I spent yesterday with a group of Japanese bankers discussing the future of banking.
Actually, I say ‘discussing’ but Japanese bankers are very polite and
so there were very few questions. Therefore, I spent yesterday with a
group of Japanese bankers telling them about the future of banking.
All of this was with simultaneous translation which is never an easy
experience for me or for them, as you crack a joke and it gets a laugh
five minutes later. Then you wonder why everyone’s laughing and whether
it was at your joke or something the translator said.
Anyways, in the afternoon some friends of mine joined us, and I was
particularly intrigued to hear the plans of Roy Vella, who heads up
Mobile Banking for Royal Bank of Scotland.
For over a year now, the ‘hot’ topic at all the places I visit has been mobile banking.
Thus far, many of my favourite stories of mobile finance tend to come from Asia, such as the mobile wallet Edy in Japan run by NTT DoCoMo. I also like the experience of Bank of America, who have gained over a million customers since launching their mobile banking last year. There's a very useful article here about the lessons they learned.
But Roy had a slightly different story, and talked about M-PESA for a while.
I thought that was strange, as M-PESA is Vodafone’s implementation of
mobile money transfers between folks in Kenya (through their subsidiary
Safaricom), and the last time I heard about M-PESA was the announcement of Vodafone’s joint venture with Citi to roll this out worldwide.
So why would Roy talk about this as his launchpad when he’s with Royal Bank of Scotland?
Well, let’s tell it as Roy tells it.
Vodafone was asked to set up M-PESA by the Kenyan government, and
launched the service in March 2007 as a joint venture, 40% owned by
Vodafone Kenya and 60% by the Government, which they reduced to 35%
through a privatisation sale in June.
The actual service provides a simple way to move money between people
using mobile messaging, but it has revolutionised the country. This is
because most people in Kenya were unbanked, so they either had cash or
nothing. No credit and debit cards, cheques or other ways of paying.
Now, with the mobile telephone as the core value exchange mechanism, it has changed everything. As one farmer is quoted in CGAP,
““I can just walk from my shamba (farm) and get money. I don’t have to
spend and go into town. If the agent does not have cash today, then I
will come back tomorrow. It is cheaper to wait”. And now, he doesn’t
even have to wait for the agent as M-PESA is available through Pesapoint ATMs.
As Roy puts it, this means that you have African and other emerging
economies leap-frogging developed economies as (a) they have jumped to
telecommunications without ever laying landlines and (b) they have
jumped to electronic payments without ever having cheques or cards.
No legacy infrastructures involved.
Originally, Vodafone and the Government estimated they would gain about
200,000 users in the first year. By the end of year one, they had
achieved ten times that number with over 2 million users,combined with
over 200,000 people are signing up every month. With only 4 million
people with bank accounts in Kenya, this means that within a couple of
years, Vodafone have accidentally become the largest bank in Kenya.
To put this in context, M-PESA's monthly volume of transactions in
Kenya alone is more than the largest money transfer operator, Western
Union, transfers globally.
The thing is that Vodafone never wanted to become Kenya’s biggest bank,
and here’s where the Royal Bank of Scotland (RBS) strategy steps in.
RBS is focusing upon being the manufacturer of payments processing for
Telco’s as an MVBO, a Mobile Virtual Banking Operator. Roy likened this
to an MVNO, a Mobile Virtual Network Operator, where mobile firms
manufacturer call processing that can be ‘white-labelled’ by others.
For example, O2 are the call processor for Virgin Mobile calls. So RBS
will do the same for payments. O2, Orange, T-Mobile, Hutchinson …
whoever wants to process payments in the M-PESA style roll-out can do
so by just selecting their preferred MVBO for each country.
And with 60% of the world unbanked, but many with access to a mobile phone, that’s a huge untapped market.
This is something that I think relates to a range of SIBOS sessions next week, such as “Payments at a tipping point – growth or terminal decline” and “Low value payments – do banks really need ACHs?” on Tuesday, and “From remittances to financial inclusion” on Wednesday.
Meantime, I wonder how many MVBO’s there will be in the world by 2010?