Mobile Money

Opportunities for Mobile Operators

A Huawei White Paper by
Atanu Debray, Hyejung Kwon, Richard Gill
February, 2014

Business &
Network
Consulting

CONTENTS
1 Introduction.....................................................................................1
2 Mobile Money..................................................................................2
3 Mobile Payments............................................................................3
4 Case Studies .................................................................................5
4.1 Japan: NTT DoCoMos Osaifu Keitai.........................................................................................................5
4.2 Kenya: Safaricoms M-Pesa.......................................................................................................................7
4.3 USA: ISIS...................................................................................................................................................8

5 Key Operator Considerations & Recommendations.....................10

5.1 Access to traditional financial institutions.................................................................................................10
5.2 Security.....................................................................................................................................................11
5.2.1 Regulatory environment...................................................................................................................11
5.2.2 Data Protection................................................................................................................................12
5.3 Size of network.........................................................................................................................................13
5.3.1 Open or Closed Network.................................................................................................................13
5.3.2 Merchant Network...........................................................................................................................13
5.3.3 Agent Network..................................................................................................................................13
5.4 Recommendations for Operators..............................................................................................................13
5.4.1 Emerging Markets............................................................................................................................13
5.4.2 Mature Markets................................................................................................................................14

6 Summary.......................................................................................15
7 References....................................................................................17
8 About the Author............................................................................18

1 Introduction
Operators have seen a decline in revenue from traditional sources such
as voice and SMS and are looking to compensate by creating new
sources of revenue. With close to 5 billion mobile phone subscribers
[1]

but only 1.5 billion credit cards worldwide , mobile money is believed to
be one such revenue source. This presents an opportunity for mobile
operators to add value to both people who do not have access to
traditional financial institutions and the financial institutions themselves.
The following paper examines mobile money, and in particular mobile
payments, looking at industry dynamics to determine whether there is
an opportunity for mobile operators to provide a differentiated service.
The paper looks at markets such as Kenya, Japan and USA to learn
from existing services to determine key success factors and the
implications for mobile operators.

2 Mobile Money
The term mobile money is used in many different contexts. Our belief
is that mobile money is an umbrella term, which defines an ecosystem,
which includes various financial activities transacted via a mobile
device. The ecosystem, as shown in Figure 1, consists of, Mobile
Banking, Mobile Payments and Mobile Commerce.

Figure 1: Mobile Money Ecosystem

Through this paper, the following definitions will be used to describe the
various activities within Mobile Money:

Mobile Banking: The management of ones bank account in

a mobile environment , such as access account information,
setting up standing orders, paying bills, direct debits etc,

Mobile Payments: This is commonly referred to as mobile

money transfer and refers to payment services operated
under financial regulation and performed from or via a mobile
device. This ranges from remittance type activities, both
domestic and international, cash in /out, etc.

Mobile Commerce: The buying and selling of goods and

services through a mobile device

Mobile banking is increasingly becoming the preferred method of

interacting with banks for users, especially in more mature markets
such as, South Korea and Hong Kong (Figure 2).
Convenience is widely believed to be the main driver for the adoption
amongst consumers. The benefits for banks are also considerable, with
the transaction cost on a mobile believed to be approximately 2% of the
[2]

cost when the same transaction is made at a branch .

2

Figure 2: Percentage respondents who had made a mobile

banking transaction in the last 3 months
(Source: Bain & Company, 2012)
The mobile is becoming central to consumer retail behaviour, with
product awareness and purchase consideration being driven by mobile
devices (Figure 3). It is expected that by the end of 2013, 15% of all
online retail sales in the US will be through the mobile phone. This
figure is expected to grow to 25% or approximately $110 billion in
[3]

2017 . A recent survey revealed that users of LTE services have almost
doubled their purchases using a mobile device compared to previous
[4]

purchases on 3G access networks . This provides an opportunity for

mobile operators to partner with retail outlets to improve customer
experience and profitability for the retail vendor, while creating new
sources of revenue for themselves.
Mobile operators have a large role to play in mobile payments. The
following section presents an overview of the mobile payment value
chain, and the various options available from a customer perspective.

