobile Banking or commerce. Where the MNO enters into a joint venture with a bank or obtains a license to be a financial institution (eg. eMoney institution, bank or payment services provider).

The MNO would own the entire value chain. This would be resource and technology heavy and will take time to implement. This level of involvement would require Banking hosts, switches, customer management systems, bearer channel development, audit trails, reporting; etc. It would add value to the consumer but may not be core to the networks business.