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.