Figure 3: Consumer interaction with retail websites (EU5)

(Source: Al-Jehani, H., The Rise of the 3Ms, 2013)
3

3 Mobile Payments
The combined mobile payment market for all types of mobile payments
[5]

is expected to reach more than $600B globally by end 2013 . At the

end of 2012, there were 480 million mobile payment users worldwide;
this is expected to increase to nearly 1.5 billion users by end-2017, a
[6]

compounded annual growth rate (CAGR) of approximately 26% .

There are many variations of mobile payments, with different parties
trying to establish their foothold in this large projected market. These
vary from financial institutions trying to leverage new technologies
and channels to mobile operators looking to augment their revenue
opportunities, and third party vendors attempting to take advantage of
business opportunities presented by new technologies and changes in
consumer behaviour.
As this paper focuses on the opportunities available to mobile
operators, we limit the scope of the paper to the following three
[7]

business models :

Financial Institution Led: Traditional institutes use the

mobile phone as an extension of their existing channels. In
this model, mobile operators would partner with a financial
institution and leverage the institutes credibility and expertise

Mobile Operator Led: The mobile operator develops and

owns the necessary infrastructure for the new business. In
extreme examples, operators could acquire banking licenses
which would allow them to store the deposits made into
the system

Third-Party Led: Third party vendors create solutions

which decouple mobile operators and financial institutions.
This allows for cross operator and cross bank solutions to
be launched in the market. These vendors may choose to
partner with mobile operators to leverage the network and the
existing customer base, for example Sprint USA partnering
with Google Wallet and Digicels partnership with Terrapin

Table 1 highlights examples of how the various actors in the value chain
have implemented the various business models.

Business Model

Technologies
Used

Purchase
Relationship

Charged To

Examples

Financial
Institution Led

NFC
Internet
External Device

Consumer to
Business

Bank Account
Debit Card
Credit Card
Prepaid Card

Barclaycard NFC
Tag

Mobile Operator
Led

SMS
USSD
Internet
NFC

Consumer to
Business
Business to Business
Peer to Peer

Network Bill
Debit Card
Credit Card

M-Pesa
Felica

Third Party Led

Internet
NFC
External Device

Consumer to
Business
Business to Business
Peer to Peer

Debit Card
Credit Card
Prepaid Card

Paypal
Square
Google Wallet

Table 1: Mobile Payments Business Models

(Source: Anon., Mobile payments, 2013)
The following section details how NTT DoCoMo, Safaricom and a
group of mobile operators in USA have implemented operator-led
mobile payment initiatives. We then highlight our view of the key
factors operators should address while implementing mobile payment
solutions and then present strategic options based on country
dynamics for operators.

4 Case Studies
4.1 Japan: NTT DoCoMos Osaifu Keitai
Launched in 2004, NTT DoCoMo, has established itself as a
market leader in mobile payments, with its Osaifu Keitai (mobile
wallet) proposition. The success can be attributed to DoCoMo
making early investments in the proposition, establishing
strategic partnerships with Sony, Japan Rail and retail vendors,
and by leveraging their leadership position in the Japanese
mobile market. DoCoMo has made the proposition open to
all operators in Japan and collects license fees from other
mobile operators who choose to offer it to their customers.
5

To ensure maximum reach of the proposition, DoCoMo preloads the

Osaifu Ketai application on all its phones, and either embeds the Felica
chip into the phone or integrates the Felica application into the SIM, as
shown in Figure 4.

Figure 4: Integration of the Felica Service with the Handset/SIM

(Source: NFC Times, 2013)
In the first half of 2013 fiscal year, DoCoMo customers with compatible
phones used mobile payments at 560,000 points of sale that accept
in Japan as well as at the nearly 500,000 merchant locations in 41
[8]

countries that accept MasterCard PayPass contactless payments . In

order to maximise the reach of the Osaifu Ketai, DoCoMo subsidises
the cost incurred by small merchants while upgrading to NFC-enabled
[9]

Point of Sale devices .

