Blockchain and the Future of Mobile Money

Blockchain and the Future of Mobile Money

Blockchain and the Future of Mobile Money

12th of February 2019

As the hype dissipates around cryptocurrencies such as Bitcoin the question remains: what relevance does the underlying blockchain technology have in an increasingly digitized world?

Mobile money has relied on traditional modes of establishing trust: you trust a mobile operator to take your cash in return for a digital representation of that cash, the government trusts the operator to maintain liquidity, the operator trusts the bank to retain that liquidity, and so forth.

This model of trust was enough to support the explosive growth of mobile financial services, but will it be enough to sustain it? Today’s mobile money operators contend with complex and competitive ecosystems, increasing regulatory pressures, and high costs, particularly for cross-border remittances.

Many of these challenges can be addressed with blockchain. It allows crucial digital relationships to grow organically with the rules for transacting being shared among participating organizations and the ledger for those transactions being cryptographically secure, immutable, and mutually verifiable. In short, it facilitates trust in the digital era.

Blockchain opens doors to new opportunities by providing a platform for:

  • Partnerships with organizations that provide a share of liquidity
  • Building KYC and AML regulations into the rules for transacting
  • Auditability: allowing governments and internal auditors access to their own cryptographically verifiable copy of an immutable ledger

These are among some of the properties of blockchain that have made it enticing for mobile money. But other properties make it less so:

  • Poor performance and scalability
  • Difficult to use for analytics and business intelligence
  • Lack of control over which parties can participate or view which transactions
  • Cumbersome and complex infrastructure requirements

Many of these issues can be overcome by using a private enterprise blockchain, which avoids intensive consensus mechanisms and provides enterprise control over access and a richer set of query interfaces into the blockchain. Implementation, however, is still a massive challenge because of the lack of skill and stable APIs into the various blockchain technologies.

How do we know this?

We’ve encountered these challenges implementing blockchain into our mobile money solution. To address them, we have created a REST API gateway that insulates the core mobile money systems from changes in the underlying blockchain technology and automated and simplified the provisioning of blockchain resources, making them run in both private and public cloud. We believe we have created a feasible and desirable mobile money system that adds the benefits of blockchain, without the complexity and with the performance to scale.

While, of course, we are hoping to sell our platform, we are also keen to engage and discuss your experiences and requirements from blockchain, as it is still a new and evolving domain.

If you’d like to know more about Alepo Mobile Money and how we got there, join us for a demo at Mobile World Congress, Barcelona from February 25-28, 2019 at booth 5H71. Click here to schedule a meeting.

Pankaj Garg

Pankaj Garg

Product Owner, Mobile Financial Solutions

Pankaj Garg is a telecom and FinTech expert with over 14 years of experience in the software industry. Handling digital BSS offerings is among the many hats he wears at Alepo. Always up to speed with the newest advancements in the products he handles, he takes it slow only when he’s road-tripping across India to discover new places.

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Mobile Wallets Are the Piggy Banks of the Future

Mobile Wallets Are the Piggy Banks of the Future

Mobile Wallets Are the Piggy Banks of the Future

8th of October 2018

 

 

When was the last time you used paper money for anything? That thought crossed my mind as I was giving my daughter her weekly pocket money, in notes and coins of course.

As someone who’s worked for the last decade on mobile financial systems, the irony didn’t escape me. Why is it that I give my kids pocket money to instill the habits of budgeting and saving – that is, getting ready for the real world – but still provide them with physical money they store in the piggy bank their grandparents bought them?

Wouldn’t it make more sense to teach my children how to manage digital money, which I firmly believe is the future of all money?

I’d rather not open them a bank account or introduce them to the mobile wallets I use – I am not that modern a father. I want them to learn and have fun doing it, but I’d still like to view and control their activity. And I would like their relatives to be able to play a part, just as easily as they would have dropped a coin in their piggy bank.

It turns out that I am not the only one looking for an online digital piggy bank or, as we at Alepo call it, an e-piggy bank.

While savings accounts and even cryptocurrencies for kids have popped up recently, this use case, I believe, is still at an early stage of maturation. The e-piggy bank may very well turn into one of the more compelling ways of onboarding young families to mobile money systems. It has inherent value to consumers in both developed and developing economies. It complements the increasingly digital lifestyle that is evidenced by the growth in smartphone usage, not only among adults, for whom it is becoming virtually ubiquitous but also among children.

An e-piggy bank is an add-on service that mobile wallet platforms can offer to customers who have children.

It lets kids receive money from their parents, relatives, and friends, request money and create different wallets to save towards their chosen goals – all under parental supervision.

Parental supervision is essential to protect children from fraud and inappropriate spending, but also from a less obvious angle: regulatory.

In many countries, children’s accounts must be linked to a parent’s, and ultimately be owned by the parent, potentially with outward spending restricted to comply with KYC and AML regulations.

Given the complexity and feature richness required for such a solution, there are two questions.

Why should mobile money operators deploy such a solution, and how?

The why is simple: the mobile money landscape today is not the same as the one in which the likes of mPesa grew. It is a competitive landscape where customers in most countries have multiple options. Finding compelling use cases and unique differentiators are key to drive mobile money adoption and improve the ever-critical digital circulation ratio. Read my full post: Digital circulation ratio is the key to mobile money profitability.

The how is not as simple. An e-piggy bank needs to be easy to use, but that doesn’t necessarily make it easy to implement.

It may be difficult to implement on top of an existing mobile money system unless that system already has the inherent flexibility to deal with complicated nested business relationships and the ability to customize policies at each of those levels.

Further, it may be tough to build and tailor a platform that’s simple enough for a child (or a grandparent) to use. But seamless user experience is crucial for an e-piggy bank to work.

