Mobile Channel Series: USSD

An Example of USSD Flow

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.  The first installment looked at the ordinary SMS channel; this one focuses on USSD.

USSD is both powerful and deeply underappreciated.  Unstructured Supplementary Service Data is exactly that in most countries – it’s very much unstructured and often a completely forgotten, supplementary channel.  In countries where GPRS and 3G data reign supreme, that may make sense – but in developing countries, USSD is an incredibly practical way to exchange back-and-forth information between two parties.

One of the major differences between USSD and SMS is that USSD is session-based whereas SMS is transaction-based.  When a USSD session is initiated, several exchanges of data can be sent and received in a “call and response” sequence.  This opens up the possibility for conditional and dynamic exchanges of information.  It’s easiest to describe an example of a common exchange that occurs on Equity’s USSD-based Eazzy 24/7:

Generic Steps

Equity Example Steps

End user initiates USSD session by typing in a 3 digit short-code trigger, generally in the format *XXX# Equity customer initiates Eazzy 24/7 by typing in *247#
Based on the trigger entered, information is returned to the end user prompting additional data entry by the user Equity sends back a prompt for the customer to enter in their Eazzy 24/7 PIN to authenticate the user
End user enters characters (numbers or text) based on the prompt and desired action Equity customer types in their Eazzy 24/7 PIN
Based on the data entered, the order is executed and information is returned to the end user prompting additional data entry by the user Equity sends back the Eazzy 24/7 menu to the customer with several available prompts – including balance inquiry, airtime top-up, etc.
End user enters characters (numbers or text) based on the prompt and desired action Equity customer types in the number “2” in order to execute a “Balance Inquiry”
Based on the data entered, the order is executed and information is returned to the end user prompting additional data entry by the user Equity checks the customers balance and returns to the user a message showing the customer their account balance.  There is then the option to return to the main menu.

Because of the speed with which data is exchanged, many such activities can be achieved in a single USSD session.  This is a vast improvement over SMS which would require numerous messages while also being more difficult to follow in a coherent way.

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

  • Security: Neutral to Poor (2/5).  USSD data is not encrypted; it is sent in plaintext from the phone to the network meaning that it could be intercepted and read.  However, I’ve given it a slightly better mark than SMS due to its temporary nature – once a USSD session is terminated, none of the data remains stored on the phone.  SMS data, on the other hand, remains stored on the phone and could be vulnerable if the phone is stolen.
  • User Experience: Neutral (3/5).  The speed and responsiveness of USSD make it a better customer experience than SMS for complex or multi-exchange activities.  However, on very low end phones the menu can appear messy and the navigation is unintuitive.
  • Cost: Neutral to Poor (2/5). Unfortunately there is not the same kind of competition between carriers on USSD that there is on GPRS data so USSD sessions are fairly expensive, especially for the poor.  In Kenya, USSD charges are around the equivalent of $0.06.  This isn’t terrible when compared with multiple SMSes given the amount of information exchanged but it is much more expensive than it would cost to do a similar exchange of information over the GPRS data channel.  Hopefully mobile network operators (MNOs) will realize that lowering the cost of USSD will encourage greater take-up and affinity; since the USSD has miniscule marginal cost, there is room for reduction.  And when mobile money services delivered over USSD are compared to MNO-led services like M-Pesa where the communication costs are free – USSD is very expensive.

For financial institutions, USSD is probably the most viable channel for offering mobile financial services in developing countries due to its ubiquitous availability on low-end phones as well as its ability to facilitate multiple exchanges of information.  However, it’s a sub-optimal customer experience especially compared to the STK channel on low end phones and downloaded apps on smartphones.  And it’s expensive compared to GPRS data that can be achieved with internet-enabled phones.  For users who want to go beyond MNO money transfer services (like M-Pesa) to more sophisticated financial services like loans and insurance, this is a case where the people who need those financial services the most (the under- and un-banked) suffer.



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Platform Spotlight: Obopay

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  We’ve already had a look at Fundamo and Square; this week, we take a look at Obopay, one of the leaders in providing mobile money platforms especially for mobile operators (MNOs).

Overview: Obopay is based in the United States and was founded in 2005 by Carol Realini after she saw people carrying “bags of devalued cash” during a volunteering stint in Africa.  Like Fundamo, Obopay is a mobile money solution platform primarily targeted at MNOs but also appropriate for some banks.  Obopay provides back-end technology as well as customer-facing applications that enable for a full-range mobile money product (see below for features).  Obopay currently operates in 4 countries: India, Kenya, Senegal and the US.