Japanese manufacturers such as Sharp and Toshiba have launched
Android phones with Felica chip integrated into the device. The
popularity of Osaifu Ketai has meant that consumers have physically
inserted or attached the Felica chip into their phone when the preinstalled application is unavailable

[10]

In addition to the memorandum of understanding (MOU) with China

[11]

Telecom and Korea Telecom signed in 2011 for NFC roaming services ,
DoCoMo is also targeting the launch of Osaifu Ketai in Europe and the US.
6

To expand their business nationwide DoCoMo has opened up the

platform to third party applications and increased business partners
with retail shops and convenient stores like 7Eleven (Figure 5).

Figure 5: NTT DoCoMos Invoice Payment System at

Convenient Stores
(Source: NTT DoCoMo, Nov. 2013)

4.2 Kenya: Safaricoms M-Pesa

M-Pesa was originally designed as a system to allow microfinanceloan repayments to be made by phone. This reduced the costs
associated with handling cash and thus made lower interest rates a
possibility. After a successful pilot test the service was broadened to
become a general money-transfer scheme.
The service launched in 2007, and by the end of 2012 there were 17
million M-Pesa accounts

[12]

. This is in spite the fact that the service is

only available to Safaricom customers.

M-Pesa uses SMS technology allowing for all mobile phones to be
capable of delivering the service, as shown in Figure 6. The initial
popularity of M-Pesa can be attributed to the young male urban
migrant workers. These early adopters used the service to send
money to their families in rural areas. The continued success of
M-Pesa is due to the large network of merchants who act as agents
for consumers to deposit and withdraw cash.
The charge structure was another driver for the success, with no
charge for depositing money and a sliding tariff is levied on e-cash
sent and withdrawn.
7

Figure 6: Process Flow of M-Pesa using SMS to

complete transactions
Figure 7 shows the virtuous cycle, driven by a supportive government,
regulator, and strong consumer demand, which led to the success of
M-Pesa.

Figure 7: M-Pesas ecosystem under Kenyan government support

(Source: Heeks, R., Why M-Pesa Outperforms Other Emerging
Country Mobile Schemes, ICTS for development, Nov 2012)
Safaricom is further improving the scope of M-Pesa by partnering with
vendors such as Western Union and extending the service offering to
rent payment and fund collection, etc

[13]

4.3 USA: ISIS

ISIS is a joint venture created by three of the largest mobile operators
in the United States, AT&T Mobility, Verizon Wireless and T-Mobile

[14]

ISIS is a mobile wallet which allows consumers to access their current

payment cards, loyalty cards, while being able to avail coupons and
8

offers from partner retailers. Sprint choose not to participate in the jointventure as it views Isis wallet as a direct competitor to existing financial
networks such as Visa and Mastercard

[15]

Following a successful trial in Austin, Texas and Salt Lake City,

Utah the service was launched across USA in the latter part of
2013. Currently AT&T support 191 Isis-enabled Smartphones,
Verizon supports 15 models and T-Mobile has 8 models

[16]

The service requires an ISIS enabled SIM card from the operator and an
NFC capable phone with the Isis Mobile Wallet. Users must associate
their bank details (currently limited to American Express or Chase
credit cards) to avail the service. Users can optionally add merchants
from whom they wish to receive offers and vouchers

[17]

. (See Figure 8)

Figure 8: Isis Mobile Wallet Process Flow

Isis provided several promotions to encourage uptake during the trial,
with over 60% of users opting to receive offers and messages from their
favourite brands

[18]

. Consumer brands have been impressed with the

results of the trials and the potential of NFC technology to boost customer
loyalty programs. However, the lack of NFC-enabled Point of Sales
terminals is seen as a limiting factor of the adoption of ISIS. Moreover,
Capital One and Barclays have chosen not to support the nation-wide
[19]

launch of ISIS even though they participated in the initial trial .

9

5 Key Operator Considerations

& Recommendations

Figure 9: Key Success Factors for Mobile Payments

Given the size of the opportunity, many operators have attempted to
launch mobile payment solutions, with varied levels of success. It is
believed that the following factors must be considered when deciding
to implement a mobile payment solution (Figure 9):

Access to financial institutions

Size of the network

Security

As with all product launches, local market dynamics will also have an
impact on the success of the solution.

