One of the hottest markets in Silicon Valley this year is mobile payment: VC's financing start-ups, Fortune 500’s trialing solutions, and Internet giants battling over patents and executive staff, you name it. Smart phones have become the primary battle-ground for Google and Apple. But you would be surprised where the up-take for those new servies is the strongest? Nope, not North America. It is Africa after Japan pioneered mobile payment a few years ago.
Google’s Android based phones and Apple’s iPhone 5 will support mobile payments using near-field-communication based on RF identification (RFID) technology. Mobile carrier DoCoMo led the deployment of this technology in Asia several years ago, and 47 million Japanese have since adopted tap-and-go phones to make m-payments at hundreds of thousands of points of sales.
In the US, AT&T, Verizon and T-Mobile have formed a joint venture called ISIS to offer a service to banks over their networks. ISIS recently announced a deal with VISA, Mastercard, American Express and Discover to use its pay-and-go system. One can wonder though whether the US mobile carriers screw themselves out of mobile payments by not offering services directly to its subscribers like DoCoMo did.
There are a few reasons this is not viable in the US. The first one is that US carriers do not enjoy a good reputation with consumers, with legal footnotes to protect them and schemes to increase bill amounts. Actually a recent survey (see results above) conducted over 500 online consumers by Ogilvy & Mather showed credit card brands enjoy the most trust when it comes to making payments. Even Apple, which had a succesful online payment solution with iTunes, came after the likes of Visa and Mastercard.
More importantly, banks have a very deep infrastructure with branches and ATM all over the country. Bank of America already launched a first-generation mobile banking solution with 1.5 million subscribers. The biggest opportunity for mobile carriers lies in countries where banking services have a low penetration rate, namely emerging countries in Africa, Asia and South America. According to a 2009 survey by the World Bank’s Consultative Group to Assist the Poor, about 2.7 billion people globally do not have banking services.
Earlier this year, Telefónica and MasterCard announced a joint venture to lead the development of mobile financial solutions in twelve countries in Latin America, where Telefónica is present with the Movistar brand. The contrast between mobile phone penetration and banking coverage is even more staggering in India. India has a vast un-banked population who resides mostly in rural areas where banks cannot open traditional brick-and-mortar branches for economic reasons. However, India is the second largest telecommunications market in the world and has more than 650 million mobile phone customers.
Africa is surprisingly the continent benefiting the most from mobile financial services. Access to banking can help people to lift rural populations out of poverty by providing ways to save money and make payments without having to travel. Published in March 2011, a report from MobileMonday summarizes the situation in Africa. It cites a former banker and the founder of mobile payment services firm Wizzit, Brian Richardson. He notes that “There is the equivalent of $2 billion under mattresses in South Africa at any time. If even a portion of that was in banks, it would have a huge impact on the economy.”
The first mobile payment service was launched in Kenya. Safaricon started M-Pesa in 2007, and quickly overtook traditional banks there by gaining 10 million users in a country of 37 million citizens. The key to M-Pesa’s success, in Kenya and a growing number of countries, is the African love affair with the cell phone. “Interestingly, in Africa, some consumers might not have shoes, but they have a cell phone,” explains Brian Richardson
Other mobile payment services have since launched in South Africa, Madagascar, Uganda, Côte d’Ivoire, Senegal and Tanzania, led by Orange in Côte d’Ivoire, Telma in Madagascar and MTN in Uganda. Orange also teamed up with Google in Africa to provide additional mobile Internet services in Africa. This agreement is representative of the growing mobile internet market in this part of the world.
Indeed, at the end of 2010, only 1.4% of the population in Africa and Middle East had access to broadband services, compared to 62.5% for mobile services. The number of active users of mobile money services predicted to double in the next two years, exceeding 200 million by 2013 according to a Juniper research. Nearly 40% of active users in 2015 are estimated be in the Africa & Middle East region.
Surely, whether we are in Africa or America, we are going to spend more and more time on our phones to carry out our daily chores. The line between smart phones and computers like tablets is going to blur further. The Yankee Group predicted in a report last June that there will be 500 million m-banking users globally by 2015. Currently, 27 percent of all survey respondents use mobile banking, far more than use mobile commerce (13 percent), mobile coupons (11 percent) and mobile payments (9 percent).
Unlike wire-line networks, wire-less infrastructure is fairly recent and patents could provide handy in strategic markets. This is why a number of high-profile acquisitions took place in recent months. After the dismantlement of Nortel that saw its large IP portfolio bought at hefty price by a consortium led by Apple and RIM, Microsoft acquired Nokia for $19Bn. And Google purchased Motorola Mobility this week for $12.5Bn.
Some were surprised by the move since Google develops the Android operating system used by smart phone makers HTC and Samsung. But the reason is simple: Google did not buy the business division of Motorola to compete with phone makers, but to seize the thousands of patents and hold its ground. This promises to be an epic battle between Apple, Google and Microsoft. Among the traditional phone manufacturers, Ericsson is the only one who can compete.
Everybody wants to monetize on the growing flux of transactions on mobile phones. They are progressively replacing our wallets from the streets of Kinshasa to the roof-tops of New York City, and this faster in Africa than in America.
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