The fast paced growth of the telecoms sector in the Middle East and Africa region holds huge potential for mobile operators to gain additional revenues through mobile payment services.
While conditions seem to be right for significant growth in mPayments throughout the region, all the mobile payment value chain players such as banks, device manufacturers, regulators, credit card companies along with mobile operators should work together in a collaborative approach to make mobile payment services a success in the region.
Paul Allen, senior legal consultant of DLA Piper says that a collaborative approach is needed in the Middle East, especially between banks and operators to enable mobile payments or mPayments to go mainstream. He adds that the need is for banks and operators to take the lead together. “I see that they have already started to do it, but it needs to grow rapidly,” he adds.
Hannes Van Rensburg, CEO of mobile financial services platform provider, Fundamo, describes the Middle East and Africa region as a huge market for mobile payments. “The countries are all cash-priced economies, so people have to live with the inconvenience and the complexity of organising their cash. By providing electronic payments we solve a lot of their problems including security, convenience and location.
“We have seen spectacular successes in Uganda, Kenya, Rwanda and Somalia. And now we are to see some of the big countries coming on-stream such as South Africa, Sudan and Nigeria,” says Rensburg. “In fact, the Nigerian government has just issued licenses for electronic payments,” he adds.
Allen states that different markets call for different models in mobile payments. “In Japan, NTT DoCoMo very much led as the mobile operator of choice as they had market dominance. In Kenya, Safaricom has taken the lead in mPayments because it had covered a huge chunk of the market with its services, and there was also low telecom regulation in the country then.
“Considering the mobile penetration level is more than 100% in countries like the UAE, it is all the more conducive to introduce mobile payments in the Middle East market, but both banks and operators are needed to make it work.”
Trust seems to be one of the major concerns that can work against the adoption of mobile payments. “The big question over mPayments is whether the population in the UAE, and the Middle East as a whole, will embrace this mode of payment,” says Allen. “People like tangibles. They want to know that it is my cash and that it is protected. When it is on the phone, you can’t see it.”
Another challenge that Rensburg points to is the complexity of technology behind mPayments. “There is the need to connect different technology components such as banks and third party systems. Also, you need to cater to extremely high throughputs, thus ensuring that the system confirms with the design objectives.”
Allen thinks that the main concern for mobile users to go for mPayment is the security aspect. “As it is technology-based, securing financial data is a concern as there is the possibility that someone might be able to hack into mobile phones,” he says.
“The way to build trust and confidence among mobile users is by promoting the laws that are in place to give a sense of protection to them,” he says.
A research study states that the MEA mPayment transaction value is expected to grow at 66% annually over the next few years, reaching $28.1 billion or 11.3% of the global value by 2012. The key segments of the mPayment market are mobile remittances, which account for 84% of the expected transaction value by 2012; and mobile money services that include retail purchases, airtime top-ups, and bill payments via mobile phones.
Rensburg says that in Africa, people embrace mobile payment and mobile transfer services. “It is absolutely natural for them to use it as it is a necessity. In a country where one mobile operator launches mobile money services, the other operators also have to follow it to keep pace with competition.
In the Middle East, telcos seem to be embracing mPayment services quite slowly, according to Rensburg. “Indeed, there does appear to be some traction in the Middle East. Last November, Vodafone Qatar launched an international money remittance service called Vodafone Money Transfer, which enables instant remittances via mobile-to-mobile money transfers between Qatar and the Philippines. The operator has plans to expand this service to include the rest of Asia, Africa and the Middle East.
New revenue streams
Mobile payment can play an important role in driving telecom operators’ revenues. Rensburg says: “Mobile operators, for sure, can increase their ARPUs by providing mobile payments as a value-added service. Operators can get significant benefits by reducing the margin that they pay on the distribution of airtime. Earlier, I had to buy scratch cards. Now, with mobile payments, I can use my ‘mobile wallet’.
“Operators can make huge money out of mobile payments,” says Rensburg. “Safaricom is a very good example. The benefits went to double digit percentages with about 30% of their revenue coming from mobile money services.Kenyan telco Safaricom’s mobile transfer platform, M-pesa, had attracted over 13.5 million subscribers by November 2010. Last December, cellular network operator Telecel Zimbabwe launched its mobile banking service, enabling customers to use their mobile handsets to make money transactions at partner banks, supermarkets or post offices. This service allows users to set up virtual bank accounts to withdraw, deposit, transfer and send money, make online purchases and make balance enquiries.
“As can be seen from success stories in Africa and Asia, mobile operators can provide mPayment value added services to significantly increase their ARPUs,” says Allen.
“This is of particular importance to mobile operators if they are otherwise experiencing a slowdown in ARPU growth.”
“In the UAE, there are two banks that have teamed up with operators in rolling out pilots in the area of Near Field Communication (NFC) or “proximity payment”.
“They are Dubai First, a credit card company that teamed up with Du and launched the region’s first pilot programme for NFC-based mobile payments; and Emirates NBD, which teamed up with Etisalat for a pilot of mobile NFC service that will enable Emirates Bank and National Bank of Dubai customers to make payments using their mobile phones.”
However, Rensburg doubts that proximity payment will play a major role in many Middle East countries. “NFC will not get off the ground unless it’s pervasive...it’s not just about plugging a peripheral into a mobile phone offering NFC technology but it should be available in the eco-system such as with retailers and merchants for this technology to become mainstream.”
While operators stand to gain from mobile payment services, banks are also to gain appreciably from providing the more convenient mobile banking services including mPayment facilities for their customers.
Allen says that transaction charges are associated with physical transactions, and could be reduced via mPayment services. He thinks this could allow banks to reduce costs and increase profit margins.”
Rensburg adds that Fundamo’s clients in emerging markets, such as MTN, generate a significant percentage of its revenue out of mobile money services. He points to another client, Telenor in Pakistan, which is making huge transaction volumes and profits out of its ‘Easy Paisa’ project, the largest branchless banking service in the country.
While there is some commonality in terms of the types of regulations mPayment players can expect to encounter, the terms of those regulations differ from country to country.
Allen says: “In terms of the regulatory laws, the approaches differ as what is good for one society may not be so for another. However, the regulators are aware that the laws passed are to ensure that the outside investors feel comfortable coming in and working in a particular market.
“I think the Middle East as a whole can be described as being less regulated compared to the rest of the world,” says Allen. He believes that outside the MEA region, investors are generally accustomed to a more regulated business environment.
As Rensburg puts it: “Regulatory, of course, is a major challenge. The challenges are to ensure that the electronic payment systems are legal and comply with regulations, there is proper integration with banks, and that it is secure and combats fraudulent transactions.
“Some people consider the lack of laws an advantage as there will be less formality to comply with the laws, while others think it is a disadvantage because it is unclear as to what the law actually is. This calls for operators to work along with regulators and enforcement bodies about the laws, which means that they have to basically buy-in from all the people involved,” says Allen.
He adds that both Etisalat and Du in the UAE, and Safaricom in Africa, are good examples of operators that work with the regulator. “Etisalat and Du have rolled out types of mPayment services. Etisalat launched the mWallet service that allows its subscribers to remit funds to their friends and family overseas using their mobile handsets. In September 2010, Du launched its automated mPayment service for postpaid customers to pay bills using their mobile phones. Also, reports say that Safaricom worked with the regulators from the very outset,” says Allen.
“My view is that, whether you are in the UAE or Africa or anywhere in the world, if you are working in a regulated space such as telecoms or financial services, then you need to work with regulators. There is no choice,” he affirms.