Much has been made of
the disappointing growth in mobile contactless
payments and near field communication in developed markets. Issues such as sunk cost in existing point of
sale infrastructure, business models between operators and banks, and the
maturity of handsets and embedded near field communication (NFC) chipsets have
presented challenges that have yet to be completely overcome. Contactless cards
themselves have struggled to gain huge traction, primarily due to the lack of
acceptance in developed markets, and industry players have been slow to look at
using phones as contactless acceptance points. Initiatives such as Isis and Google Wallet in
the United States, and bridging solutions for mobile contactless including secure micro SD card have provided some solutions for pilots and trials, but it would
be fair to say there has not yet been a significant commercial success in
mobile contactless in a developed market (with the exception of Japan, and to a
lesser extent Korea). Which makes the announcement of Apple’s Passbook in iOS6 all the more fascinating, but that is a blog
for another day.
The subject of this
muse is the fascinating developments that we are seeing in NFC in mobile
payments in developing markets, and
my hypothesis is that they could be successful in reducing the some of the
friction in mobile money, and potentially leap frog what we have seen in
developed markets. Digicel Pacific’s launch of a mobile contactless solution in
Tonga effectively removes the friction that customers have in making payments
at merchants, whilst Google’s Beba card
and contactless solution for transit in Kenya simplifies the customer
acquisition process by removing the need for a phone at all in order to make
transit payments, and leap frogs the point of sale acceptance barrier by using
Google Android mobile phones as card readers and acceptance points.
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| Digicel Pacific Mobile Money Advertisement |
One of the
difficulties and indeed, a major inhibitor in growth in mobile money is the
clunky process of paying for goods or services at a merchant. The process of having to open a mobile
session and then enter merchant or agent identification or phone numbers, and
PIN codes either side of the transaction, makes the entire process easily over
60 seconds. This is frankly too long to be attractive to either the consumer or
the merchant, and the friction of the experience leads people to pay by cash
rather than mobile. Digicel Pacific
in conjunction with Verifone recently launched a mobile contactless solution in Tonga where international remittances provided
through KlickEx can be cashed out, and
merchant payments made through the use of contactless stickers, and low-cost
POS devices. The source of funds is the Digicel Mobile Money account. This video provides a demonstration of the transaction, and clearly shows the lack
of friction at the merchant location. Whilst the economics of investment in POS
devices versus increased transaction volume aren’t available, the mobile money
team at Digicel should be recognised for piloting an improved process for
acceptance in mobile money.
The launch of Beba in Kenya by Google has been a fascinating development for mobile
money. The very simple transit system works like this. A customer goes to an
agent in Nairobi and is given a free contactless card. The customer does need
to have a Gmail account in order to be registered. That card is then loaded
with a maximum of KSH10,000 (US$115). Customers can reload as they need to at
the agents throughout the city. When a customer gets onto a bus the card is
waved in front of the drivers Android phone with NFC reader and the card is
debited the fare. They are not charged a transaction fee for the service. The
customer then receives a SMS receipt with the cost of the fare and their account
balance. The solution solves a particularly difficult problem for customers in
that bus drivers are known to hike the fares when there was inclement weather
or heavy traffic (seriously, has anyone ever seen Nairobi WITHOUT heavy traffic!),
so the solution appears to address a problem in the market. Interestingly, Google is using Top Image to merchandise the solution and develop the
agent network, the same firm that has been critical to the success of M-Pesa.
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| Google Kenya Advertisement for Beba |
What I really like
about the Google Beba solution is that it has taken out two major friction
points for mobile contactless payments in developed or developing markets – firstly,
the customer’s phone, and secondly, contactless readers at the point of sale.
The simple fact is that not all customers will own a phone that is mature
enough to have either an embedded NFC chip, or be able to utilise a bridging
technology such as Micro SD cards. By issuing a low cost contactless card, and
relying only on the NFC-enabled phone of the bus driver, Google appears to have
addressed a market need, ensured that any potential transit passenger can be
activated, and by partnering with Top Image is potentially developing an agent
network that can support the ecosystem. In addition, by only using the driver’s
phone for acceptance, Google has removed the need to invest in expensive point
of sale infrastructure and card readers, and instead uses a relatively low cost
Android handset. This is a great initiative, and it is not hard to surmise that
we would have seen far greater issuance and usage of contactless cards in developed markets if the cost of acceptance
could be driven down by such an approach. What is unclear in Kenya is the
revenue model for Google, although this initiative could certainly be a
bridgehead for the company in developing payment solutions for emerging
markets, which should send a shudder through existing mobile money providers
and payment schemes.