5.1 Access to traditional financial institutions

For emerging economies, mobile operators have the ability to
provide access to financial services for the large unbanked and
under-banked population, while leveraging the almost 100% mobile
penetration. The key objective for mobile operators in mature
economies is to provide value added services and new methods of
payment for its customers.
10

One of the critical factors in the success of m-Paisa, in Afghanistan was

that it allowed policemen direct access to the payroll and eliminated
the corrupt middlemen

[20]

. Introduced in 2009, through a partnership

between Roshan, the largest mobile operator in Afghanistan and

Vodafone, m-Paisa already has 1.2 million subscribers.
In more mature markets, operators will find it difficult to bypass financial
institutions as consumers already have an existing relationship with
financial institutions. The role therefore is to enhance the experience
and increase convenience. This can done by working in partnership
with banks (Telefonica with Santander & Caixa
services (Vodafone with Visa

[21]

) or with financial

[22]

).

5.2 Security
Security can be divided into two main areas, the regulatory environment
and the customers and financial institutions concerns about the data
protection of the transactions.

5.2.1 Regulatory environment

The support of the regulatory body is vital for the success of mobile
payments. The main concerns that regulators may have regarding
mobile operators creating mobile payment systems are as follows:

Legal Status will the mobile operator be acting as

a bank?

Money Laundering could the system be used to

launder money?

Security is the system secure for the customers?

In the case of Safaricom, the regulator, the Central Bank of Kenya,

decided that m-Pesa was not acting as a bank as the customer was
always in control of their money, and that Safaricom did not have
access to the money to fund its business. In order to provide more
flexibility in the offerings that they can provide, Rogers Canada is in the
process of acquiring a banking license .
In order to make sure mobile payments solutions are not used by
consumers to launder money both nationally and internationally, mobile
operators need to ensure consumer registration procedures follow
guidelines set by local regulatory bodies.
11

5.2.2 Data Protection

Over 50% of respondents in a recent survey conducted by ICM Group
raised security (protection of their money) as a concern and issue that
needed to be addressed before they would use mobile payments.
Recognising this as an issue, the European Central Bank has set
out five guiding principles which mobile payment solutions should
implement . The principles include strong customer authentication and
secure data handling to the implementation of robust data protection
mechanisms to protect sensitive data whenever it is transmitted,
processed or stored.
Mobile operators have a unique ability to providing this service
considering their experience in protecting consumer information
regarding mobile usage. Operators also have the opportunity to
leverage the SIM, which can host the encryption algorithms that are
normally present in credit and debit cards.

5.3 Size of network

Success of mobile payment solutions are reliant on the size of the
network where the solution can be used. The network size has many
dimensions:

Open or Closed Network

Merchant Network

Agent Network

5.3.1 Open or Closed Network

In an attempt to gain market advantage, operators may be tempted
to create closed networks where only consumers of their network are
allowed to access the solution.
This may be viable in emerging economies where a mobile operator
has a significant market share, such as Safaricom in Kenya. However
it is unlikely to be successful in more mature markets. In markets with
number portability consumers are more likely to change mobile provider
than bank accounts. Moreover, creating partnerships with individual
banks may limit the service to a percentage of the mobile operators
customer base that has accounts with that bank.
12

5.3.2 Merchant Network

Operators need to ensure that consumers have the ability to use the
solution in multiple locations and retail outlets. This can be a challenge
for operators as traditionally operators do not have relationships with
merchants. As mentioned in a previous section, both DoCoMo and ISIS
have attempted to mitigate this by actively pursuing partnerships with
retails outlets.

5.3.3 Agent Network

In markets where mobile payments are used as an alternative to cash,
it is essential to ensure wide availability of places where consumers
can both deposit and withdraw cash. This was one of the critical factors
behind the success of M-Pesa in Kenya, when compared to similar
solutions in other markets.

5.4 Recommendations for Operators

Due to the differences in market demands and opportunities operators

need to address the mature markets and emerging markets differently.

5.4.1 Emerging Markets

In emerging markets where, the percentage of people with bank
accounts is significantly lower than those with mobile phones, mobile
operators have a significant opportunity for creating value for their
customers. Figure 10 highlights how emerging markets lead the market
in terms of mobile money adoption.

