The FCA and Mobile Financial Services

The Financial Conduct Authority is going to great lengths to deepen its understanding of the retail financial services market. Project Innovate is a case in point, as is the recent (interim) report on how consumers use mobile devices. However, both initiatives underscore the need for non-banks to engage with the FCA far more than they have to date, and to provide a lot more information about how, why and when consumers need or want to use financial services.

It's a bit unfortunate that the FCA has used 'mobile banking' to describe consumers' mobile activities in the financial services context. We need to get away from such bank-centric language. After all, the FCA points out that consumers don't just use mobile devices to check the balance of a bank account, a bank statement or access internet banking web pages. There are many mobile services offered by payment institutions and electronic money institutions, not to mention the providers of credit, investment and insurance services. Each type of service provider is bound by different FCA-supervised rules and regulations when dealing with us, so it's also a little ironic that the FCA is concerned that "consumers may be unclear about their rights and obligations when using mobile banking products and services".

But terminology is a red herring. The starting should be to consider what activities consumers are engaged in when they need to rely on financial services - and whether the required services are sufficiently accessible or useful.

Here the banks' mobile offerings provide a helpful illustration of how financial services can be misaligned with consumer behaviour. The FCA found that consumers are using mobile devices to access major banks' systems far more frequently than the banks estimated they would (50 times more often than visiting a branch and 20 times more often than a web site). This has caused capacity issues and outages in bank IT systems, which the FCA is not happy with. But the FCA doesn't seem to have considered that this over-reliance on mobile channels might also demonstrate how awkward it is for consumers to use bank services through other channels. 

In fact I doubt whether we really need or want to contact our financial service providers' mobile sites at all, other than in an emergency. Nobody, except banks, engages in "banking". We may use a bank's services, but only in the context of a much wider activity, such as buying a house or a birthday present on the way to a party. "Banking" is what banks think consumers are doing, because banks only view the world through the lens of their own products and not consumers' day-to-day activities.

The FCA needs to avoid falling into the same trap. I mean, there are plenty of great examples of seamless online customer experiences out there which the FCA could use as a benchmark.

Indeed, what this report emphasises most is the need for non-banks to engage far more with the FCA, particularly in the context of Project Innovate.

Alas, it may be too late for them to help shape the second Payment Services Directive...

Steampunk Mobile

The arrival of mass personal digital communications in previously remote areas might teach us a lot about enabling people everywhere to gain greater control of their lives - particularly as those scenarios have remained free of the top-down institutional constraints imposed by many of our retail brands to solve their own problems rather than ours.

You don't need to be literate or numerate in the true sense to communicate in the mobile world. Even the more literate amongst us need help in deciphering symbols used by young people when text messaging. So, while mobile phone-based literacy and learning programmes are important in themselves, it is more important to understand how mobile phones enable people of low literacy everywhere to seize control of their lives.

For example, a great Babbage post on how mobile numbers are identities for many in India provides a critical insight into how people left behind by government and other institutions actually use the latest technology - as do M-Pesa and the technology hubs used by Africa's 'cheetah generation'. And EduTech cites a valuable insight that emerged from a study by Matt Kam for MILLEE using gaming apps to enable Indian children to acquire literacy:

"The use of educational games on the mobile phones facilitated new ties between participants across gender, caste and village boundaries, and the new social relationships that developed transferred to real world, non-gaming settings."

In other words, certain online games may improve social mobility.

Meanwhile, Adaptive Path has studied the mobile phone usability and design needs of people in rural India. Those people cited the following features and functionality as the most important to them:

- Calling
- Texting (using voice to text or with assistance)
- Music
- Camera*
- Microphone
- Speaker
- Airtime
- Battery Level
*While most research participants did not have mobile phones with cameras, this was cited as a desired feature.

Saving contact information was the single most challenging task for non-literate users to perform.

To remove the complexity of entering and saving data, Adaptive Design borrowed from industrial tracking processes to suggest enabling users to photograph a QR Code or 'MobilGlyph' that contains the unique data required. Of course, the process of producing accurate and reliable MobilGlyphs would also need to be efficiently administered.

Adaptive Design's approach to the challenge of handset design is even more intriguing. They found "there is a strong culture of reselling, re-purposing, cobbling, and repair throughout India and this is especially true in rural villages". So Adaptive Design turned to Steampunk which, they point out, "...reflects the design and craftsmanship of the Victorian era...

"Similar to the exposed inner workings of a motorcycle, works of art created to reflect the Steampunk genre possess a look of craftsmanship and cobbling. It’s an aesthetic that invites the touch of the human hand and it encourages engagement and fosters curiosity and play.

[This of course echoes with the 'architecture of participation' at the heart of Web 2.0 trend.]

