Mobile MoneyMobile banking and payment services are big opportunities, yet both require a complex ecosystem to be successful.

Mobile money consists of mobile banking and payment services, two distinctly different types of financial instruments. Their success varies depending in large part on those financial tools already in place in any given region.

For instance, in the United States, mobile financial services are an extension of an established banking service. In a developed market, customers see mobile money services as a convenience. A customer using their iPhone to pay for a latte at Starbucks is a drastically different business model than the customer who makes $2 a day in a country without a banking system. That customer wants a payment service so he can pay his electric bill from a rural village in Africa, without standing in line for two hours. That’s a business model based on necessity.

Swedish research firm Berg Insights projects that the worldwide use of mobile banking and related services is predicted to grow at a compound annual growth rate (CAGR) of 89 percent to reach 913 million users in 2014.

Those kinds of numbers, no matter what continent you’re on, don’t go unnoticed, but they won’t come without a host of regulatory challenges inherent in any financial services. Hannes Van Rensburg, CEO and founder of Fundamo, a company that powers a quarter of mobile money initiatives around the world, says that the challenges surrounding regulation vary greatly from region to region.

“This new thing, which is called mobile money, is real-time, very high velocity, low-value transactions but still massive amounts of money moving at the speed of light…regulators are relatively apprehensive about it,” Van Rensburg says.

He says that the ease with which counterfeiting can be done in the electronic space is of primary concern to regulators, as are money laundering and the funding of criminal activity. However, he notes that this should be less of a concern in emerging markets due to the relatively minute size of transactions.

“From our perspective, with a customer base of the very poor who in some cases earn less than $2 a day, it’s less of an issue, although regulators are quite concerned nevertheless,” he says.

One of the problems with oversight of mobile money is financial institutions can sometimes be slow to react to technology, as their policies operate on systems that have been in place for a very long time.

Anandan JayaramanAnandan Jayaraman, chief product and marketing officer at Connectiva Systems, recognizes the very real challenges when mobile operators are put into a position where they are acting as banks. Such challenges are worth tackling, as governments wake to the benefits of having a banked citizenship. He notes that in some of the most underdeveloped markets, such as West and East Africa, less than 2 percent of the population is actually banked, yet mobile penetration is around 10 percent.

“This is an opportunity for governments to essentially help the employees bank, because it is eventually going to lead into investments to make in public infrastructure,” he says. “Right now this money is sitting under the mattress, it’s not gaining interest for the customer and also the banks or the government do not have access to the population’s savings.”

While money is always an important incentive for generating interest from key players in the industry, many believe the concept of mobile financial services could mean a drastic improvement in quality of life for some of the world’s poorest citizens.

The GSMA is one group that is championing mobile money, as much for altruistic reasons as anything else. In February 2009, the group launched the Mobile Money for the Unbanked (MMU) initiative, with a grant from the Bill and Melinda Gates Foundation. The MMU seeks to promote innovation and distribution of mobile banking and payment services for emerging markets.

Gavin KrugelGavin Krugel, director for the MMU at GMSA, says that speed, scale and sophistication are key points for the initiative. Sophistication of services describes a mature solution, with a variety of financial tools, for places where $2 a day is the average income.

“Sophistication is the final step, from doing domestic money transfer to more sophisticated banking services such as savings, bill payments and eventually giving the consumer a financial identity and looking at access to micro credits,” Krugel says.

“The first two stages are looking at transactions and getting consumers to save,” he says, noting that perhaps one of the biggest challenges surrounding mobile money in emerging markets is educating consumers that they actually need or want the service.

The MMU believes that operators are the most ideally suited players to provide access to mobile money services. However, Krugel says that doesn’t mean operators are willing to be banks.

“We do know that many mobile network operators have a direct interest in entering adjacent markets and that financial services is one of the adjacent markets that they want to enter,” he says, adding that the operators’ existing infrastructure serving its customer base is the primary reason the space is so appealing.

