The mobile financial service value chain can be disaggregated in a variety of different ways, giving rise to an interesting range of business models. This is good for customers and for the variety of players that seek to play a role in the mobile money for the unbanked ecosystem.
But only a mobile operator can provide the communications channel to users. This is an old insight; Ignacio Mas and Kabir Kumar articulated it in a CGAP Focus Note that was published in July 2008. Yet sometimes when I hear an announcement of a new partnership, policy framework, or investment in this industry, I wonder whether it has been universally understood.
Customers of mobile money services need a way to interact with the service so that they can initiate transactions. When these transactions involve cash, they will need to be carried out at a physical retail point. But when they don’t, it is necessary for the business case and to the consumer value proposition that customers be able to initiate transactions themselves, using an interface on the handset.
There are two requirements for this interface. First, if the service is going to advance financial inclusion, the interface must be accessible even on low-end handsets. An application that runs only on feature- or smartphones will not suffice. Second, this interface must be secure, because customers will use it to authenticate transactions with their PIN. Ordinary SMS does not clear this hurdle.
There are only two ways to fulfil these requirements. Either you can present customers with a menu using unstructured supplementary service data, or USSD, sessions; or you can embed an application on the customer’s SIM card. Both are widely used in mobile money deployments. (A third option, voice, is sometimes used to supplement these channels, but I’ve never seen voice used as the primary user interface for a mobile money service.)
The USSD channel and the SIM card are assets belonging to the MNO that have not been widely commercialized. That is, most operators do not sell space on the SIM to third parties, or allow them to use USSD sessions. (Why this is the case is the subject of another post.)
As such, if a bank or a third party wants to offer mobile money for the unbanked, they will need to persuade one or more mobile operators to agree to let them use the USSD channel or install and application on the SIM card, and they will need to negotiate a price for this access that does not break the business case.
There are only a handful of precedents for this globally. So when someone asks my opinion of a mobile money service that is going to be offered by a third party or a bank, or a regulatory regime that does not allow operators to offer mobile money services, my first question is, “Will the operators be providing access to the communications channel? And if so, how much will it cost?” They’re questions best answered sooner rather than later.
See Mapping and Effectively Structuring Operator-Bank Partnerships to Offer Mobile Money for the Unbanked for more on the mobile financial services value chain.