NORIBO TECHNOLOGIES

Mobile Financial Services White paper

With the ubiquity of the mobile phone, there is lot of interest in using this medium to deliver financial services. This document is a white paper on this field and tries to give the reader, a general understanding of the topic

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Contents

Mobile financial services ........................................................................................................................................ 3

Types of mobile financial services ...................................................................................................................... 3

Why mobile Services? ........................................................................................................................................ 3

Current adoption examples ................................................................................................................................ 4

Analysis of mobile payments (entities etc) ........................................................................................................ 4

Players in the mobile Financial services ecosystem ........................................................................................... 6

Consumers ..................................................................................................................................................... 6

Merchants (offline, online) ............................................................................................................................ 6

Mobile payment service provider .................................................................................................................. 6

Mobile networks, operators .......................................................................................................................... 6

Phone manufacturers, phone operating system vendors ............................................................................. 7

Bank or virtual bank/wallet provider ............................................................................................................. 7

Technology providers ..................................................................................................................................... 7

Distribution Agents ........................................................................................................................................ 8

Government regulations ................................................................................................................................ 8

Standard bodies ............................................................................................................................................. 9

Customer adoption issues .................................................................................................................................. 9

Indian players ..................................................................................................................................................... 9

Payment solutions ......................................................................................................................................... 9

Cash Cards .................................................................................................................................................... 10

Financial transactions .................................................................................................................................. 10

Summary .......................................................................................................................................................... 11

References and general reading....................................................................................................................... 11

Appendix .......................................................................................................................................................... 11

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MOBILE FINANCIAL SERVICES

Whenever a mobile is involved in the “payment” part of the transaction, we think of it as mobile payment.

Examples are “initiating a payment by selecting on pay button in the phone app”, “confirming a payment by

replying to an IVR/SMS” etc.

TYPES OF MOBILE FINANCIAL SERVICES

Mobile financial services can be broadly categorized into three areas (paymate)

Mobile payments (mCommerce)

Online international payments for virtual goods

Online payment for general ecommerce, mobile content, tickets, parking etc

Payments at POS replacing cash payment

Mobile Banking

Banking to the poor through mobile (ability to transfer, deposit and withdraw small amts thru agents)

Extending banking over mobile (mobilebanking such as tranfer, information services such as get

alerts, balance enquiry etc)

Microfinance

Loans

EMI payment

WHY MOBILE SERVICES?

Mobile services add different values to the players of the ecosystem depending on the service. Following are

the general values that we can see for financial services offered over mobile.

For consumer

Convenience as mobile is always with the person

Reduced need to carry cash

Everybody has a mobile (but not a pc/ debit credit cards)

Transaction history tracking and analysis possible

Existing channels (credit cards, bank payments etc) are not suitable for micro payments as they have

minimum charges etc

Problems with change (lower denominations) that we see in India?

Can get a remote service by paying over phone

For merchants

Increased sales due to easy payment option for the consumer

Analytics on the sales as the payments are logged automatically

Enables new services, esp remote virtual services as payment is possible from a remote place

(international micropayments for gaming and social networking is the biggest in this today)

For banks

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o Increase customer reach

o Increase customer satisfaction by giving easy options for banking

Mobile operators

o Increased ARPU

o Reduced churn due to increased customer satisfaction and some kind of lockup that the service

provider can create.

CURRENT ADOPTION EXAMPLES

Domestic usage

In India, most common is Billpay as it receiving end is secured and user has “registered for it” through other means

Australian SMS payment platform company mHITs has launched Easy Canteen, a novel application for its technology that enables parents to pay for their children’s school lunch orders by SMS. In addition to retail point of sale, mHITs promotes its service as being an ideal payment method for purchase of online and mobile content and for vending machines, parking, taxi fare payment, charity donations and cash back offers.