Taking cues from Steampunk’s “hack-able” aesthetic, we made the phone look like an object that can be opened and tinkered with by exaggerating seams and making the mechanisms to open the device obvious... vibrant sound is an important part of Indian culture and ... We chose to emphasize these elements by giving them a larger portion of the phone’s physical real estate .... Gauges are commonly used to convey quantitative information on cars and motorcycles in rural India. We echoed these familiar interface elements to communicate battery level and airtime minutes. Finally, we drastically reduced the feature set of the phone, allowing us to assign each function a single button. We borrowed “stop” and “start” buttons from stereos and placed them on the side of the device. Taking cues from a radio dial, our Steampunk phone contains a scroll wheel — creating a strong and intuitive relationship between the physical interface element, the gesture, and the UI inside the screen."

It seems to me that this design makes the device simple and usable without dumbing it down. As Adaptive Design point out:

"Empathic design is not about forcing conventions and models on users that feel foreign, it’s about empowering users with technology that feels appropriate and familiar. Designers and user experience professionals have a responsibility to avoid viewing illiteracy as a deficiency, but as an important design consideration for a large portion of the world."

This is consistent with the need for investment rather than donations in developing regions, "characterized by mutual dignity and respect", as Kiva puts it.

By taking that approach, we stand to learn how to meet similar challenges on our own doorsteps.

Images from Adaptive Path

Does Investment Beat Donations In Sub-Sahara Africa?

While we're on the lookout for new markets, reports on why Asia has taken a knock due to recent problems in the Eurozone reveal that China will also be competing strongly elsewhere in order to reduce its reliance on Europe. MF Global research director Nicholas Smith suggests:

"China is significantly more exposed to Europe than the US, and is also Japan’s biggest trade partner... when the euro plunged, one of the hardest-hit stock markets was China (“because China now sells around a quarter more to Europe than to the US, and is highly sensitive to a slowdown in exports”). [So, for Asia, a week Euro means]:

• Europe will buy less from Japanese companies.
• European companies, particularly German ones, will be made incomparably stronger and more competitive by the weak currency.
• Europe will buy less from China, which will damage Chinese growth and hence depress the prices of commodities, which “anyway tend to follow a similar dynamic to the euro exchange rate”.

One area of Chinese activity in the spotlight recently is sub-Saharan Africa. It's a sign of China's special focus on the region that 2006 was China's "Year of Africa". The web site devoted to Sino-African relations lists extensive contacts between the regions, and China recently announced its biggest deal in South Africa (to build a cement plant) since investing $5.5bn in Standard Bank in 2007.

Western government hand-wringing about the ugly track record of some African nations seems to hide a reluctance to engage effectively in the region generally, and perhaps a desire to undermine the success of more adroit competitors. The blurb for Patrick Bond's book "Looting Africa: The Economics of Exploitation" suggests why:

"Despite the rhetoric, the people of Sub-Saharan Africa are become poorer. From Tony Blair's Africa Commission, the G7 finance ministers' debt relief, the Live 8 concerts, the Make Poverty History campaign and the G8 Gleneagles promises, to the United Nations 2005 summit and the Hong Kong WTO meeting, Africa's gains have been mainly limited to public relations. The central problems remain exploitative debt and financial relationships with the North, phantom aid, unfair trade, distorted investment and the continent's brain/skills drain. Moreover, capitalism in most African countries has witnessed the emergence of excessively powerful ruling elites with incomes derived from financial-parasitical accumulation. Without overstressing the "mistakes" of such elites, this book contextualises Africa's wealth outflow within a stagnant but volatile world economy."

Other commentary on the significant development aid donors Germany, the UK and France is also less than flattering (though it's worth pointing out that France Telecom is a major investor in one of Africa's undersea cable projects, while Alcatel-Lucent is the lead contractor on another). The US approach to the sub-Sahara region has also needed realignment:

"With the collapse of the Soviet Union leaving both an economic and power vacuum, Bill Clinton began a program of engagement with Sub-Saharan Africa’s economic powers like Nigeria and in encouraging passage the Congress of the Africa Growth and Opportunity Act which reduced trade barriers between the U.S. several African countries... George W. Bush followed on Clinton’s achievements... and is widely regarded as the U.S. President who did most for the advancement of the African people by bringing American money to bear on myriad social and health problems... [including] the goal of eliminating malaria and offering AIDS treatment to many who need it with the backing of $20 billion in U.S. aid grants."

Against this background, it's worth carefully considering the criticism that:

"Chinese companies are the second-most likely (after India) to use payola abroad, according to Transparency International's Bribe Payers Index. Similarly, a World Bank survey of 68 countries last year found that the sub-Sahara leads in the "percentage of firms expected to give gifts" to secure government contracts (43%). That meeting of the minds has made for hyperefficient deal making in Africa."