Operators traditionally have strong brand recognition and trust that make them the ideal entity to offer financial services, he says, and the operators are an essential part of the complex relationships that make up the mobile money ecosystem.

In unstable or developing economies, carriers aren’t the only ones that can lend their name and resources to mobile money. Nokia, which has been promoting its Nokia Mobile Money service for a while now, is continually fingered as a major asset in coordinating the mobile financial infrastructure of the future.

“Nokia can be a major facilitator. They can leverage their dominance in the handset market and help to address interoperability issues between services. If there’s one company that can do it, it would be Nokia,” says Julien Blin, analyst and founder of JBB Research.

Gerhard RomenGerhard Romen, Nokia’s director for alliances, says that Nokia can help on a number of fronts, from distribution to facilitating relationships. “If you look at market studies in terms of brand, Nokia is one of the top five consumer brands. At that moment, money and trust have a hand,” he says. “We need the banks on board and we can mediate between the bank and the operator. I think from a Nokia point of view, we can bring those two parties together.”

Nokia recently launched Mobile Money in India, in partnership with YES Bank and Obopay. The service will allow consumers to transfer money from person to person by simply dialing a mobile phone number. Users of the service also will be able to pay utility bills and top up SIM cards. In the future, Nokia expects users will be able to pay for goods using their mobile phones.

To be sure, developed markets remain on everyone’s radar. However, recent findings from ABI Research suggest that while emerging markets will experience the greatest growth in the near future, developed markets could ripen in the long term.

According to ABI senior analyst Mark Beccue, the Asia-Pacific region accounted for the lion’s share of the world’s 52.2 million mobile banking subscribers in 2009. “The global number of subscribers more than doubled between 2008 and 2009 and is expected to almost double again in 2010. This growth can be seen everywhere. But Asia, led by India, is pushing it particularly hard,” Beccue says.

Mark BeccueABI found that growth of mobile banking and payment services in Europe and North America has been somewhat limited so far because, in contrast to banks elsewhere, the financial institutions in the West offered mobile banking primarily to existing users of their online banking services.

ABI cites recent moves by Wells Fargo that indicate a growing market for mobile banking in developed markets if other banks follow suit. Wells Fargo recently expanded its offerings to everyone, not just customers. The bank also launched a text-based mobile banking service that greatly expands the number of mobile devices that can access such services.

“North America and Europe are still a long way from what anyone would call a ‘mass market’ uptake of mobile banking, but those regions offer the best long-term conditions for that to occur,” Beccue says.

As far as person-to-person (P2P) payment services, the tables are flipped, with emerging markets primed to see the most growth. ABI conducted a survey which found that developed markets simply aren’t all that interested in P2P payments. The survey polled subscribers, equally divided by gender, in Germany, France, the United Kingdom, the United States, Japan, Taiwan and South Korea. About 200 respondents participated from each country.

While there were differences across age groups and between countries, the overall results showed that only 16 percent of Western Europeans surveyed considered themselves “extremely” or “very” interested in mobile P2P payments, while in the United States, the percentage was only 9 percent.

“It’s tough to make a convincing case for mobile P2P in most developed markets… We believe [P2P payments] will have minimum impact in [North American and Europe] because some forms of electronic P2P such as PayPal have operated there for several years with relatively low market penetration and because these markets boast extensive ATM and banking networks, giving consumers easy access to cash to conveniently conduct P2P transactions,” Beccue says.

If a similar survey were to be conducted in developing markets, the results likely would be very different, Beccue says. “In parts of Africa, Asia and Latin America, which generally lack good tools for convenient P2P transactions other than face-to-face, mobile payment methods will be huge.”

Beccue says that Obopay’s experience in the United States was a case in point. “Obopay tried mobile person-to-person in the United States and it fell flat, so they shifted to developing markets and then Nokia got interested and they launched in India,” he says, adding that Obopay had to go with YES Bank because of the The Royal Bank of India’s restriction on any kind of mobile P2P payments.

“Every country and region is different,” Beccue says, adding that it’s exactly those differences that make the mobile money segment such a difficult one to navigate.