Phillipines: SMART money, GLOBE telecoms G-Cash link o Retail Purchasing. In this transaction, the user has two options. One is to use the debit card,

in which case the purchase is done according to normal practice where a debit card is used. The other alternative can be used at participating retailers, and that involves the retailer originating the transaction request through his own SMART mobile phone terminal. Subject to the customer having a credit balance to cover the intended purchase, the customer receives an authorization request via SMS. Once authorization is given, the retailer and customer accounts are updated and the customer receives a confirmation of the transaction via SMS.

o Topping up of prepaid mobile accounts

Kenya M Pesa (link) o M-PESA is a payment service that allows users to perform simple transactions by SMS o anywhere in Kenya. Users are allow to:

• Transfer money between individuals (P2P) • Transfer money between individuals and businesses (B2C) • Cash withdrawal and deposit at registered retail outlets • Disbursement and repayment of loans

o •M-PESA has 1.3 million customers • There are 1,000 M-PESA agents • Penetration is close to 13%

o • Transaction amounts range from $1.53 to $534.92

Pakistan http://www.amaana.com/ (site is not loading) o http://www.youtube.com/watch?v=rdZhy0e5oJY o Mobile banking, transfer of money

International usage

Most common are SMS based micropayment service providers to cater to virtual goods such as online

gaming, virtual gifts on gaming, social networking sites, mobile applications payments etc. Ex: boku,

zong, zaypay, bango, allopass, daopay etc (most of these are operator based and 35% is taken by the

mobile operators)

International remittances is another big area which is attracting attention, especially in developing or

under developed countries with less access to banking system. Ex, Zain in Africa, Paypal mobile

ANALYSIS OF MOBILE PAYMENTS (ENTITIES ETC)

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Lots of times, when discussing about the mobile payments, one tends to confuse one service over the other.

This is because of lack of clarity on the independent variables in the system. Following figure illustrates the

main entities involved in mobile transactions from a users perspective.

At

Internet on PC

Internet on mobile

POS (does Vending machine come in this?)

None (say p2p transfer, authorize bill payment)

Channel

Internet (http, https)

SMS

USSD

IVR

GPRS (http, https)

Separate network (visa, master card.)

Whom

Person

Merchant

Biller (customer has prior linkage)

To where

Bank

Credit card

Prepaid card recharge

Virtual wallet

Cash

Purpose

Virtual Goods

Physical goods

Bill Payment

General transfer (money transfer, give gift, etc)

Give loan (micro credit)

Pay EMI

Who is paying?

Person

Merchant

Biller (customer has prior linkage)

From

Bank

Credit card

Prepaid card

Virtual wallet

Mobile phone account (with the operator)

Cash

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PLAYERS IN THE MOBILE FINANCIAL SERVICES ECOSYSTEM

Mobile financial services are a complex area with lot of important players in the ecosystem. Some of the

previously attempted services in this area failed due to the mismanagement between the interests of the

players in the eco system. Following are some of the important players in this field.

CONSUMERS

Consumers are obviously are an important entity in this eco system. The adoption of any mobile service

depends on the value proposition to the consumer. This is especially true when trying to replace cash with

mobile micropayments where consumer needs to see a clear value in opting for mobile. Also, security and

ease-of-use are a significant factor which affects the acceptance of the service by the consumers.

But consumers have readily adopted it whenever there is a clear value and lack of alternate channels (or better

than alternate channels), (Philippines, Kenya, online site payments in games etc)

For offline mobile micropayments, potential customer base is huge as everybody has a mobile. The solution

adopted and the features it requires on the handset would determine the size and the segment of the

consumer base.

MERCHANTS (OFFLINE, ONLINE)

Online merchants should not be an issue as this increases the sales by adding one more convenient payment

option to the consumers

Offline merchants would require a push as they will have to embrace new systems and potentially deal with

multiple payment providers

MOBILE PAYMENT SERVICE PROVIDER

Mobile financial services can be provided

Banks

Mobile operators

New entities such as paymate, ngpay, obopay

It is not clear which of these would be successful in the long run as each of them have their own strengths in

the market. For instance, in India, banking sector is perceived to be powerful and hence might dominate in the

mobile banking space. In the mobile commerce space, it is not very clear if mobile operators want to control

completely.

Depending on who runs the operation will determine the course of the mobile financial services and also affect

the other players in the ecosystem.

As of now, it looks like new providers (apart from the banks and mobile operators) have chance to succeed in

this field as we have not seen any major threatening positions from either the banks or the mobile operators.

MOBILE NETWORKS, OPERATORS

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Even if the network operators are not the final service providers, since the actual transactions happen over the

mobile networks, operators have a large influence in the mobile payments. This is because the solution

chosen might require

SLAs from the network

Extra information/service to be provided by the network

Interoperability issues (to seamlessly work across networks including roaming)

Pricing agreements

Operators to give SIMs with preinstalled apps (STK)

Push an application to the handset and provision it

It is to be noted in this context that the mobile networks are way more closed and tightly controlled than the

internet medium.

