In a previous posting, I pointed to a statistic which said that MPESA accounts for more than half of the world’s mobile money users. Mobile money services in countries outside of Kenya have just not had the uptake that the industry leader enjoys. But could interoperability be part of the solution to that problem?
Taken at face value, interoperability seems relatively straightforward – it is the ability of the user of one mobile money service to send money directly to the wallet of a user on any other service. The advantages of a system like this over a closed-loop system are clear for the customer. Without interoperability the difficult decision of which mobile money service to choose might be influenced by which members of the customer’s peer group are already using a given service. By choosing one service over another, the customer is restricted to whom they might be able to send money too – unless they sign up for multiple services – a situation that could potentially put people off joining altogether. Interoperability removes this painful decision and could be a factor to drive customer acquisition and usage rates.
However, the reality of how interoperability works in detail can be quite complex. At the technical level for instance, there are the issues of how to handle payment clearing, netting and settlement between the different operators. In a country with only a few mobile payment operators it might be possible to do this bilaterally or multilaterally but as the number of operators increases the relationships between them grows exponentially, as does the expense of implementing a solution. So under this scenario the problem can only really be solved by a national payment switch and perhaps an interbank settlement service, which in some countries may not have the capability to add non-bank (i.e. mobile payment) operators and mobile payments to their systems.
This brings us back to the government’s role in facilitating mobile payments. In emerging markets interbank settlement systems, and often payment switches, are operated by a consortium of local banks who may not have the greatest incentive to see mobile payments flourish. However these systems are regulated (and in most cases part-owned) by the central bank who will have a say in how they are run. If the central bank mandates that the system must also be capable of processing mobile payments, then interoperability, in this form at least, has a fighting chance. Whether the payment clearing and settlement systems in place have the capacity to handle these new forms of payments is another question and it may be that governments need outside assistance in facilitating this (as per the Visa initiative in Rwanda). This is an illustration of how government can enable interoperability via the provision of technology and services.
Government can also regulate for the provision of interoperability at an operator level (either SIM or handset), as has been the case in Ghana and Nigeria. Other countries permit interoperability without making it compulsory, an example being Pakistan’s many-to-many model, whilst others make no provision for it at all. And without being obliged to do so, operators have little incentive to make their services interoperable, particularly if one of their goals is to reduce customer churn. It may be the case that governments wishing to enable interoperability have to amend existing mobile payment regulations to ensure that it is provided, although such retrospective changes may be difficult to achieve politically.
CGAP in their recent series also extend the concept of interoperability to the agent level, also something that would most likely have to be stipulated via regulations (as in Nigeria). In reality these next levels of interoperability (operator and agent) require the technical solutions to be in place first.
Achieving interoperability for mobile money poses many different questions which can be answered in a multitude of ways. This complexity can at times make it feel that we are some way off from achieving it. However, interoperability has been implemented before for banks and card payments, implying that it is possible for mobile payments too. The discussions on how to get there are only just beginning and are likely to occupy the industry for the rest of this year and beyond.