Key Features: Obopay’s Mobile Wallet platform enables the full range of mobile money basics, including:

  • P2P transfers (local and international)
  • P2M merchant payments
  • Airtime purchases
  • Bill payments
  • Balance inquiries
  • Card and PIN management

Notable Clients/Partnerships: Because Obopay’s is a partner-led model, it has significant partnerships in each of its 4 deployment locations.  In India, Obopay has partnered with Nokia and an Indian bank called Yes on a combined solution called Nokia Money.  It’s a pilot initiative for Nokia and is an attempt for the Finnish phone maker to make money from services in addition to its traditional hardware business.  The Nokia Money application is pre-loaded on new phones and can be installed on existing phones through Nokia’s distribution network; it provides a good customer experience for low-end phones given it’s an integrated and native application.

In Kenya, Obopay partnered with an MNO called Yu (which is owned by the Indian conglomerate Essar) to create a product called yuCash[1].  Given the popularity of mobile money in Kenya, this was an important opportunity for Obopay to demonstrate its technology and solution; unfortunately for Obopay, Yu is the smallest MNO in Kenya and is struggling to survive.  In fact, there are reports that Essar is trying to sell Yu.  It’s a tough situation for Obopay and one that will not improve unless Yu unexpectedly gains market share or Obopay can strike deals to interoperate with both other MNOs and additional banks.

In the US, Obopay has many partners.  With STAR, Obopay enables instant P2P fund transfers regardless of the banks involved as long as the accounts are STAR debit accounts.  Additional partners have included MasterCard, Verizon, NYCE and FIS Global.  All of these partnerships make for a compelling story – but it’s unclear if any of the initiatives have gained any traction.  Despite much searching, I haven’t been able to find any evidence of substantial take-up or any usage numbers.

In Senegal, Obopay is working with Societe Generale on a product called Yoban’tel to offer its mobile money solution.

Competitors: Obopay competes with other mobile money technology platforms, chiefly Fundamo which was recently purchased by Visa.  Banks are also natural competition for Obopay to the extent that they recognize the opportunity of mobile-based financial services.  And if the card associations (chiefly Visa and MasterCard) continue to move in the direction of mobile based payments and transfers, they will be prime competition.

Future: In the short to medium term, Obopay must prioritize customer adoption in all of their major partnership deployments.  Prior to being acquired, Fundamo had strong success with MTN – demonstrating that their solution worked in the field and that it could scale.  Obopay needs to find its big wins to demonstrate the same.

In the long term, just like I said with Fundamo, I believe that MNOs will lose their closed-loop and proprietary grip on mobile wallets.  Before that happens, Obopay needs to figure out its role in the mobile payments ecosystem – either selling a customer-facing solution to financial institutions or providing an interoperable back-end system for both smaller banks and major MNOs.  Time will tell if Obopay is able to make the transition and gain serious usage.

[1] yuCash and Equity Bank have created a link enabling transfer of funds as well as withdrawal from yuCash via Equity’s ATMs.

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Platform Spotlight: Square

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  Last week, we started by looking at Fundamo; this week, we take a look at Square, a much-hyped mobile-based credit card processing platform focused on the US.

Overview: Square is perhaps most famous for being founded by Jack Dorsey, also the founder of Twitter.  But Square’s momentum and success is noteworthy on its own.  Square was perhaps the first solution that made use of the iPhone’s headphone jack to swipe and charge a credit card; it also enabled people without merchant accounts to accept credit card payments.  Since those two innovations, Square has been on a roll and now processes over $3 million in transactions per day.  It’s a private company based in San Francisco, has about 100 employees and recently raised funding at a reported $1 billion valuation.

Square enables everyone with a smartphone to take credit card payments.  While in principle this could include every person selling something on Craigslist, its sweet spot is small businesses.  Small businesses have a sizeable amount of transactions but paying for a traditional POS device and managing a full-fledged merchant account are often beyond their reach.  With Square, there’s no need to bother with either a POS device or a merchant account.

Key Features:

  • Universal credit card acceptance: Square accepts Visa, MasterCard, American Express, and Discover.  Credit card information can either be entered by swiping the card through the Square dongle or by manual entry (a “card not-present” transaction).
  • Inventory tracking: Square’s recently launched “Square register” app for the iPad enables merchants to enter inventory information.  This makes transaction information easier to enter and gives the merchant great insights into their business.
  • Consumer application: Square’s recently launched “Square card case” app enables consumers to establish a link with a particular merchant that stores their payment method for quicker paying as well as keeping an electronic version of their receipts.
  • Secure payment processing: Square has Level 1 PCI-DSS compliance.

Notable Clients/Partnerships: Square’s highest profile partner and investor has been Visa[1].  In April, 2011 Square announced that Visa had made a strategic investment and that the two companies would be collaborating to improve the Square experience, especially for Visa cards.

