Identified as one of MEF’s “10 Key Mobile Trends for 2015”, the creation of methods to convert “cash” to “digital money” is key to enabling mobile & Internet commerce. How does an aspirational consumer in an emerging market take their real cash and buy goods with their mobile? Here, Peter Cook, CEO of MEF Member Novatti, shares the 10 things you need to know.
1) It’s happening now
Looking at some current use cases:
Mobile recharge – whether the consumer buys a “PIN”, otherwise known as a “Voucher”, or they pay an agent to do an e-topup, the consumer is paying with cash and receiving a digital product.
Mobile money cash loading – whereby the consumer pays cash to an agent who then loads the consumer wallet and the agent must separately pay the cash into a bank account or direct to the mobile money operator
Virtual currencies – such as Ukash or DigiPayVoucher or PayWithPins or Flexepin – whereby the consumer buys a PIN that is redeemable at online portals for goods and services
Digital content – Purchasing products such as iTunes Gift cards with cash in a store
Remittances – Using vouchers to act as a proxy to remit funds – whereby the Sender buys a voucher and sends the details to the Beneficiary who can trade it for funds or goods
2) Consumers like vouchers
Printed vouchers are very tangible. Vouchers displayed on smartphones gain a similar consumer sentiment. Vouchers act as a receipt, and can be stored or forwarded to others. When the consumer receives a voucher, they feel that they have received something for their payment. For many consumers, this feeling is not the same when they receive a virtual top-up or similar virtual transaction.
Example – you sell books online. How do you take an order from Africa when the consumer doesn’t have a credit card or your payment gateway does not accept credit cards from that country? Assuming that one of the digital currencies is being distributed in that country then the consumer could purchase a Voucher and redeem it at your check-out. And what about currency issues – well, you would either accept a voucher in the local currency, or the distributor would sell vouchers denominated in, say, USD or Euro, in the local currency.
So the question for online or mobile merchants is “Bricks and mortar stores can take cash – why not an online store?” Vouchers create an additional “payments method” to allow for new consumers.
4) Two examples for government agencies….
Collection of taxes: Government tax office issues a taxation notice to the tax payer; Tax payer goes to a retailer and buys a voucher with cash; Tax payer sends SMS with taxation notice number and voucher number to redemption service. Taxation office receives settled funds from retailer network.
Payment of agricultural subsidies: Government wants to provide incentives or subsidies to rural farmers; Government issues relevant farmers with a voucher; Farmer redeems voucher for subsidised supplies, or applies funds to their mobile money account, or cashes out at a cash-out agent.
5) The MNO has strategic importance
Attributes of most mobile network operators (MNO’s):
- Highly visible brands
- Excellent distribution networks
- Extended reach that other financial service providers cannot match
Consequently, the MNO can create its own virtual currency that can be transacted between peers and redeemed for goods and services. Alternatively the MNO can manage the distribution of other virtual currencies and make additional revenues through its distribution channels. In effect, this creates payment “rails” to enable mobile commerce.
6) Know the flow of the money
A typical breakup of the consumer payment is as follows:
- Content provider (Government agency, MNO, Retailer)93 – 96%
- Voucher service provider: 1 – 2%
- Distribution channel: 4 – 5%
When you think about the real costs of collecting cash at a remote agent in a developing nation who must fit into a process such that the cash is securely transported, banked, and then settled to the Content Provider, a total margin of 6% or so is quite reasonable. And with very near non-existent fraud. Compare this to the costs of even credit cards in a developed nation at 1-3% plus fraud factors.
7) Fraud is minimized
Distribution channels that distribute vouchers understand that the transactions cannot be repudiated – and as such will only buy vouchers from a higher level in the distribution channel that will provide vouchers that are valid. Every layer in the distribution channel will prepay for vouchers. As such, vouchers are equal to cash and are not trifled with. From the point of view of the service provider, vouchers are only made available to the distribution channel when they are paid for. For the content provider, they will have trust that the voucher service provider will settle with them because the voucher service provider has been prepaid for all distributed vouchers.
The real risks are related to internal fraud at the voucher service provider, and this risk can be largely mitigated by good business processes.
8) Not so “micro” payments
Vouchers come at a surprisingly wide range of values, such as::
- One day of mobile phone topup for 500 Ugandan Shillings – approximately USD$0.25
- One month of mobile phone recharge in Indonesia for 10,000 rupiah – approximately USD$5.00
- iTunes vouchers for between USD$10.00 and USD$100.00 in the United States.
- Ukash vouchers for Canadian $25 to $500 being approximately USD$22 to USD$450
And in first world countries, where vouchers are used for online purchases of content, they are typically of the value of USD$200.00
9) The reality of financial inclusion
Voucher management is a robust “here and now” solution that fits into any economy and any type of distribution channel and allows for the conversion of cash to a digital payment method. So, any nation, any government, any retailer, any MNO, or any financial institution can enable their consumers to access a digital payment method. No waiting for credit or debit cards, no need for bank accounts or even mobile money accounts. A widely understood method of purchasing a voucher and redeeming the PIN for a good or service, available to any consumer in the world.
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The majority of services for which vouchers are used to digitize cash are unregulated – for instance, purchasing mobile phone topup, paying a utility bill, paying a government bill, purchasing a service from an app store, and transferring funds domestically. International remittances based on vouchers will generally fall within the current KYC & AML rules – who is the Sender and who is the Beneficiary, based on the regulations in the relevant countries.