[From AfricaFinance Forum blog, Making Finance Work for Africa, 25 November 2013]
Let me say again that I see a huge gap between the potential of new electronic channels and the results that are being observed on the ground. Much as we might convince ourselves of the inexorable logic of bringing financial services to the corner shop near where people live (agent banking) and right onto their hands (mobile money), what I see as I visit country after developing country is too much effort and too many resources being expended in entirely sub-scale operations. Must getting there feel so hard?
Commercial players: don't play hero
As in any network business, mobile money operations are about numbers of customers and breadth of ecosystems. Unless you have the kind of scale Safaricom had in Kenya, are you sure you want to tackle the whole mobile money ecosystem on your own?
Are you sure you can convince people to get off using that grimy physical cash which touches and is immediately accepted by everyone, and instead hop onto your private, exclusive electronic cloud? Your cloud would cast such a bigger shadow on cash if it was combined with all other similar clouds into a single, interconnected electronic payment network for everyone.
Are you sure you want to make the management of cash in/out (CICO) -that thing which wears you down and which you so dearly would like to go away-the key competitive battlefield with everyone else who abhors cash as much as you do? Your cloud would be much more accessible for those sadly stuck on cash if you joined forces with all the other electronic types and worked together to create CICO networks that work for all of providers.
Are you sure you want to take it upon yourself to sign up every primary school who wants to bill parents, and to sign up every small employer who wants to pay employees, one by one? They will not want to force all their parents and employees to join your cloud, and yet they will not have the appetite to sign up with every other cloud, so they'll feel it's easier to just continue with cash like they have always done. They would be so much amenable to e-payments if the various players empowered a few payment aggregators to work on their collective behalf in signing up those schools and employers and distributing the transactions according to who has which parents and workers as their customers.
If players are able to leverage the collective scale, the total will be more than the sum of the parts. But getting to this result requires that the industry as a whole work out which areas they must collaborate on and which areas they want to fight tooth and nail on. Now competition between mobile money operators tends to be focused on size of payment network, ubiquity and liquidity of cash in/out points, and the length of the list of billers/bulk payers signed up. Those are precisely the aspects on which scale matters most, but the resulting fragmentation is only making cash loom more supreme. How about if these became areas of collaboration, and the competitive field was shifted to brand, customer service, product development and quality of user interface instead? Aren't these, in fact, the things that should turn on modern digital-based services?
Regulators: tear down those walls
Many regulators have gone to surprising lengths to allow new services to emerge, often without explicit regulation, against prevailing orthodoxy. But still, when the supply response is so weak as it is in many countries, policymakers have to wonder whether there are other tacks they can take to spur the market on.
For one, free up CICO networks from the clutches of banks and mobile money operators. Forcing service providers to be contractually responsible for anything that goes on in thousands of stores (the current regulatory mantra) is not only illusory but counterproductive: how can such fuzzy liability not lead to smaller, proprietary cash networks? Instead, create a license for CICO networks, with clear consumer protection rules, and let them operate for any and all financial service providers. All they would need to be a CICO point for a given bank or mobile money provider, beyond having a CICO licence, would be to have a funded account with that institution and access to their secure, real-time electronic channel.
Many regulators can also give up on their aspirations to be match-makers for happy bank-telco partnerships. These are not natural things, they remain rare on the ground to this day. They may emerge in time, but don't predicate the development of the sector on two species with different genetic make-up mating and working together (India's RBI, take note). Let banks and telcos compete, under clear guidelines and a level playing field. Let telcos and other non-bank players contest the market with an e-money license that exempts them from onerous prudential regulations for the very good reason that (if they are licensed and supervised properly) they do not create new prudential risks. Let banks compete on the basis of the same third-party CICO and account opening regulations that apply to non-banks, for the equally good reason that CICO and anti-money laundering risks are the same no matter who the account issuer is.
Regulators need to offer pathways to mobile money providers that require less commercial brute force. And providers need to develop a more nuanced view of how they can cooperate to build a new market and compete to gain share within that market. Such is the modern way with most network and digital industries.