What does this really mean? Are 'bribe payers' to blame for ineffective donor programmes? Is the Bribe Payers Index really "improving the lives of millions" as is claimed? The criticisms of these league tables suggest they are not helpful in teaching us anything about the presence or effect of real corruption.

In fact, Deborah Brautigam, author of "Dragon's Gift: The Real Story of China in Africa" suggests the reality of Chinese investment in sub-Sahara Africa is rather more effective for the local people than Western aid programmes:

"As a donor, China’s way has several advantages... The focus on turnkey infrastructure projects is far simpler and doesn’t overstretch the weak capacity of many African governments faced with multiple meetings, quarterly reports, workshops, and so on. Their experts don’t cost much. In addition, their emphasis on local ownership is genuine, even if it leads to projects like a new government office building, a sports stadium, or a conference center. They understand something very fundamental about state-building — something that Pierre L’Enfant understood in 1791 when he teamed up with George Washington in newly independent America: new states need to build buildings and dignity, not simply strive to end poverty.

The Chinese avoid local embezzlement and corruption by very rarely transferring any cash to African governments. There is almost no budget support, no adjustment or policy loans. Aid is disbursed directly to Chinese companies who do the projects. The resource-backed infrastructure loans work the same way. Of course those companies themselves might give kickbacks, as we’ve seen in Namibia..."

But that is not to say such alleged activity goes unchallenged, as reports of the Namibian case reveal. Nor does Brautigam gloss over China's role in the Sudan, which has attracted intense criticism. However, she points out:

"First, China’s role in Sudan has changed over the past several years. They were crucial in getting Khartoum to accept a joint UN/African Union peacekeeping force (one, by the way, authorized by the UN, but not funded as generously as originally pledged). They allowed al-Bashir’s case to be sent to the International Criminal Court for prosecution for war crimes (as Security Council members, they could have vetoed this). And as noted both by President Bush’s special envoy, Andrew Natsios, and President Obama’s special envoy, Scott Gration, Beijing is now working together with the US government and other major powers in developing joint strategies to bring the Sudanese government and the rebels to the negotiating table. As China-watcher Erica Downs put it, the West and China are now coordinating their “good cop” and “bad cop” roles in trying to end the crisis.

Second, there is no doubt that Beijing could have moved much sooner, and much more effectively, to become part of the solution. But they never held all the keys to solving the Darfur tragedy. In making a tactical decision to focus on China as the lynch pin to solving Darfur’s crisis, and using the 2008 Olympics as the pressure point, activists let the other major powers off the hook. To end the violence, Darfur needs a peace agreement, and that requires all the parties to participate in negotiations. The West has not yet been able to get all the major rebel groups to show up to start talking."

So, it's clear that Africa rewards investment in education and infrastructure, even if it comes in the form of work done by foreign companies directly rather than planeloads of cash. And it's also clear there is no substitute for effective international co-ordination to call recalcitrant regimes to account over human rights. That can't be achieved by a single nation - even a 'superpower', as we've seen elsewhere.

Yet I wonder whether a bottom-up approach to investment in sub-Sahara Africa might also be far more effective than top-down donations? Apart from the provision of basic infrastructure and health services, supporting the rise of the Cheetah Generation and facilitators like M-Pesa and the technology hubs may do more to enable individuals to seize control of their own economic destiny than merely benevolent giving. Kiva, the microfinance provider, is a great example of this bottom-up approach:

"Kiva promotes:

•Dignity: Kiva encourages partnership relationships as opposed to benefactor relationships. Partnership relationships are characterized by mutual dignity and respect.

•Accountability: Loans encourage more accountability than donations where repayment is not expected.

•Transparency: The Kiva website is an open platform where communication can flow freely around the world.

As of November 2009, Kiva has facilitated over $100 million in loans."

Image from Run For Africa

The Cheetah Generation: Will Facilitators Grow Faster In Africa?

Recent problems in the Eurozone, coupled with the shock announcement of the UK's worsening trade deficit have heightened the need to find new markets. So perhaps it's a great time to recognise the step-change in technology adoption amongst sub-Saharan Africa's "cheetah generation".

Africa represents a vast array of people and socio-economics, as Hans Rosling brilliantly illustrated at TED, including a communications divide. As at 2006, "Egypt had 11 times the fixed line penetration of Nigeria. While sub-Saharan Africa (excluding South Africa), had an average teledensity of one percent, North Africa (Algeria, Egypt, Mauritania, Morocco, Tunisia) had a comparable average of eleven percent. Almost three quarters of the continent’s fixed lines were found in just 6 of the continent’s 55 countries."