PHONE MANUFACTURERS, PHONE OPERATING SYSTEM VENDORS

Depending on the application model and the features that are required from the mobile, phone manufactures

and OS vendors play a role in the feasibility and adoptions of the payments. We might want the Mobile wallet

application to be shipped by default in the phone or a default provider to be set for mobile payments. Also,

some hardware features might be required in the phone such as NFS.

Ex: Japan had NFC enabled phones shipped by the manufacturers. NTT DoCoMo has already reached this

stage today with the FeliCa contactless technology, which is now embedded in about 80% of the phones sold

by NTT DoCoMo in Japan (link). NFC uses mobile wallet which is cash stored in mobile.

Preferred Handset client: One wouldn’t be surprised to find future Nokia handsets with built in default Obopay

applications. One of the toughest parts of the applications business is actually getting on the handset – this is

where Airtel works out very well for MChek, since MChek is on its SIM-toolkit (i.e.: pre-loaded on the SIM card,

as a part of Airtel Services).

BANK OR VIRTUAL BANK/WALLET PROVIDER

Every transaction requires money to be pulled from an account and transferred to another account. The

accounts can be

Mobile operators phone account (and billed as VAS along with the phone services)

Prepaid cards

Banks or credit card accounts

Account created by the service provider

Mobile operator accounts are costly for external service providers as they take anywhere upto 35-70% of the

transaction cost.

Banks, as of now seem to offer very low transaction rates, but the rates for micropayments are not clear.

There are instances where an account is created by the service provider (Philippines SMART Money) where

money could be credited and debited.

TECHNOLOGY PROVIDERS

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There are technology providers such as Fundamo, Utiba, Mcheck, Accenture, Sybase 365, CellTrust etc who

seem to provide the technology

Obopays technology

The Obopay system is an end-to-end mobile payment service, which incorporates state-of-the-art

client and server technologies. The server component of the Obopay system is a carrier grade,

globally scaleable and fault tolerant enterprise transaction system. The Obopay server consists of

the following main technologies:

o HTTP Server (Apache)

o J2EE Application Server (Weblogic)

o Database (Oracle RAC)

o Linux Operating System (Red Hat)

o Blade Server Hardware (IBM)

The mobile client component of the Obopay system works across mobile carriers and is available on

the following mobile platforms:

J2ME (Includes Symbian)

BREW

.NET CF

WAP

DISTRIBUTION AGENTS

When it comes to mobile banking for the unbanked or the cash cards, distribution network becomes a very

important factor

Beam: What is your strategy to reach out to the market?

We are in the process of acquiring merchant and franchise shops and outlets, whom we refer to as

Beam Express Points. Also, we are looking at individuals as franchisee named as 'Beam Sahayak'

from whom these transactions can be encashed. By 2011, we are chasing a target of 3,00,000 Beam

Express Points across the country. In all, there are 1,50,000 post offices, and we plan to set up two

Beam Express Points in the vicinity of each of these post offices. We began this initiative two months

back in Meerut. Soon we will move to other zones.

Oxycash: Oxigen's Retail Network of 75000 outlets to expand to 250000 by 2010

GOVERNMENT REGULATIONS

http://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=4377

[Jun 2008] Meanwhile... There are a number of attendant issues and therefore, banks are advised to

keep on hold their mobile payment services till issuance of the final Guidelines. Banks may also

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dissociate themselves from any mobile based money transfer service which has not received

explicit approval of RBI or not covered by any of the Guidelines issued by RBI.

http://www.mpf.org.in/ppt/Prepaid_Instruments_in_India_Feb_27.ppt

Non Banks would be permitted to issue only closed system prepaid payment instruments & semi-

closed system prepaid payment instruments

Closed Instruments out of purview of guidelines

STANDARD BODIES

http://www.mpf.org.in/meetings.html

PCI DSS 1.2 (payment card industry data security standard)

PADSS (payment application data security standard)

CUSTOMER ADOPTION ISSUES

For payments, substituting mobile for cash is not an easy task. We need to show value prop to the

user (http://www.cgap.org/gm/document-1.9.7885/FN_51.pdf)

It looks like taking a niche and doing it well has worked out till now.