I happen to work for a company that makes a mobile money solution, so I was able to put my thoughts into action. We want to help mobile money providers engage families and children safely and effectively. And as ulterior motives go, I’m hoping this also means my daughter will be able to get her own e-piggy bank soon.

For more information about the e-piggy bank feature as part of Alepo’s mobile money solution, reach us at mobile.money@alepo.com.

Pankaj Garg

Pankaj Garg

Product Owner, Mobile Financial Solutions

Pankaj Garg is a telecom and FinTech expert with over 14 years of experience in the software industry. Handling digital BSS offerings is among the many hats he wears at Alepo. Always up to speed with the newest advancements in the products he handles, he takes it slow only when he’s road-tripping across India to discover new places.

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High Circulation Ratio Is Key to Mobile Money Profitability – Here’s How to Improve It

High Circulation Ratio Is Key to Mobile Money Profitability – Here’s How to Improve It

High Circulation Ratio Is Key to Mobile Money Profitability – Here’s How to Improve It

14th of June 2018

Every day, the mobile money industry processes over $1 billion and generates direct revenues exceeding $2.4 billion yearly, according to GSMA’s 2017 State of the Industry report. In fact, mobile money transactions in Kenya have now exceeded the country’s gross domestic product according to estimates by ICTworks. No small feat for a platform introduced a little over a decade ago in the African nation where today, five operators coexist.

The poster child of mobile money success, Kenya demonstrates the massive scope for the platform as an enabler of economic growth. Mobile money has enabled financial inclusion of millions of people by empowering them with digital financial services.

Without taking away from its unparalleled success, it is important to note that mPESA – at the forefront of Kenya’s mobile money revolution – entered a largely unbanked market, with minimal competition, relied heavily on agents for transactions, and used first-generation, feature phones as the main conduit of transactions. Whether in the developed or developing world, few parallel examples remain. Today, operators must organically build complex and varied ecosystems to attract money into the platform and creating incentives to remain in the system.

The key measure of how useful money is within a given mobile money ecosystem is the digital circulation ratio. A measure of how many times money is transacted before being cashed out.

Simply put, increasing the digital circulation ratio involves increasing reasons to enter and stay in the system.

More options for the consumer

The most straightforward way of increasing the digital circulation ratio is to offer customers more ways to spend, giving them the incentive to use their mobile wallets more frequently for a variety of purposes. Traditional options like bill payments and money transfer remain significant, but there is also scope for more complex transactions. Some of these include:

  • Buying insurance plans
  • Mutual funds
  • Government subsidy distribution
  • Payments to enterprises (college fees, for instance)
  • Saving money (micro savings)
  • Microloans

Using a mobile money platform helps people build their credit scores, making them eligible for microloans through financial institutions. The score is calculated based on the transaction type, history, transaction value, location, services used, frequency of use, and so on.

Extending services to merchants, enterprises

GSMA states that in 2017, digital circulation averaged 1.6x. However, deployments that successfully scale merchant payments have a ratio closer to 4x. Further, the most successful providers are those whose platforms offer a vast payments ecosystem; each one, on average, is integrated with seven banks, at least 90 billers and 30 organizations for bulk disbursements, and 6,500 merchants.

It is business to business (B2B) and business to business to consumer (B2B2C) models that are fundamental to this success. These capabilities help expand the available vectors into the system, while providing more reasons for them to remain within. Some of these include:

  • Retailer payments to suppliers: Suppliers now become part of the system by virtue of receiving payments.
  • Supplier payments to enterprise: By having the option of making payments through the platform, the suppliers remain within the system instead of cashing out once they receive payments.
  • Enterprises disbursing promotional cashbacks or employee salaries: Now, the enterprise has reason to continue using its money through the system.

Building such business lines requires high flexibility, not only to create different rules and policies for each business line, but also to provide business entities with internal autonomy. Flexibility provides capability, but to turn it into opportunity, the vital factor is trust. Thankfully, trust can be mediated using private blockchain.

The potential of blockchain

In creating a more diverse and complex ecosystem, it is essential to bring in major partners such as government agencies, large corporations, non-profits, and various other entities – all of which must command trust. How is trust between various entities facilitated? The answer is blockchain, where a tamper-proof ledger of all financial transactions is maintained by and shared between selected partners.

At Alepo, we strongly believe that the ability to easily roll out blockchains to partners could be a game-changer. While fully decentralized blockchain-based mobile money systems have limited appeal owing to lengthy transaction times and increased costs, private blockchains can help to create highly regulated and trustworthy relationships between various major entities that participate in the ecosystem. In such an environment, the blockchain ledger is only shared with select third parties and is opaque to other participants in the system.

Diversity and innovation are the future

Mobile money systems need to create opportunities at every level and build their own ecologies, rather than relying on tapping into societal and/or economic factors. They need to have advanced partner and business channel management, flexibility in how these channels are monetized, as well as capabilities to monetize customer data itself through innovative services such as microloans. As the systems become more diverse and complex, there is a diversity in monetization methods that can be employed – analytics, advertising, revenue-share models, and more. For the success of any system, it is crucial to choose a platform that can support different business models and multilayer disbursements.

mobile money profitability

A varied ecosystem can drive up the circulation ratio

Pankaj Garg

Pankaj Garg

Product Owner, Mobile Financial Solutions

Pankaj Garg is a telecom and FinTech expert with over 14 years of experience in the software industry. Handling digital BSS offerings is among the many hats he wears at Alepo. Always up to speed with the newest advancements in the products he handles, he takes it slow only when he’s road-tripping across India to discover new places.

Subscribe to the Alepo Newsletter