| Almost all mobile payment strategies require a close | | | | requires at least associate membership of a card |
| and complex set of relationships between mobile | | | | association, a step few MFIs have taken. Most |
| network operators, banks, reseller agents and | | | | importantly the difference is size between the average |
| payment solution providers. This article explores some | | | | MNO and the average MFI makes any joint venture |
| of the key issues in defining these partnerships. For | | | | inherently unbalanced. The unhappy outcome is thus |
| MFIs the key opportunity is the emergence, in some | | | | that many MFIs have wasted time and money on |
| markets, of large networks that can be leveraged to | | | | solutions that have not been widely adopted or |
| transform the operations of a MFI without the need for | | | | created much value for their clients. |
| a "partnership" with the provider. | | | | Leveraging "carrier" services creates far greater |
| A Partner or Just a Provider? | | | | opportunities where such carrier services are available. |
| Most MFIs and financial institutions view partnerships or | | | | (The term carrier services is used to describe solutions |
| strategic alliances as an important way of improving | | | | that allow clients to post payment to a third party using |
| the likely success of a mobile payment venture. The | | | | a standard widely available solution that requires no |
| alliance can be to access technology, to access a | | | | direct investment from the MFI). This is essentially the |
| mobile network and the customers SIM card or a | | | | service provided by a traditional bank account, a |
| customer base. However talk of "partnerships" often | | | | standard money transfer service (such as M-PESA), |
| clouds the nature of the required relationship, and can | | | | or by a third party fund transfer companies/bill |
| cover very different relationships with different | | | | payment companies such as Easypay ( These |
| degrees of leverage and power between the | | | | services do not require anything than a contractual |
| participants. This Note distinguishes between two | | | | relationship between the MFI and the payment service |
| relationships: 1. A standardised contractual relationship in | | | | provider. Both Smart in the Philippines and M-PESA |
| which one party acquires a service from another, but | | | | now provide a corporate portal as part of a standard |
| which does not require any development or | | | | business service. The portal provides any business |
| modification on the part of the supplier which is little | | | | user with the ability to track payments made into their |
| more than a contract to buy/sell a service, and 2. A | | | | account, to prepare batch payments and originate bulk |
| relationship in which two parties commit to work | | | | SMS alerts. For most smaller MFIs adopting such a |
| together to mutual benefit to create a new | | | | platform could significantly reduce costs, and improve |
| non-standard solution or proposition. Considerably time | | | | operational efficiency. |
| and effort can be saved, if upfront, institutions have a | | | | The critical consideration in such a partnership is the |
| better understanding of the factors that create a | | | | scale of distribution provided by the partner and the |
| successful partnership. | | | | costs of accessing the distribution network. In South |
| A joint venture normally involves creating a shared | | | | Africa, a mobile payments solution provider Wizzit |
| economic interest in a distinct entity normally involving | | | | recognised that its customers would need to be able |
| profits and losses shared according to shareholding. A | | | | to use the ATM network, and that by issuing an ATM |
| good example of this would be the joint venture | | | | card they could give customers access to a large |
| between Standard Bank and MTN to create Mobile | | | | network, with very little of their own investment. |
| Money. Minority alliances are when larger firms make a | | | | However as their banking partner lacked its own ATM |
| strategic investment in smaller firms, which promise to | | | | network, customers needed to transact "off us" |
| achieve business model breakthroughs. Nokia's | | | | making basic transactions much more expensive than |
| investment in Obopay fits this model. Contractual | | | | more traditional products provided by the larger banks. |
| relationships do not create new entities, but involve the | | | | Smart Communications, working with one of the major |
| purchase of a service from another entity supported | | | | banks in the Philippines, had exactly the opposite |
| by an appropriate service level agreement. For most | | | | experience since their partner had one of the larger |
| MFIs interested in mobile payments the challenge has | | | | ATM networks. In most instances MFIs should seek to |
| been to determine the nature of the relationship they | | | | negotiate bulk discounts from the providers of such |
| require and can sustain. A lot depends on whether the | | | | services, but should also consider the value of such |
| MFI seeks to mobilise liabilities (and to own the | | | | services following a proper review of cost savings |
| underlying bank account), or to leverage carrier | | | | from changes to their core processes. |
| services provided by a bank or MNO to support | | | | Bottom Line - Fewer Partnerships |
| lending activities. | | | | Managing true partnerships is extremely |
| Achieving the right partnership to provide bank account | | | | time-consuming and costly to most parties; vendor |
| services has proved extremely difficult. Most MFIs lack | | | | relationships are probably a lot easier to manage. In |
| the technical and managerial depth to negotiate | | | | developing a mobile payments strategy, participants |
| effectively with both technology vendors, and MNOs | | | | need to be very clear on: |
| to support the deployment of mobile payments. For | | | | * Who owns the customer (they should probably also |
| MNOs, few MFIs have a sufficient customer base to | | | | own the marketing budget)? |
| create a network effect to sustain a person to person | | | | * Whoever owns the customer needs to be able to |
| payment model. From a scale perspective, a network | | | | manage the customer touch points (each additional |
| effect only comes into play when 1 in 3 people have | | | | channel adds considerably organisational complexity). |
| access to the same platform (for example few | | | | * Understanding power in defining the "partnership". |
| people would use a mobile phone if they could reach | | | | * Who has what rights to which revenues? |
| less than 1 in 3 people) For a network effect to be | | | | * Does any of the relationships (contractual or |
| created the solution needs to be inter-operable with as | | | | partnerships) compromise the economics of the |
| much of the payment infrastructure as possible. But | | | | customer value proposition? |
| most MFI's have not been able to achieve this for a | | | | This note highlighted the complexity of partnership |
| number of reasons. At the level of technology, allowing | | | | options and the important opportunity that is now |
| out of network payments creates a entirely different | | | | available to an increasing number of MFIs to engage |
| level of fraud risk and this needs to be managed | | | | with "carrier" services such as M-PESA to |
| through more secure and difficult to implement | | | | revolutionise their business model. |
| solutions. Accessing banking infrastructure normally | | | | |