Money has been utilized in the banking system in various forms – from credit cards, debit cards, and more recently prepaid cards and the newest trend of course is mobile money or as banking professionals calls it NFC “Near Field Communication”. No matter how technically wrong that term is to be utilized for mobile money technology nonetheless, it does not withhold the fact that every bank or card company is considering such an ‘innovation’ an integral part of their future plans towards having a new stream of revenue – specially when debit cards are not making that much of a profit, prepaid cards barely started and competition is rising, and credit cards are reaching the end of their cash cow stage and going towards a maturity stage very soon and will later will be obsolete. Indeed, this is a very broad generalization for different countries and regions have different usage trends towards each and every type of these payment methods – let’s keep it simple for now and focus on the MEA region.
The Middle East region is a haven for mobile phones. It is very much common to find smart phones and some even carry more than one making it a very logical option for banks and financial institutions to utilize these widely available tools instead of giving customers cards, the customers will already be having a payment method which they carry 24/7. This takes us to another point: impulsive usage. If you as a customer carry your payment card 24/7 this will push you towards utilizing it as well – some might think it is really cool to use a mobile to pay for things and some other customers might consider it more convenient than carrying multiple cards to just have all in their mobile phone. All of the previously mentioned reasons are considered as positive signs for such ‘technology’ to be wide spread, yet it is not.
On the other hand, in Africa the situation is totally different. Customers in Africa have their reasons not to be welling to carry cash, such as it is a possibility to be mugged. Additionally, 55% of customers who reside in Africa do not have bank accounts which make them not eligible for having any payment cards. However, there are payments as we speak in Africa that takes the form of mobile technology – not the NFC as in the Middle East region but it is already there. The reason for this of course is the simplicity of the system; customers in countries like Ghana and Kenya have to leave the country side and go for work in the metropolitan cities of these countries. These customers have to send money back home which is of course a very difficult process given that they do not have bank accounts and the infrastructure in these countries does not help them in finding an easy way to send money back to their families. Nonetheless, the British mobile company Vodafone and its African affiliate Safaricom developed a system ‘MPESA’ which enables any mobile holder – smart phones or regular ones – to have an M-PESA account which they can send money from one mobile to the other and even make payments with them. Not a very complicated system the M-PESA is, but it solves a problem and provides huge profits for Vodafone and Safaricom.
When comparing between these two examples we can easily notice that it is not the availability of smart phones or even just phones that serves the goal of implementing a mobile payment system but it is the problem that such a system can solve that makes it a success. However, such a system is alternatively being used in the ME region by card companies and financial institutes as a new source of revenue – providing the customers with a solution for a problem that does not exist. So, let’s think of some of the problems first and address how ‘NFC’ can solve them in the ME region.
Card companies and Telco’s in the ME region are on a race to acquire as many merchants as they can, create deals with these merchants, and provide them with the necessary infrastructure to enable the mobile payment/technology. Me as a customer when going to any of these merchants having my mobile equipped with an NFC chip will at first be so excited to use my phone to pay for my Pepsi or for my packet of cigarettes however, I have to stay for a long time in a long row just to be able to do that – so what difference does it make to pay cash, by a card, or by a phone? As a customer, which worries me more: having more than one card in my wallet or staying for at least 30 minutes in a row just to pay for my products? Thus, for sometime mobile payments in the ME region might be popular for some time – as there are many innovative customers who like to have the latest of technology – but at the end of the day such technology’s future is really narrowed by scope of convenience it provides.
On a micro-scale, card companies has been trying to find a way into getting to the Taxi companies in the ME region to allow the use of cards when paying for a Taxi fare. However, Taxi companies are not welling to have the same experience of Petrol stations splitting part of the transaction between them and both card companies and banks. One way to persuade Taxi companies that it would be easier for customers to pay using their mobile phones which will generate more transactions and ultimately more profit. Nonetheless, there is still resistance from the part of Taxi companies add to that Petrol stations who are hesitant to allow back the use of payment cards as their profit diminishes.
This of course leaves us to the option of going to the Central Banks in the different ME regions to reach an agreement towards first accepting the use of cards as payment methods in these locations: Petrol Stations and Taxi Companies, additionally allow the use of mobile phones as a payment method, however the end user will bare the cost at the end. This approach will transfer the cost that Petrol Stations and Taxi Companies has to pay as part of the interchange per transaction to the customer – which means a higher cost for the products and a really nonconvenient solution for a not existing problem.
Going back to the origins of mobile payment, we will find that Telecommunication companies are the ones who started such a system and they did so in Africa where it really solves an existing problem and thus is very successful. Card companies want to adopt such a payment method and benefit from the profits generated but in their own payment system. That’s why card companies has to go all around to find ways to create an infrastructure – deploying the machines that accepts mobile payment with merchants – create deals with Telco companies, have agreements with Central Banks about the use of such technology, and so on and so forth. The ultimate question to ask: on the long run is such a solution considered to be a useful one? Will customers be able to utilize their mobile phones as an alternative solution to their cards, would they still use their cards along with their mobile phones, can card companies cancel the use of cards and just depend on NFC and mobile payment in the future to decrease the cost of the plastic used in cards and give the customers just the option of using their phones for payments, why there are still developments and research towards smarter payment cards?
It is really difficult to conclude with questions; however for now the future of mobile payments in the ME region specifically is little bit vague. What is being developed is not another type of card which if failed still can generate some revenue and replaced by another type. What is being developed is a full infrastructure; different agreements needs to be made, lots of effort and money has to be put forward, and still from a strategic point of view it is incorrect to devise a new stream of profit which is so unpredictable. Ultimately, only the customers and time will determine how successful such a new method of payment is – all predictions aside.
Where to find Dr. Islam Gouda,