Mobile Channel Series: SMS

While mobile money is growing, it’s still far from being a ubiquitous payments platform available everywhere.  There are many parties vying to control the space and many different technologies underlying those varied solutions.  This series will look at some of the channels used for mobile money and assess their qualifications moving forward.

We start with SMS as it is the most widely used mobile phone-based data transmission system in the world.  SMS stands for “short message service” and it enables virtually all mobile phones to send and receive short text-based messages.  This can come in a few different flavors but we will focus on the ordinary SMS channel which you are likely used to using for communicating with friends and family.  Note that technically M-Pesa uses SMS for transmission but in that case (and many others) it is using the SIM Toolkit (STK) to initiate an encrypted SMS; I will cover the STK experience in another post within this series.

The SMS channel is used by financial institutions in both a ‘push’ and ‘pull’ system.  The most common is push in which the customer signs up for triggered alerts from their bank; these SMS alerts can be sent when a transaction exceeds a pre-set threshold or if a payment appears suspicious due to its location.

Alternatively, some financial institutions have set up pull capability in which the customer can manage and actively interact with their money by using ordinary SMS.  This is fairly uncommon for any sophisticated activities because of security concerns (see below) but its appeal lies in its extraordinary broad base of users with access and its widespread familiarity.  Examples of how a customer might use the SMS channel include sending an SMS with the word “Balance” to a specific short-code or phone number; the financial institution will have mapped the customer’s phone number to an account at registration and can send back an SMS with the account’s balance.

Let’s take a look at how SMS fares in 3 important areas for mobile money:

  • Security: Poor.  It is impossible to encrypt an ordinary SMS sent by a customer from their mobile phone to the mobile operator’s base station and therefore the message is vulnerable.  This is fine for basic notifications but makes the ordinary SMS channel inappropriate for transaction services (such as money transfer or payments).
  • User Experience: Neutral. On the positive, SMS is familiar and comfortable by most mobile phone users and its availability is huge.  However, on the negative, using the SMS channel for mobile money services requires remembering the right text and phrasing in order to execute the desired activity; the onus is on the customer to get this correct, so if you misspell “Balance” it may fail to execute.
  • Cost: Varies by country – Neutral to Poor. In many countries (like Kenya) the cost of an on-network SMS has come down to the equivalent of just over $0.01 which is not terrible; in other countries, it can be substantially more (in South Africa it’s over $0.11 and in the US it’s over $0.10 per SMS unless you are a frequent enough user to make a bundle worthwhile).

So despite being ubiquitously available, the ordinary SMS channel is poorly suited for mobile money services.  Next Friday, we will take at look at the USSD channel and see how it fares.

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4 Comments

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4 responses to “Mobile Channel Series: SMS

  1. Bolivar Bravo

    Hi
    With all due respect, I totally disagree with you here. The SMS channel has proven to be highly efficient in South America for mobile money services. Deployments have used pre-registration of users, usage of aliases and even a second factor of authentication to bring more security to it. No confidential information is sent in a SMS, and as every technology, it has its challenges; nevertheless, your conclusions are not applicable to all implementations.

    In Colombia, for example, Mobile Banking services have been working for about 4 years and there has been zero incidents of fraud, and it has enabled the possibility of other channels to work; for example Blackberry, iPhone and other technologies basing on the same concepts.

    Thanks for reading,
    Bolivar

    • Hi Bolivar,

      Thanks for the comment and I’m always pleased to learn more about other deployments.

      When you say a second factor of authentication, what do you mean exactly? Is there a PIN involved? Do you have any materials or schematics of how the system works?

      I’m surprised that there is zero confidential information sent by SMS; what information is sent by SMS then?

      In any case, while the SMS channel has been efficient for you and your overall deployments have been fraud-free, I don’t think that you are saying the SMS channel is safe. It’s just that you have found a way to avoid sending confidential information over an unsafe channel while still having an effective mobile money system.

      Thanks again and look forward to learning more,
      Matt

  2. Pingback: Mobile Channel Series: USSD | Mobile Money Exchange

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