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Mobile payment in Asia: regulatory changes could stimulate this fragmented market

The appetite for mobile payment services in Asian markets is not in doubt – neither is the scale of the opportunity.

Mobile payments

Much of the focus at October's Mobile Banking and Payments for Emerging Asia Summit was on why mobile payment services are still not living up to the expectations of many in the industry. Seven years after the launch of GCash in the Philippines and five years after M-Pesa in Kenya, about 127 mobile money services are available worldwide, but few of these have a significant active user base and handle large volumes of money. More than 29 services are functioning in Asia, and multiple launches are planned for the coming year.1

It may not be possible, or even desirable, to replicate M-Pesa's success

M-Pesa continues to be the most-cited example of a successful model. However, Kenya was unusual in that it provided an ideal environment for a mobile money service, thanks to the following key market conditions and external events:

  • highly permissive regulation of financial and mobile services
  • Safaricom's very high market share (about 75% of mobile subscribers at the time of launch), which enabled it to achieve significant scale without interoperability
  • major investment (of more than USD10 million) in both the platform and the acquisition of the subscriber base (Safaricom paid USD1 to agents for each added subscriber to the service
  • acquisition of a large network of agents
  • significant marketing focus and investment (apparently, it has become common to describe a specific shade of green as 'M-Pesa green')
  • post-election violence in 2008, leading to a temporary, but significant closure of many bank branches.

It is not possible to recreate all of these circumstances in Asian markets, and in some cases there would be no wish to; however, changes to regulation will help all the members of the mobile payment value chain.

Regulatory action can help to stimulate growth

Regulation of payments and other financial services varies almost in totality between Asian markets. In Indonesia, mobile operators may provide financial services, but are required to hold a difficult-to-obtain remittance licence if they are to provide the 'cash-out' service that is vital to a population that uses cash for most of its transactions.

A risk-based approach to regulation was favoured by several speakers at the conference. Cash is perhaps the least-favourable of all payment options from this perspective because it is anonymous, untraceable and can easily be both damaged, forged and transported across borders. The strict 'know your customer' (KYC) rules employed in some markets place a prohibitive cost on providers of a service that will ultimately reduce the risk profile of a country by decreasing the amount of cash used. Among the solutions favoured was a tiered approach to KYC, where small amounts of money may be paid and transferred with only minimal formal identification provided. Such an approach has already been rolled out in Mexico, where providers placed a limit of USD24 per day on transactions before requiring increased identification.

Interoperability of payment systems was perhaps the most important regulatory question raised at the conference. Presenters cited two examples to illustrate the impact of interoperability on service take-up. Usage of SMS services in the UK soared following the introduction of interoperability in 1999 – two years after the service was first launched. A 70-fold increase in messages per month was reported by 2002. A similar example was cited for credit card use, based on statistics from the USA. The growth of credit card services mirrored that of mobile payment, whereby an initial rapid deployment slowed in the face of low usage. This was followed by an exponential growth immediately after interoperability was introduced.

Regulatory enforcement of interoperability may stimulate the market, but it remains a risk because the business model is highly market-specific and still nascent in most countries. Regulating too heavily too quickly may hinder competition and discourage investment.

The appetite for mobile payment services in Asian markets is not in doubt – neither is the scale of the opportunity. In our recent survey of connected consumers in Asia–Pacific, 65% of consumers who used their phones for non-voice services claimed to use mobile banking, 51% used mobile payments and 47% used mobile commerce services (see Figure 1).

Figure 1: Usage of mobile money services by respondents who used their phones for non-mobile services, by handset type, Emerging Asia–Pacific [Source: Analysys Mason, 2012]1

Figure 1: Usage of mobile money services by respondents who used their phones for non-mobile services, by handset type, Emerging Asia–Pacific [Source: Analysys Mason, 2012]

1  Question: “Which of the following services or devices do you currently use on a regular basis on a mobile phone (at least once within the past 3 months)?”; n = 2703.

Regulators can consider the following actions to help stimulate usage.

  • Consider the needs of the market in question – Asia is not Kenya, and markets in the region vary considerably. There is a large number of potential business models for mobile payment services, which may be led by either banks or operators, and it will depend on the market as to which is more suitable. Allowing players across the value chain to participate fully will stimulate innovation and the emergence of the most-suitable model.·
  • Base regulation on risk – As an alternative to cash, mobile payment services carry less risk with even a 'light-touch' approach to licensing and KYC requirements. Regulation that focuses on reducing risk does not need to increase restrictions on providers and users of the service – it could substantially reduce them.·
  • Support, but do not mandate interoperability – Interoperable services will be necessary if payment via the handset is to become commonplace, and regulators should prepare to play a role in this. However, action at an early stage – particularly if it comes well before any one service has achieved SMP – could inhibit competition and innovation.·
  • Regulate your own – Clear demarcations of responsibility should be made between financial service and telecoms regulators. Financial service regulators are significantly better positioned to handle payment regulations, but complexities will arise when, for example, considering how cross-network traffic management affects responsibility for the consumer.

1 GSM Association (London, UK, 2012), MMU deployment tracker. Available at