Mobile contactless and
NFC technology present a compelling proposition to issuers, merchants and
customers alike to increase the speed of transaction, enable value added
services such as loyalty and offers to be provided, and continues to place the
mobile phone at the centre of the customer experience. Whilst traction has been
slow in developed markets, are we seeing once again the ‘leap frog’ effect of
technology in emerging markets? I am sure all of us in the industry will watch
the developments in Tonga, Kenya, and other markets with great interest.
- Brad Jones
Thanks also to ex-Visa mobile contactless and NFC expert, Craig Richman for his review of the draft and feedback on this blog post.
Great topic Brad. A very interesting move by the Google Emerging Markets Team. In unbanked markets a big issue for a payments business is how to drive liquidity into the system. A reoccurring payment like transport is simple proposition to get consumers to first regularly reload and use the service, and then look at extending acceptance to retail shops.
ReplyDeleteI lived in Hong Kong a few years back and paid for my train, Starbuck's coffee and 7-Eleven munchie emergencies all on Octopus's prepaid card. They even had a successful loyalty program...sort of sounds familiar to the Google Wallet strategy.
Paul
For a while I've been scratching my head wondering how NFC in a phone is superior to existing PayPass or PayWave contactless cards. It may take off when the integration of the payment and the apps on the phone bring new benefits to consumers (loyalty points, discounts, shopping recommendations, etc), but there is still no unique benefit over phone vs card in this case.
ReplyDeleteWhat Google is doing with Beba is, I think, brilliant. The customers don't really need the smarts of having their phone and payment chip linked. The merchants, however, do need intelligence about their payments, and this turns a simple low-cost Android phone into a mobile, internet-connected, GPS-enabled POS terminal. They have turned the supposed benefit of NFC on its head by focusing on the merchant proposition, and I think it will lead to many more opportunities.
NFC has not been a topic I have considered a priority for emergin markets. The investments seem to be to high. Beba clearly is a possible low cost solution and makes me think of Mongolia, the only place where NFC appears to be an issue. It would be interesting to better understand the business model and if this would work also within the context of markets which do not (yet) have such a viral mobile payment environment. How transferable to other markets is this? Intriguing to explore further.
ReplyDeleteHi Margarete, thanks for your comment. I would agree with you on the business model. What is working in Kenya is the fact that phones are only on the merchant side, which reduces complexity and cost hugely. Whilst cards are not the long-term solution in these markets, it is interesting how they are effectively using them as a bridging solution for mobile in the medium term. I think your point is very interesting though - could contactless be the tipping point factor in some markets? Certainly worth more investigation.
DeleteRegards,
Brad
Great post, Brad. First, spot on regarding Nairobi traffic -- it's just as you remember it.
ReplyDeleteSecond, I disagree regarding the 60 second delay as a barrier to adoption, mostly because it mirrors the cash-in/cash-out experience. Consumers expect to initiate a transaction and wait for the merchant to receive confirmation before receiving their own confirmation and completing the transaction. And this process almost always takes ~ 60 seconds.
We've seen steady increases in M-Pesa payments at the point of sale across our merchant network. The barrier to adoption appears to be, not system delays, but consumer awareness -- less than 100 businesses throughout Kenya formally accept M-Pesa at the point of sale.
My two cents. Keep the posts coming!
Hi Ben, thanks for taking an interest! Your point on merchant payment is very interesting. I would be very interested to understand the commercial model M-Pesa are using for merchant payments now if you get a chance.
DeleteRegards,
Brad
Great post, a very informative post.
ReplyDeleteThanks
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ReplyDeleteJust returned from Nairobi, it seams lot of problems for Beba card there. NFC is not prepared for emerging markets. You will often have internet issues and Beba card will not work. Passengers need to use cash then. Best system still in these countries is the use of SMS tickets. I found www.mticket.co have the unique solution for places where smartphones are not available to the population that take public transport.
ReplyDelete@Marcel
ReplyDeleteInteresting feedback on Beba. Google has also just launched Beba in the Philippines but not sure how it is going at this stage. Thanks for reading the blog.