Enter: the mobile phone:

As TMS Ruge explains in his "stirring article on Africa's booming tech space":

"By the end of 2011, the entire continent of Africa will be connected to no fewer than nine undersea broadband cable initiatives. Africa will have access to over 17 terabytes of designed broadband capacity. If mainframes and punchcards served as the innovation catapult for Silicon Valley’s cheetah generation, then connectivity is poised to be Africa’s innovation catalyst. Since mobiles first went mainstream in Africa at the turn of the century, mobile penetration has exploded to approximately 450 million subscribers...

Africa’s growing list of technology hubs are the cheetah generation’s digital proving grounds Appfrica Labs opened its doors in Uganda in 2008. Since then, three additional tech hubs have opened around the continent. Limbe Labs Ventures Cameroon and Banta Labs in Senegal launched in 2009. Nairobi now has its very own centre of excellence in the iHub innovation center...

Keep a very close eye on Africa’s young population, that 450 million number growing up with a mobile phone in their back pocket."

Vodafone has clearly been doing just that, backing M-Pesa, the successful person-to-person payment system. The explosive growth of that business also suggests that Africans may be more willing to rapidly embrace disruptive finance models than Westerners. No doubt this is partly because they've been more poorly served by banking and telecommunications to date (though 'mobile banking' has also grown rapidly in South Africa). But is it also because African communities share a greater sense of personal trust than in the West?

At any rate, it seems the trend toward the growth of facilitators at the expense of institutions is set to grow fast in sub-Sahara Africa, at least on mobile networks.

Image from Run For Africa

Sending Money Home More Easily

Hardly a month of the 21st century has passed without some breathless announcement of soaring growth projections in the mobile space.

Two of the more compelling financial use-cases for mobile phones are remittance (domestic and cross-border) and retail purchase. Everything else is nice-to-have if your phone will do either of those things.

Some would add "mobile banking" as a primary use-case, but it only seems to involve accessing the same old banking services via a different device/network. That's about as compelling as filling your socks with custard before putting them on each morning. You may as well use telephone banking. At any rate, "banking" isn't really part of any other activity we engage in, unlike "sending money home" or "shopping". "Banking" is an admin task, like sorting your paper clips or arranging your pens in order of length. Investing is much more fun, but doesn't seem to be sufficiently frequent to design mobile apps around it.

Of course, the retail use-case is fascinating, but it has to be so tightly integrated with the overall product location and purchasing experience that it's almost impossible to talk about except on a retailer by retailer basis.

So that leaves remittance as the use-case with general significance. I've followed it since 1999, when I left the comfort of a City law firm to join the board of earthport plc. I left in June 2001, 5 months after it floated on AIM, by which time the dotcom bust had reduced the pace of e-commerce integration efforts to a crawl and it didn't need an inhouse legal team. But it's a tribute to human nature that subsequent management teams have been able to keep earthport alive to take advantage of the current wave of development.

To give you an idea of why persistence is worthwhile, the GSMA has concluded that the remittance market in 2006 comprised some 200 million migrant workers in EU, US, UAE etc, who each sent home US$2k-5k a year in $200 increments to about 800m recipients. Some 32 countries accounted for only $100bn of an estimated $270bn of traceable funds (add to that about $185bn non-traceable). And that market was served mainly by Banks, post offices, niche MSBs (55%), Western Union (25%), Eurogiro (11%), MoneyGram(6%) and Vigo (3%).

But migrant workers queue up, debit card or cash in hand, to pay giant fees to send money home.

I'll spare you a discussion of the hype and plight of the 30+ providers out there, and merely point to three news items that suggest real progress towards more useful remittance services:

• Over 5 million Kenyans have infuriated the banking establishment in Kenya by signing up for M-PESA for USD 765m in local remittances.
  


• In January, earthport, an e-wallet payment service provider, saw the expansion of its relationship with Standard Chartered globally.
  


• On 12 March, Luup, an e-wallet payment service provider, announced a relationship with Deutsche Bank for Europe, Middle East and Asia.
  

Of course, several years back, the GSMA also allied itself with Western Union "to ensure faster development of Mobile Wallets suitable for implementation by Mobile Network Operators. ... initially targeting 30-40 Mobile Network Operators in markets where there is a high demand for remittances services to become early adopters of mobile wallets.” Indeed, I took the picture for this post from the announcement of Western Union's deal with Orascom, an emerging markets telco, in October 2008.

This news flow reveals that the incumbents in the remittance market have finally admitted they need new payment processing platforms to service the market effectively. And (alas, too late for my lapsed earthport options) m-wallets, or server-based solutions are the weapons of choice, rather than device-based solutions. The announcements also underline the importance of having a trusted local brand at each end of the remittance. In fact, it's easy to see that the trust level may be more important at the recipient end - where users may be less confident with technology. Finally, both ends of the remittance are highly fragmented and often based remotely, making the mobile phone the ideal touch point for payer and payee.

Hopefully we'll see M-PESA's "infuriating" success repeated by others across borders before too long.