Contactless Payments in Emerging Markets: Can Mobile Leap Frog Developed Markets Once Again?

By | Android, Apple, Beba, Digicel Pacific, google, Isis, Kenya, KlickEx, Mobile Contactless, mobile money, NFC, Tonga, Top Image, Verifone | No Comments
Much has been made of
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.  

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.

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.

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