Figure 10: Global Adoption of Mobile Money

(Source: GSMA 2013 & Bill and Melinda Gates Foundation
13

When launching mobile money services in emerging markets, operators

need to address a specific need in the market, in the case of M-Pesa,
in Kenya, it was the a micro-finance solution for cottage industries and
for M-Paisa, in Afghanistan, it was to ensure the police force received
their salaries without middle-men taking a percentage.
The success of these services is based on the ease in which
customers can deposit and access their money as and when required.
This requires a distribution network that reflects the customer locations.
Leveraging existing retail channels used for airtime top-ups by
customers allows operators to quickly expand the number of agents.
For emerging markets, mobile transfers from international markets
are an important contributor for the economy. As a result, creating
partnerships with international money transfer companies such as
Western Unions partnership with Safaricom, Roshan, Maxis and
XL

[25]

creates a valuable proposition for customers. Partnerships with

local companies, to allow customers to pay bills are a further way to

strengthen the ecosystem, as MTN in Ghana

[26]

5.4.2 Mature Markets

Mobile operators have a different role to play in markets where majority of
the population have access to traditional financial institutions. The role is
that of convenience, for both the customers and for financial institutions.
For customers this will mean creating solutions such as Direct Carrier
Billing, where the customer is no longer required to enter their credit
card details for each transaction with the amount simply added to the
monthly bill. Nokias CEO, Stephen Elop, has stated that consumers
were 5x more likely to complete an app store purchase than if the app
store only offered credit card purchasing

[27]

This has the additional benefit of reducing the time between purchase
intention and decision, which is widely believed to improve conversion
rates. This provides operators the opportunity to not only have
partnerships with content stores such as Google Play & Singtel

[28]

, but

with other retail chains with an m-commerce site. This is especially

valuable to global retailers partnering with operators with large
geographic reach. This could be done on a license fee basis or by
extending the model of revenue share.
14

The main challenge for operators is to balance the desire to monetise

the growing m-commerce market, with creating a proposition
compelling for retailers to use. This means there is a need to reduce
the percentage requested as revenue share (currently believed to be
between 10-20%

[29]

, compared with an average of 2% by payment

systems such as Visa & Mastercard

[30]

). Further revenue can be

made if additional value is created for merchants by providing

customer insights.
In order to be a successful partner for financial institutions, operators
need to either enhance the existing value chain or replace another
player. Operators are likely to enable the replacement of the physical
cards as the payment method, with the mobile phone enabled with NFC
being used instead. The operators can leverage the SIM to provide
the security demanded by both financial institutes and regulators. This
can be done by leasing memory on the SIM to embed the security
algorithms for a fee.
Availability of sufficient memory in existing SIMs is not guaranteed, and
would require initiating SIM replacement initiatives. This is traditionally
seen as an impediment for mass adoption, and may require incentives
to be provided to encourage customers to swap SIMs. Additionally
the availability of Point of Sale (PoS) terminals at the merchants
side, remains a challenge for the adoption of NFC, however this is
expected to grow at a CAGR of 46.1% between 2012 and 2017

[31]

. ISIS

have aimed to accelerate this by subsidising the replacement of PoS

terminals in Salt Lake City and Atlanta

[32]

Finally, in order to ensure that reach is not compromised, it is believed

that national joint ventures between mobile operators and banks have
a higher chance of success over individual initiatives.

6 Summary
Mobile money and in particular mobile payments has the potential to
create additional revenue for operators. Successful implementations
have relied on localised strategies where specific needs of customers
have been addressed.
15

Based on this paper we would recommend operators clearly define

their goals and the advantage, differentiation they can offer in
launching a service. A key element will be in defining the terms and
definitions used and trying not to do everything. The solution needs
to be based on the market and whether it is emerging or mature and
the strength of the financial ecosystem also identifies areas where
operators can clearly satisfy a customer need, which is currently
not satisfied, the perfect example is the lack of a geographically
distributed banking channel.
To conclude, mobile payment has the opportunity to create a new
revenue stream for mobile operators. The success of the solution is
dependent on market conditions and how the operator chooses to
insert itself in the value chain.

