Interoperability: An Alternative to Market Fragmentation

Disruptive innovations have repeatedly led to fragmentation and incompatibility in industries and markets until a broad and long-term solution emerges that puts customers first.

In the 1887 utopian novel Looking Backward by Edward Bellamy, the term ‘credit card’ is used a total 11 times. By the turn of the century, a disruptive new way of thinking about credit led to the introduction of dozens of new ‘charge coins’ a metal or celluloid strip with a merchants name and logo that a customer with a line of credit could carry safely in a pocket or on a key chain to verify his identity and make purchases. Charge coins were introduced in celluloid, copper, aluminum, steel and many other materials, and had wildly different designs, sizes, charge account numbers, and counterfeiting success. It wasn’t until the rectangular Chargea-Plate was offered and could be interoperable with all merchants and systems in 1928 that the new credit market finally began to consolidate around a single, familiar payment platform, a direct precursor to the Diners Club card in 1950 and our interoperable card platforms today.

We can learn an important lesson from history: Entrepreneurs and early market entrants focus on solving a specific immediate problem vs. laying the foundation for longer-term usage and growth.  Understanding this, it is perhaps not surprising that the vast majority of mobile money initiatives around the world are not interoperable.  In this post, we focus on interoperability as a key ingredient for driving the next generation of mobile money growth.


Strong Mobile Money Interest, Narrow Usage Thus Far

Mobile money has led to significant increases in financial inclusion, but the 100+ million people who use mobile money each month use it in a somewhat limited manner.  Almost 90% of all mobile money transactions are for airtime top-ups of mobile minutes and for domestic P2P transfers. A Reuters piece entitled, “For the ‘unbanked,’ mobile money still has some way to go,” states:  “if you take out airtime, you have a true view of mobile money, and it is not a good story more than a decade on.” Late last year, consulting firm, Ernst & Young highlighted the critical need for interoperability when they wrote: “Interoperability can bring many benefits, helping platforms and ecosystem members to achieve reduced costs, greater customer value through enhanced functionality and convenience, and ultimately increased choice for end customers.”

In an analysis by The Guardian of mobile money solutions around the world is this: “Outside of Tanzania, Indonesia and Rwanda, most subscribers can only send to people on the same mobile network, and can only cash in and out at agents belonging to that network. In order to reach the ubiquity that Safaricom has achieved in Kenya, regulators need to encourage mobile money interoperability.”


Driving the Next Wave of Mobile Money Growth

As Quisk has written before, interoperability which is designed into a mobile money solution from the start will enable positive network effects to be reached sooner and, hence, more value for consumers and faster path to ROI for investors.

Payments UK report describes that at the highest level, world-class payments systems must meet the following needs:

    • Consumer:  “I can pay (or receive payments from) who I want, when I want and where I want”
    • Small businesses:  “Payment options that suit the way I do business”
    • Corporates and government:  “Payment services that allow my organization to be more cost-effective”
    • Financial institutions:  “I can access and process payments in a way that allows my institution to compete and cost-effectively innovate”

We believe interoperability is inevitable for mobile money—initially within a city, province or state, finally across a country, and then a broad region.  Prudent central bank leadership and effective policies should facilitate this inevitability and this progress is already being made.

Further, we believe visionary organizations should invest in only in mobile money platforms that facilitate interoperability, or availible to the widest possible range of customers, in the widest array of locations and transaction types. Not only is this an important prerequisite for the next-generation of mobile money, it will enable all ecosystem participants to realize greater long-term benefits.