While some may think Visa and Square are competitors in the mobile payments space, the investment/partnership makes a lot of sense for both parties.  For Square, Visa brings credibility; for Visa, Square is building and pushing a solution that enables more people to use Visa cards.

Competitors: Long term, Square’s competition is principally makers of POS devices.  VeriFone, who has partnered with Google to push NFC, and Ingenico are two of the biggest.  Intuit and Rev also make a smartphone-enabled credit card reader.  As a maker of the popular accounting software Quickbooks, Intuit can offer merchants an integrated solution to manage their business while Rev is focused solely on the mobile payments space.

Future: In the short to medium term, Square has a big market for continued growth – COO Keith Rabois estimates that there are 27 million small businesses that cannot accept credit card payments[2] and in developed countries like the US and Western Europe, credit cards and debit cards will remain the dominant form of payment for some time.

As credit card payments shift to mobile-based payments, Square will need to offer technology to support NFC.  How it fits in with Google’s Wallet and competing NFC-based wallets remain to be seen.  Also, from an emerging market perspective, Square’s reliance on smartphones for its customer-side mobile application is limiting for the next 3-5 years.  Finally, moving beyond small merchants to larger merchants will require Square to introduce a POS-like device beyond the iPad.

Long term, Square has a chance to build a merchant solution that eases the transition from credit cards to mobile payments.  If it succeeds in doing so, it will earn a valuable slice of the transaction pie.

[1] The very same Visa that just purchased Fundamo.  Visa is getting very active in this space.

[2] Rabois mentioned this in an interview although I am guessing he got the data from another source.  More here:


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Smart Money: Payer Innovations

This is the first in-depth post in a series on how mobile payments make money smarter.  See the Smart Money Overview for an introduction to the series.

Financial transactions generate a lot of information.  But the payer benefits very little and retains control over virtually none of that payment info.  Credit card companies have a trove of transaction-based data about payers and they use that data in financial modeling as well as selling aggregated forms of it to advertising firms.  But the most information a consumer gets from a financial transaction is a small paper receipt (that will soon be lost or thrown away) and potentially a cryptic line item on the month-end credit card bill (if a credit card was used).

Imagine a world, however, where you as a consumer had full access to your payments and transactions data.  That data would include not only the information about your transaction (how much you paid, the exact items you purchased, the date, time and location of that purchase) but also information about the merchant (name of the company and of the sales associate that served you) and the products you purchased (warranty information, consumer reports, any warnings or notices).  In isolation, these data may not seem like very much but when aggregated they will be incredibly powerful.

Innovations on the payer side might include:

  • Budgeting and mental accounting[1]: Because your phone is with you all the time and it’s able to receive and process payment information in real-time, it will be possible to set up budget alerts that help you stick to a fiscal plan.  Does your monthly budget allow for $150 in restaurant spending?  Your phone could let you know when you’ve hit $100 and only have $50 left; or if you’ve spent more than half in the first week, for example.  There could also be innovative attempts to compensate for the impulse buying that so many find difficult to avoid.  If you’ve set up a savings goal for your next vacation (to New Zealand), the next time you’re considering buying that shiny new toy, your phone shows you a picture of your long-term goal (a beautiful New Zealand sunset).  For more on the psychology of spending, the NY Times has a good article here.
  • Loyalty and rewards: Loyalty and rewards programs are great if you’re really organized.  But if you’re like me, you always lose the half-filled punch card and are left to rue the free ice cream cone that could have been.  If the mobile phone manages your history of purchases for places that you frequent, you will be eating that free ice cream cone as soon as you earn it.  Google’s recently announced Google Wallet includes such capability.
  • Smart recommendations: Because Amazon knows what you’ve bought in the past from Amazon, they’re able to recommend items that might be of interest.  Same with Netflix in terms of recommending movies based on movies that you’ve enjoyed in the past.  That use of past information to provide suggestions will open up whole new experiences and purchases.
  • Trends and analytics: All of your payments information can also generate valuable insights on various aspects of your life.  Examples are numerous but include: 1) gas consumption, mileage, and costs may provide advanced notice of a mechanical problem as well as a more informed car purchase decision in the future; 2) all those purchases at Starbucks may seem small but in aggregate add up to more than enough to justify the purchase of an espresso machine; 3) an established record of staples purchases may help to foresee the need to buy eggs or toilet paper before you actually run out.

These potential innovations are exciting but perhaps nothing compares to the simple shift in access to these data.  Forgot how many hamburger buns you bought for the last BBQ?  You can just look it up.  Can’t remember how much money you’ve donated over the year for tax purposes?  You can just look it up.  And so on.

The amount of data created by financial transactions is stupendous and consumers don’t get much value from that data today.  When that information is digital, stored securely and opened up to innovators, consumers will reap the benefits.

