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The Mobile Money Opportunity

During the past decade, the total value of money sent by migrant workers to their countries of origin has increased steadily. The World Bank and GSM Association estimate that in 2006 alone, approximately $250 billion was remitted globally. These transactions involved 200 million migrant workers, and the figures are increasing by approximately 30 percent per year. For some countries, these remittances exceed both direct foreign investment and development assistance, and are far more reliable for the recipients.

The GSM Association estimates that the availability of mobile money transfer and banking capabilities will double the number of recipients of international remittances to more than 1.5 billion, while helping to quadruple the size of the international "value transfer" market to more than $1 trillion by 2012. Yet the capabilities necessary for value transfer involving both money transfer and other banking services are already relatively well defined today and can leverage existing messaging, IVR, top-up and billing mechanisms common to most operators.


Barriers to Transfer

Standard money transfer arrangements involve a variety of onerous and material barriers. The users, like migrant workers, typically have low incomes and send small amounts generally no more than a few hundred dollars. Transfer fees for remittances of $100 to $200, according to the World Bank, can be 10 percent or greater. To avoid these fees, many migrant workers depend on informal mechanisms for transferring money, including friends, the postal system and transportation networks involving the shipment of goods. Unfortunately, these systems are often subject to theft, misdirection and considerable delay. The International Fund for Agricultural Development (IFAD) reports that they typically involve losses of 20 percent.

Because of the relatively underdeveloped financial infrastructure in some countries, it may be difficult for migrant workers to access money transfer services or for recipients to collect funds. Approximately 40 percent of people in the world's emerging markets, a large proportion of whom live in rural areas, have little or no access to financial services. According to the GSM Association, fewer than 1 billion out of 6.5 billion people worldwide have bank accounts. At the same time, the penetration of mobile subscribers worldwide is increasing rapidly, with more than 50 percent of the world's population having access to a mobile handset. These metrics support the argument that mobile technology can empower financially underserved populations by enabling a new micro-banking system.


The Key Ingredients

People in emerging economies can easily interact, collaborate and exchange money, because they have access to mobile networks and handsets that are declining in cost. Recognizing the growth of migrant worker populations at all levels of the economy, service providers are introducing new packaged micro-banking offerings for workers, family members and entrepreneurs. These offerings can provide users with the same financial services found in urban banks. The more mature service providers are building out the ability to have a seamless exchange of information and extension of services across networks.

More interoperability will enhance the user experience and can drive the adoption of micro-banking. Driven by demand for financial services and enabled by mobile networks, mobile value transfer and banking services are now growing in markets in the Caribbean, South Pacific, Southeast Asia and Africa. Working in these markets, Redknee has observed four complementary international and intra-network micro-banking capabilities: mobile money transfer, mobile top-up, roaming recharge and mobile banking, which collectively provide the foundation for effective mobile value transfer services today.


Mobile Money Transfer

A mobile money transfer capability enables subscribers to transfer funds to a target mobile account in another country, typically associated with a relative or acquaintance. Subscribers normally use either a USSD or SMS message to invoke a transfer for a specified amount. Existing mobile messaging infrastructure within and between supporting originating and terminating network operators is used to route such messages to an application server that debits funds from a source account (such as a prepaid account in the originating subscriber's network) and credits a destination account (such as a prepaid account in the target subscriber's network).

This process can be subject to various factors, including foreign exchange conversion ratios, service charges, and any maximum or minimum amounts imposed by network operators or regulatory agencies. Once funds are transferred, the originating and terminating account holders can be notified via SMS, and the recipient is free to use the funds (for example, for communication services or purchases) or to redeem them for cash from supporting providers.


Mobile Top-Up

Mobile top-up enables subscribers to transfer money between two accounts enabled by the same network operator, including any combination of prepaid and postpaid accounts. For prepaid-to-postpaid or postpaid-to-postpaid transfers, the operator's postpaid billing system must provide an interface to allow account credits and debits. Subscribers normally use either an IVR system, web-based interface or supported messaging mechanism (USSD, SMS) to invoke a transfer to a target account.

The request is directed using the network operator's existing messaging infrastructure to an application server. After validating both the source and destination accounts, the mobile top-up application debits funds from the source account say, a postpaid account associated with a parent or employer and credits the destination account, such as a prepaid account associated with a child or employee. A confirmation message can be generated and sent to the originator and recipient of the transaction.

Mobile top-up can be augmented to allow a subscriber who is low on funds to request funds from a source account for example, a child contacting a parent. In turn, a predetermined message like "Please top-up my account, +1-809-555-1234" would go to the subscriber of the source account. A mash-up of these two services top-up and money transfer can enable the transfer of funds internationally between subscribers belonging to different operators.


Roaming Recharge

Roaming recharge enables roaming prepaid users to top-up their accounts using a voucher purchased from any supporting network operator that's typically part of branded alliance. It works just as contemporary mobile prepaid recharge does. It uses a USSD or IVR mechanism to access a roaming recharge solution, to which the subscriber provides a prepaid top-up voucher number or name. This request goes in turn to the host operator's voucher management system. Once that system validates the voucher, the roaming recharge solution credits the subscriber's home prepaid account. The amount credited may be affected by several factors, including foreign currency conversion and service charges. A roaming recharge capability can be mashed up with money transfer and top-up capabilities to enable value transfers for mobile subscribers who are roaming.


Mobile Banking

The micro-banking capability with the most potential impact is mobile banking. Mobile banking allows subscribers to store and transfer money in an auxiliary account outside their traditional prepaid or postpaid accounts. Having a separate account provides subscribers with additional flexibility in managing funds that can be spent or withdrawn, depending on what the network operator offers. Mobile banking can be mashed up with money transfer, top-up and roaming recharge to facilitate transfers between accounts within a given operator and internationally.

Mobile banking effectively provides a number of valuable financial transaction capabilities, especially for emerging market economies. Because it generally operates on a credit or pre-paid basis, bad debt is not an issue. It can be augmented further with links to financial institutions to facilitate funds transfer to and from traditional non-mobile accounts, as well as to merchants for purchasing digital or physical goods.


The Power of Money on the Move

The widespread elimination of barriers to basic financial services will be a tremendous benefit for emerging economies worldwide. Mobile banking and money transfers can enable both underserved communities and migrant workers to execute financial transactions safely and easily in ways that simply did not exist before. New mobile value transfer capabilities will complement existing remittance channels, making it easier for suppliers, vendors and retailers to embrace the technology. A significant new segment of the world's population will be equipped to use mobile financial tools to initiate new businesses, develop new markets and send money home safely to support families. Mobile banking will enable advanced e-commerce capabilities in emerging markets that were previously only associated with mature markets.

The potential growth in these almost entirely untapped markets, and the existing level of international remittances already occurring, should be of interest to any mobile operator looking to expand its revenue base and increase value for its shareholders.

Bohdan Zabawsky, RedKnee
B/OSS