Wednesday, March 14, 2012

The Demise of Nokia Money

Dramatic news in the mobile money world this week with the announcement that Nokia was withdrawing from its Nokia Money business to focus on core offerings. The change in strategy will not happen immediately however, with a Nokia company spokesman outlining that the service will continue to operate in India whilst it works on an exit strategy with its partners, regulators and other stakeholders.
For those of us in the industry, this hasn’t come as a major surprise, as there have been rumours and discussion about the possibility of this for some time, and visible changes in strategy and senior management from Nokia as they completed the test and learn cycle of their financial services offering. As an industry however, it is interesting to consider what lessons can be learned from this experience. As an observer over the last three years, three major observations on challenges with Nokia Money spring to mind. These are; overblown expectations, strategic alignment and distribution.

The Nokia Money service launched with much fanfare and expectations of 80 million customers by the end of 2009, and 300 million customers by the end of 2011. These numbers far exceed the total number of emerging markets mobile money customers today, and it can only be guessed that internal business cases were highly geared to massive take-up. This was probably the same for Nokia’s primary technology partner Obopay, who managed to convince Nokia to take a substantial stake in the company, with speculation that this was around US$70 million. Whilst I am a huge supporter of this industry, and I firmly believe that investment by big players are key to success and scale, the old adage of payments remains the same – scale takes time. Unfortunately setting unrealistic timeframes on customer scale, and therefore revenue have probably made it difficult to maintain support for a business offering in an organisation that is already facing external pressure for results.

The original Nokia Money business plan was to build an open payments system that linked unbanked customers to financial institutions in order to transfer money, pay bills and airtime, and buy tickets. The concept was attractive in that Nokia created a customer friendly user interface that could operate on either Nokia, or other branded phones. Eventually Nokia phones would be pre-loaded with the application, which could then be activated by the customer through their service provider. Distribution would be managed by the extensive network of Nokia outlets and agents that are present in emerging markets. I struggled a little with this proposition – my experience in emerging markets has been that the best agents tend to be the ‘mom and pop’ shops that offer a range of services and products and see mobile money as an additional revenue stream. My observations in many markets is that mobile phone shops, whether they are Nokia distributors or not, tend to focus on smaller volume, larger ticket price items, and as such struggle to understand the economics of transaction based revenue.

From a strategic alignment perspective, the challenges that Nokia are currently facing are well documented, and CEO Stephen Elop has commented that Nokia need to focus on core activities such as handset production and logistics and distribution. Unfortunately for Nokia Money, unmet expectations of customer take-up have probably caused the senior management of Nokia to lower the axe on a business that sadly was starting to show some 'green buds' of growth. I have been fortunate in meeting many of the people involved in the development of Nokia Money, and to a person they were committed, intelligent and focused on what they were trying to achieve. I am sure these latest developments are disappointing for them, but they should also be proud of the achievements they had in furthering the development of this industry. As the industry matures and scales over the next five to ten years, I am sure organisations like Nokia will look in hindsight at a missed opportunity to diverge their business in emerging markets. Nokia have come a long way from manufacturing rubber boots in 1865, but in the long run, their strength has appeared to be the ability to adapt and innovate into new markets and products. Only time will tell whether exiting financial services in emerging markets has been the right move.
- Brad Jones