INDIAN PLAYERS

PAYMENT SOLUTIONS

1. Paymate ( http://www.paymate.co.in)

o links to bank/credit card/prepaid wallet

o For online payments

o Doesn’t require app install/GPRS. Give phone number to the merchant and then give PIN at the automatic IVR to authenticate

2. NGPAY ( http://www.ngpay.com, http://www.jigrahak.com/)

o This is more of a online shop. They position themselves as largest mall on mobile.

o needs GPRS

o an app is downloaded onto mobile. it does many things inlcuding purchase of train ticket, goods etc.

o needs a debit/credit card for payment

3. Mchek (http://www.mchek.com)

o mChek is a mobile payment solution which securely links your credit or debit card to your mobile number and helps make payments from your mobile

o requires GPRS

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o installs app on mobile

4. Atom (http://www.atomtech.in/application-faq.html)

o Requires GPRS, Installs app on mobile (java midp2.0)

o bill payer, subscriptions

CASH CARDS

1. ITZCASH ( http://www.itzcash.com )

o Multi Purpose Prepaid Cash Card company

o can be used in places where it is accepted

o one can buy the card online (100, 500, 1000, etc)

2. Oxicash (http://www.oxicash.in/)

o It's a prepaid stored value closed eWallet that is accessible through all mediums i.e. PC or GPRS Enabled handset on www.myoxicash.in

o Load money in your eWallet

o By paying cash at an Oxigen outlet,Sify iway, OneMobile Outlets, Croma stores, in&out

shops, P3 stores or at any Mobile Store outlet.

o Or

o Use your debit card (Net Banking) on OxiCash,

o OxiCash value cannot be encashed (Closed eWallet)

o microsoft has a large stage in oxigen

3. Beam http://www.suvidha.net/

FINANCIAL TRANSACTIONS

Obopay ( https://www.obopay.com)

o Obopay’s consumer service allows mobile phone users with bank accounts to send money, receive money, top up prepaid phones, utility bill payments and make purchases via mobile phones

o started in 2005 in US, launched in 2008 in India

o In US, they charge customers instead of merchants. This is good. It entices merchants to move/support this. Customers use this bcoz of convenience.

o They seem to be stuck in india due to regulatory issues I guess. They have tie-up with yes bank and yes bank was the first to get the permission from RBI

o Supports text, app and IVR based payments.

o Targeted at small merchants also, mainly due to 0% tax on merchants

o Look at the videos at https://www.obopay.com/corporate/aboutUs.shtml

o Investors: AllianceBernstein, Essar Telecom USA Limited ,Nokia, Qualcomm, Redpoint etc

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SUMMARY

Mobile financial services are seen as the next big opportunity and lot of players are scrambling to get a pie of

it. But with government regulations and mobile operators hold on the network, this is expected to be a long

battle and deep pockets are required to survive in this field. Providing end user service might be tough for

small startups and a better strategy for them would be to be a technology player in a niche and align with the

operators or handset makers. Another strategy could be to explore the fields that get opened up with the

micropayments.

REFERENCES AND GENERAL READING

http://paymentsviews.com/2009/09/10/mobile-financial-services-for-the-next-billion/

http://www.slideshare.net/mpayconnect/mobile-financial-services-for-the-next-billion-customers-mobile-payments-series

http://www.dnaindia.com/money/interview_mobile-payments-gaining-traction-in-india_1287368

http://businesstoday.intoday.in/index.php?option=com_content&task=view&id=6328&sectionid=25&secid=&Itemid=1&issueid=72

http://www.ufa-india.org/forum/topics/beam-towards-a-cashless?page=1&commentId=3531066%3AComment%3A3448&x=1#3531066Comment3448

http://www.ecommerce-journal.com/articles/obopay_paypal_mobile_textpayme_rivals_or_partners

http://voicendata.ciol.com/content/speak/109070404.asp

http://www.zain.com/muse/obj/lang.default/portal.view/content/Media%20centre/Press%20releases/ZainZapWesternUnion

APPENDIX

Mpayconnect had a good illustration of the opportunity in the unbanked population at http://paymentsviews.com/wp-content/uploads/2009/09/mPayConnect-MFS-Opportunity.jpg

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