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Scale in mobile financial services is missing: World Economic Forum

Flexible policies, new business models, better market structures, agent density, industry-government cooperation and consumer acceptance are all issues that must be addressed before the promise of a global mobile financial system becomes a reality, per the WEF’s Mobile Financial Services Development Report 2011.

“The report shows that those countries with a data-rich and fact-based environment that allows them to learn and adjust with greater agility score better on their overall readiness to successfully scale mobile financial services,” said Bill Hoffman, report editor and associate director and telecommunications industry head for the World Economic Forum USA, New York.

The 221-page report arguably is one of the most exhaustive on the state of mobile financial services. It prepared in collaboration with the Boston Consulting Group.

In this extensive Q&A, Mr. Hoffman discusses the state of mobile financial services worldwide, the report’s findings and what it will take to turn the mobile financial services ship around. Please read on.

The report’s key finding – that scale in mobile financial services is lagging – is quite an indictment. What’s the reason behind that?
This report is about realizing an unprecedented opportunity – connecting billions of people into the formal economy.

It’s the result of extensive collaboration from the public and private sector, as well as the G-20, to define the key drivers of scale in mobile finance.

The aim is to expand the dialogue beyond the generally anecdotal and fragmented perspectives of today to a more fact-based, structured, and empirical understanding of the opportunity.

It’s about minimizing the risks of over-simplifying the complexities of delivering mobile financial services at scale.

It’s important to keep in mind that we are at the very early stages of development.

There are only four countries – Ghana, Kenya, the Philippines and Tanzania – which have achieved adoption rates above 10 percent of their population.

As the report shows, even these countries may not be what we call ready for delivering a full array of services, most importantly, mobile-based savings.

Competitive market structures, innovation, flexible policy frameworks, new business models, agent density and end-user empowerment are just some of the factors which need to be addressed to achieve global scale.

There are no cookie-cutter templates for scale.

Could security concerns over mobile transactions and worries over data play a role in slow adoption?

As with any networked communications service, if the confidentiality, integrity or availability is in question, adoption will be impacted.

As it relates to needs of the underserved and noted by one of the report’s contributors, trust is a primary factor for scaled adoption.

People must feel their money will be safe, that information about their transactions is private and that the provider will be around in the future.

It’s also important to note that the concerns about security aren’t just limited to the technology.

Establishing trusted relationships with agents and the brands of providers are also important for accelerating adoption.

Do we see any parallels with online financial services, say, about a decade ago?
Given the historically low usage rates of ICT among the poor, it’s hard to draw direct comparisons.

While this question, per se, was not addressed in the survey, one of the historic failures in leveraging ICT for the underserved is when it is applied to problems that aren’t fully understood.

Consistent with a number of findings in the literature, the report points to the need for a deeper understanding of the complex financial behaviors of the poor.

Addressing the lack of available data on financial literacy rates and the number of active users should be a priority for all stakeholders.

Additionally, aggregated indicators that measure usage at the service level, details on the frequency and transaction size, and the contextual dynamics of usage are gaps in the data of the report.

Which regions have seen the quickest adoption and which ones are slowest to take to mobile and why’s that the case?
The successes seen in Kenya, Tanzania and Ghana place Africa as the region with the highest adoption levels.

With that said, countries such as Brazil and India demonstrate a high degree of what we term as “readiness.”

India has a very competitive telecom sector and the recent regulatory changes may serve to pave the way for an accelerated rate of adoption.

Brazil, perhaps because of its existing POS network, shows some advantages in areas such as consumer protection and financial empowerment.

What will it take to jumpstart ubiquitous adoption of mobile financial services?
It’s dangerous to generalize because there are no silver bullets.

Each country assessed in the report has its own unique profile.

But in looking at the identified market catalysts, one of the most promising is the role that governments can play in fostering the usage of the mobile banking platform.

Mobile G2P payments of disbursements, the ability to pay income tax via mobile and the ability of governments to support technology platforms which are interoperable have a great deal of potential to jumpstart adoption.

Understanding the remittance flows within a given country is also another significant lever to drive adoption. The Philippines is a clear example in this regard.

Another insight is the need for better data collection and dissemination.

The report shows that those countries with a data-rich and fact-based environment that allows them to learn and adjust with greater agility score better on their overall readiness to successfully scale mobile financial services.

The need for better data concerns all aspects of mobile financial services.

On the institutional side, more insight is needed on the effectiveness and impact of regulations that are on the books, versus the way they are enforced and implemented on a day-to-day basis.

Can the private sector play a constructive role here, or does it require government to deliver the goods?
Fundamental to this report, and validated through a number of forum events convening leaders at the highest order, is the firm belief in the power of collaboration.

Core to the forum’s mission is the belief that the only way to achieve safe, affordable, scalable and viable solutions is through the sustained multi-stakeholder dialogue.

Absent this ongoing collaboration, it’s hard to imagine a scenario that could achieve global scale.

What would you recommend as the best steps to take to propel the use of mobile financial services in the next half of this year?
At the risk of sounding like a cliché, focusing at the local level but sharing results globally can have a big impact.

One of the big questions that continually arose in our interviews and research was on how to achieve interoperability in a manner that is economically viable and compliant with the appropriate regulatory safeguards.

Insights into unlocking the network effect – at multiple points in the value chain – is an area of immediate value.

How will we know if scale has been reached?
Well, we can’t use rubber yardsticks.

Globally, we need to arrive at an accepted indicator for what constitutes financial inclusion and then within that definition consistently measure the number of active MFS users.

The G-20 should be applauded for its call to set numeric targets for financial inclusion and for better quality data, consistency in definitions and.

Additionally, at least for a start, more effectively assessing the mobile finance landscape across the following dimensions would be valuable:

1. Regulatory proportionality
2. Consumer protection
3. Market competitiveness
4. Market catalysts
5. End-user empowerment and access
6. Distribution and agent network
7. Adoption and availability

Please click here to down the PDF copy of the Mobile Financial Services Development Report 2011 produced by the World Economic Forum

Final Take
Mickey Alam Khan, editor in chief of Mobile Commerce Daily, New York