[1] My current job involves trying to help people save more of their money in the bank – so this is an area of particular interest.  One thing that we hear over and over again from customers is that they need more discipline.

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Platform Spotlight: Fundamo

There are several formidable players vying for the mobile money space.  I’ll be examining these players every Monday.  This week, we’ll start by looking at Fundamo, likely the largest mobile money platform targeting mobile network operators (MNOs).

Update: On June 9, Visa announced that they were buying Fundamo for about $110 million in cash.  There has been much coverage of the purchase (here, here, and here) so I will just say that I think it was a very smart purchase by Visa.  Fundamo has expertise in working with mobile operators and a back-end that’s robust enough to work with banks – Visa now has a great platform especially for emerging markets.

Overview:  Fundamo is a private company based out of South Africa and builds mobile financial service products primarily used by MNOs.  Its deployments have focused largely on emerging markets where the MNOs have a strong distribution network and banking services are mostly serving an elite few.  Its mobile wallet and financial services infrastructure provides a full-range mobile money product (see below for features).  Founded in 2000 by Hannes van Rensburg, Fundamo has grown to be a respected leader in the mobile money space.  Van Rensburg has prior experience working in the financial services industry which definitely bolsters Fundamo’s credibility in delivering robust financial solutions.

Key Features: Fundamo’s Mobile Wallet platform enables the full range of mobile money basics, including:

  • P2P transfers (local and international)
  • Airtime purchases
  • Bill payments
  • Balance inquiries
  • Card and PIN management

Notable Clients/Partnerships: Fundamo boasts working in more than 20 countries on over 50 successful deployments.  Their strongest regions of deployment are Africa and Latin America with coverage in India, North America, Middle East and Western Europe as well.

Fundamo’s selection as the mobile platform of choice by MTN is by far the most public and notable deployment.  MTN is a large mobile operator also based out of South Africa with over 140 million subscribers in over 21 countries.  MTN selected Fundamo’s Mobile Wallet product to serve as the backbone for MTN Mobile Money in a deal worth ~$10 million.

Competitors: As a provider of mobile money services to MNOs, Fundamo’s main competition is Obopay which will be covered in a future Platform Spotlight post.  Fundamo also competes with banks and MNOs that attempt to offer their own, in-house mobile financial services platform.  Fundamo (and Obopay) provides compelling value for those banks and MNOs that do not want to endeavor to create their own solution from the ground up.

Future: In the short to medium term, we can expect Fundamo to continue to grow and prosper as MNOs around the world continue to look for a turn-key, white-label mobile money solution.  With M-Pesa’s growth and success as a beacon of hope, MNOs will continue to look to mobile money as a potential value added service that holds up profitability despite competitive pressure in voice sales.  That thirst for an M-Pesa-like financial success will drive MNOs toward mobile money and Fundamo will be one of the leading options they embrace.

In the longer term, as MNOs lose their closed-loop and proprietary grip on mobile wallets, I believe that Fundamo will need to transition into an interoperable mobile payments[1] platform that both MNOs and banks can plug into with merchant aggregation and management as a core competency.  Time will tell if Fundamo can make the jump into mobile payments.  It will be interesting to see the role they choose to play.

[1] By payments here, I mean payments at retail merchants for physical goods such as groceries or clothes.  I distinguish payments as something distinct and separate from P2P transfers.


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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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Smart Money Series: When Payments Become More

Coins from around the world

One of the things that excites me most about the future of mobile payments is the tremendous amount of services and innovation that the new payment platform will unlock, services and innovation that are difficult to fully imagine today.  Take one aspect of mobile payments: the ability to exchange data.

For the entire history of commerce, payments have been static transactions that did not contain or transfer any information beyond the value of the transaction.  Payments have been incredibly stupid.  Whether it was goods exchanged in barter, cowry shells, coins, or more recently paper bills and credit cards, the payee and payment receiver both retained virtually no information about the transaction other than its value.

Mobile payments hold out the potential to radically change that dynamic.  Mobile phones have the ability to store and transmit lots of information embedded within payments.  This information will flow in both directions (from the payer to the merchant and from the merchant to the payer) and the opportunities as well as challenges presented by the onslaught of data will be numerous.

In the course of this series, I will explore these opportunities and challenges in more detail.

For now, let’s look at what that data may include (but are certainly not limited to):

  • Payer-to-Merchant: payee’s personal identification information, payee’s demographic information, geo-location, time of day, and of course the transaction value.
  • Merchant-to-Payer: merchant’s identification information, geo-location, time of day, items purchased, price of each item and total transaction value.

These are the basic building blocks of some incredible innovations.  They are also reason for concern and vigilance in managing privacy and information ownership.  The combination of those two forces is an exciting area to explore further.

Photo Credit: “money” by fdecomite on Flickr


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