A recent blog post in the Financial Times closely examined the progress of Mpesa, the digital money system launched in Kenya by Vodafone-owned Safaricom, and used it to trace out a larger picture of the mobile money systems.
The author of the post, Izabella Kaminska, first pointed out that even though Safaricom’s product was successful, it was mainly down to the fact that it had an early monopoly and that other emerging countries, where there would be less chance of creating a hegemony, companies would find it harder to roll out digital money systems precisely because the synchronicity and efficiency of a monopolised environment is absent.
That is the main reason for why mobile money products haven’t taken the emerging, or even the more developed markets.
The physical reality of digital money
Kaminska dedicated a significant chunk of her blog to stressing that, despite what the FinTech ‘evangelists’ say, “it’s worth looking objectively at the physical reality of mobile money solutions in emerging markets rather than idealised narratives being propagated by digital vested interests”.
In order to successfully implement digital money systems, physical stores need to be erected for several reasons. These shops will act as the physical entry and exit points for the country’s cash within the digital money system. More importantly, these shops are crucial in getting the unbanked population involved. Without physical fronts, the unbanked people will not be able to acquire the mobile devices in the first place after all.
Risk vs return
However, this is where the issues with mobile money start to grow. Traditional banking systems will not be immediately interested in directly running these mobile money physical fronts because of the risk and operational cost. In a highly competitive market, where there are many different players and no common standard, the risk very much outweighs the return. As Kaminska highlights, “The greater the uncertainty regarding whether or not operators meet basic standards”.
Furthermore with appointed agents, there are vetting costs, the potential need to carry out their own checks on the money, all of which will add up to make the whole venture unprofitable and inefficient.
Even in monopolised countries such as Kenya, there are lessons to be borne in mind. Kaminska asks:
“And yet, even in a highly monopolised market, there’s still the question of trusting your agents. Can trust really be assumed when nearly 14 per cent of the agent network says it has never been formally trained by the operator, while those who had mostly received training from “mobile money specialists”, whatever they may be?”
It’s a fascinating question, one that any company seeking to enter the mobile money market should bear in mind. Without proper training, companies could expose themselves to the risk of fraud. Kaminska says that after the release of Mpesa, there has been a noticeable rise in fraud. These figures surpass the amount of fraud noted in traditional banking systems.
Kaminska ends by stressing that any corporation seeking to enter the mobile money market should pay great attention to the difference between a system that allows people to pay for services and a system that allows people to pay each other.
“At the end of the day, poorly vetting customers for their ability to pay up for services already rendered impacts only a corporation’s potential bottom line if and when they fail to pay. Poorly vetting customers for their ability to pay others, however, potentially undermines the entire system’s solvency and hurts those who contribute productively to the system the most.”
It is a strong argument, one that clearly highlights the very delicate line that a mobile money system toes. Just as Kaminska stressed that companies should bear in mind the physical reality of digital money, so should they bear the human reality and ensure there are vetted agents and vetted users that protect each other from the very human nature of fraud.
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