16

7 References
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]

Anon., Fortumo Mobile Payments Overview, Fortumo, November 2013

Anon., Monetizing Mobile How banks are preserving their place in the payment value chain, KPMG, July 2011
Anon., Smartphones, Tablet Drive Faster Growth in Ecommerce Sales, eMarketer.com, April 2013
Anon., 4GEE Mobile Living Index, EE, August 2013
Anon., Mobile Payments Markets: Strategies & Forecasts 2008-2013, Juniper Research, 2008
Anon., Mobile Payments: 2013-2017, Portio Research, May 2013
Anon, Mobile Financial Services - A competitive (and fragmented) landscape, Value Partners, December 2012
Clark, S., NTT Docomo to take Japanese mobile wallet global,
Anon., Dialing Up A Storm: How Mobile Payments Will Create The Most Significant Revenue Opportunities Of
The Decade For Financial Institutions, PwC, October 2011
[10] Anon., iPhone Lover - How to customize Smartphones to equip NFC chip?, Daily Keitaism
[11] Anon., Transportation/E-Money NFC Service Roaming, NTT DoCoMo
[12] Anon., CCK releases 2nd quarter ICT sector statistics for 2011/2012, Communications Commission of Kenya,
17 Apr 2012,
[13] Anon., M-Pesa Timeline, Safaricom Website
[14] Anon., About Us - Isis Mobile Wallet, Isis Website
[15] Reedy, S., Why Sprint Doesnt Put Money on ISIS, Light Reading, 7th November 2013,
[16] Anon, Isis Mobile Wallet Case Study, GSMA
[17] Goldstein, P., Isis mobile payments venture rolls out nationwide, Fierce Wireless, 14th November
[18] Anon, Isis Mobile Wallet Case Study, GSMA
[19] Rice, J., Android Police: Isis NFC Payments set to expand to the greater united states later in 2013
[20] Heinrich, E., How Afghanistan Is on the Leading Edge of a Tech Revolution, Time.com
[21] Anon., CaixaBank, Santander and Telefnica to create first joint venture between banks and telecom operators
in Europe to develop new digital businesses, Santander Press Release, May 2013
[22] Anon., Vodafone and Visa announce worlds largest mobile payments partnership, Visa Press Release,
February 2012
[23] Dobby, C., Rogers gets closer to starting banking business, Financial Post, May 2013
[24] Solon, O., Mobile payments companies should inform regulators of 'security incidents', Wired Magazine,
November 2013,
[25] Anon, Western Union Mobile Money Transfer Deployments, Western Union Website
[26] Anon, MTN Ghana Mobile Money, MTN Website,
[27] Gohring, N., Nokia aims to appeal to developers, February 29, 2012
[28] Anon., Everything Android, Singtel Website
[29] Abraham, J., & van der Lande, J., Direct carrier billing: giving CSPs a share of the mobile payments market,
Analysys Mason, March 2013
[30] Zywicki, T., Set Visa, Master Card And Markets Free: Approve The Credit Card Interchange Fee Settlement,
March 2013
[31] Berg Insights Mobile Wallet Services 2013, Subscription Required
[32] Balaban, D., Isis Gears Up for National Launch Despite Challenges Ahead, May 2013

17

11 About the Authors

Principle Business Consultant, Huawei Technologies

Richard Gill

Richard is the head of the Traffic Operations team within the MBB Consulting
practice in the UK. The team is involved in supporting mobile operators develop
successful MBB monetisation projects across the world. He has had personal
involvement in helping operators drive revenues and improve data service
profitability across EMEA.

Principle Consultant, Huawei Technologies

Atanu is a senior business consultant of the Traffic Operations team within the
MBB Consulting practice in the UK. He has been involved in projects for operators
in Europe, Middle East and Asia, focussing on MBB data traffic monetisation &
go-to-market strategies. He has had particular success identifying new revenue
streams for mobile operators and understanding the relation between operators
and OTT players.

Atanu Debray

Hyejung Kwon

Senior Consultant, Huawei Technologies

Hyejung is a business consultant in Consumer & Enterprise practice in the UK LTE Business Consulting
Competency Centre. She has supported projects for operators developing successful LTE business in Europe,
Middles East and Asia. She has driven in depth research on pioneering cases in Korea and Japan.

18

www.huawei.com