Earlier this year I had the privilege to speak with two of our top experts from our HP Integrity NonStop team in the area of payments, Bob Kossler and Arun Gaur (see my earlier blog post: What Does the Future of Mobile Payments Look Like?) . It was immediately apparent just how vastly different the evolution of mobile payments was in the developed vs the developing world. Both are evolving rapidly but in different ways, as customers become increasingly enthusiastic and more trusting of using their mobile devices to shop, to bank, to receive payment for services and more. In the developed world, there is a huge, established payments infrastructure and there are challenges around handling massive transaction volumes, fee structures and resiliency. What about in the developing world though? Here's what Bob and Arun had to say....
CD: The horizon of payments in the developing world is significantly different from the so called developed world. Can you give us a glimpse of some of the emerging trends or big ideas that are coming forth?
AG: New consortiums, trials and ideas are happening every day. In emerging markets, there is not a large established payments infrastructure like there is in the developed world. In the developing world, the telecommunications companies may well take the lead in mobile payments – you are already starting to see some people bypassing banks entirely and trading cell phone minutes, as well as small cash payments, for goods and services.
CD: So instead of a transaction listed on a credit card statement, these customers see transactions added to their phone bills?
BK: Exactly. There is a mobile network operator in Kenya, Safaricom, that has introduced a system called M-PESA. In essence, Safaricom is serving as a bank. Safaricom’s customers, using M-PESA, can transfer money to other account holders, by pre-paid cards, deposit cash into their accounts, and by tickets for transportation services. Customers can also top-off their accounts and pay bills. M-PESA is the perfect solution for the “un-Banked” of Kenya, filling a void using Safaricom’s SMS (Short Message Service) service to start a transaction and confirm it.
CD: How is the security of this type of transaction then protected?
BK: The security is very good. Transactions are protected since the customer who executed the transaction must validate using a PIN for authentication. Once authenticated, both the customer and the recipient receive an SMS containing a transaction receipt.
CD: What other trends or new ideas are emerging in the developing world around payments?
BK: New services are continuing to be added in Africa, India, etc. Obopay has services in India, where 90% of transactions are in cash but only 41% of the population has access to banks. The statistics are even more telling in Africa, where only 5% of the population has access to banks. The companies making investments are working closely with the MNOs. The need has been recognized. For example, LinkedIn has a professional group dedicated to addressing the needs of the unbanked.
CD: I’ve also heard about something called Near Sound Data Transfer (NDST) where people without bank accounts in the most remote areas in the world can make daily purchases in a few seconds by simply dialing a number on their mobile phone and placing it against the phone of a vendor. No cards or terminals are needed, and no typing or reading skills are required. Local businesses can even pay their employees this way.
BK: NDST is an interesting development. Unlike NFC, it does not require infrastructure changes at the merchant, nor does it require new handset technology. The technology is secure (like chip and pin), it is available now and works on any mobile handset. More importantly it is MNO agnostic and does not add additional costs to the user. It will be interesting to see how this technology evolves.
CD: What top challenges will IT architects face with those changes in the developing world? What are the movers and shakers in the communications and financial services industries doing to successfully contend with the rather dramatic IT challenges here (and coming) in payments?
AG: Some of the challenges are similar to the developing world in that standards and integration challenges will present. Contending with local and international regulations and protecting against money laundering will be important. In the developing world, many people do not have bank accounts and literacy rates vary. Customers will need to understand the transactions and be fairly billed in a way that is mutually understandable. It opens up many new doors to opportunity both good and bad.
BK: In many respects, the ability to transact with a mobile phone is a game changer in the emerging markets and will help level the playing field, giving more customers access to a more secure method of payment. If you think about it, customers no longer have to carry cash, making them less likely to be targets of theft, etc. They can receive wages in their accounts, and then begin transacting immediately. This will serve to increase commerce and create opportunity.
CD: What is HP doing to help them contend with the challenges?
BK: Our focus has been on driving transformation in the datacenter. The converged infrastructure is an important element in that strategy. This transformation is targeting the entire ecosystem, including working with our partners. We are exploiting standard building blocks, along with modern tools and application environments while delivering a 100% NonStop solution. Any operator, bank or mobile network operator, relies on the “always on” nature of HP Integrity NonStop. It is in our DNA and it is what drives our competitive advantage in the payment space. We look forward to driving this capability, which is now expected in the “developed” market, into the “developing” market for payment infrastructure.
CD: Finally, can you paint a picture for us …if we followed them around for a day with a video camera, what will the most radical of the group of early adopters of new payment technologies be doing five years from now?
AG: Perhaps people will be using the Facebook Bank, or something from an entirely unknown entity today! Big barter communities will exist for phone minutes with instant trading we can’t imagine now.
BK: Arun brings up an interesting point. Facebook was launched in 2004 and has evolved over time to include a pseudo-banking system. If you play Farmville, you need to buy animals and seeds, etc. to play the game. A small industry has developed to service the “e-money” requirements of Facebook users. Nobody would have thought of that when Facebook started. A number of companies (Google, ISIS, FonWallet) are looking at creating an electronic wallet for you mobile phone. Again, 5 years ago, this would have been a dream. Social media driven by technology changes is evolving rapidly and so will the payment mechanisms that support them. On the flip side, it took 10 years for credit cards to become ubiquitous. The same was true for debit cards. Consumers are very careful when it comes to how they pay for goods and services. It should be an interesting five years.
Readers, if you have future looking questions for our payments experts not covered in these blog posts I will gladly do a follow up with them and pose your questions. Ask away!
Finally, you may also be interested in reading a feature article in the ABA Banking Journal -- Bob is quoted on page 36 of the journal - check it out! "Smart Phones Alter the Banking Landscape". You can catch Arun in person if you are attending HP Discover next week in Las Vegas -- Session 4823 "Financial services industry—dynamics, trends and the impact on IT"