Next Big Thing in Mobile: Bottom of the Pyramid Plays

$1 Trillon over the Horizon: Mobile Remittances will be the awakening giant of the Mobile Inudstry

With the next billion mobile consumers to be drawn from emerging economies in Africa, middle Asia, and south of the Rio Grande to Tierra del Fuego, the Mobile industry needs to start recognizing, and offering, services which will drive revenue and offer added value specific to the lowest per capita consumer. The clearest offering is Mobile Remittances.

Here's a sense of how globally scaled this market is. According to the World Bank, today there are 191 million migrants sending over US$ 270 Billion annually, with the G8 markets accounting for 46% of global remittance financial flows. The World Bank has started an initiative in concert with the US Agency of International Development (US AID) and UK's Department of International Development (DFID) with the goal of creating a new transfer mechanism with significant lower costs: Mobile Remittances via SMS.

In February, 2007, the GSM Association (GSMA) announced a mobile operator led initiative in partnership with the financial industries sector to reduce costs from 24% to "a few percent" on transactions of US$50 or more. The GSMA predicts the number of recipients could double to more than 1.5 billion, ten times what is today as a result of lower costs and broader availability provided by the mobile channel, while helping to quadruple the size of international remittances market to more than $1TRILLION by 2012. And yet, most the noise, most the attention in the mobile industry I love is always on what's the next "kewl-est" technical app, or what heavy iron infrastructure play such as "4G" will hypothetically provide to consumers around the world.  Here's a dose of a disintermediating effect which will be driven by the massive commercial opportunity.

Remittance flows rank behind only Foreign Direct Investment (FDI) as a source of external funding for developing countries. 2004 figures indicate, workers' remittances in developing countries exceeded US$126 Billion, far higher than total official development assistance and private non-FDI flows, and more than half of total FDI flows to developing countries.

Financial markets are developing instruments which securitize future flows of workers' remittances. Emerging market countries are resorting to future-flow securitization to access international markets, and to avoid credit rationing in the face of deteriorating sovereign risks.  Workers' remittances have been frequently used along with other future-flow receivables such as oil and credit card receivables.  In 2001, Banco de Brasil issued US$300 million worth of bonds, using as collateral future Yen remittances from Brazilian workers in Japan.  The terms of these bonds were significantly more generous than those available on sovereign issues.  Rated BBB+ by Standards and Poors, these securities were several notches higher than Brazil's sovereign foreign currency rating, BB+ at the time.  This will all be transferred to mobile platforms within the next decade.

As a result of in-country experience with SMS top off transfers and "sachet" micro payments, both Smart and Globe, the Philippines leading operators, have introduced commercial means to have more informal processes around remittances via SMS powered micro payments sent to anywhere in the world.  Using an M-Commerce platform that allows money transfer and micro-payment transactions via mobile network operators, users can send money and pay for goods and services such as utility bills, tuition fees, donations to charities and buy airtime using local services with off shore operators. Globe's service is "G cash" and Smart's "Padala." With close to 70% of foreign workers being women from the Philippines, these payment options ensure that their hard earned income is directed exactly to the intended destinations.

SMS is the current platform of choice, but Mobile Instant Messaging (MIM) can provide the same platform for transfers. Sprint Nextel recently completed an internal trial using MIM as the platform, and US patent applications have been submitted.

Africa will be the source of the mobile service tsunami. Africa provides the last opportunity of mobile growth globally. ARPU levels currently exceed those of India and China.  EBITDA margins average 40-55% for African operators. Africa has one of the world's fastest growing mobile markets and huge untapped demand. One third of African countries still have mobile penetration rate below 10%. And, although the mobile subscriber base is still small, Africa's mobile growth rate is 2-3 times that of other countries.

Research on low-income people in South Africa indicates mobile-banking is a more affordable service than traditional banking. No doubt in emerging economies this will challenge traditional banking methods, since for example, one third of people in South Africa and Botswana who do not have bank accounts do have either a) mobile phone, or (b) have access to one. Moreover, even the smallest "sachet" transfers, e.g. 6 to 15 US cents, create commercial opportunities for re-sellers, as indicated in Egypt for small time dealers and resellers of airtime, providing a viable and flexible business opportunity for a wide range of micro-entrepreneurs operating at the lowest economic rung of the ladder. This same commercial phenomenon exists in the Philippines today and will be spreading to the BRIC-like opportunities around the globe.  Thus the flow through effects of remittances from the "tip to the tail" of these emerging economies ensures they will continue to grow, positively affecting the individuals at the lowest rung to the the largest enterprises, such as Mobile Network Operators, in the emerging economy countries.

In CK Prahalad's landmark book, The Fortune at the Bottom of the Pyramid, two parables apply to how the Mobile industry is to be affected. First, the BOP market opportunity cannot be satisfied by diluted down versions of traditional technology from the first world. The BOP market can and must be addressed by the most advanced technologies creatively combined with existing (and evolving) infrastructure. Second, distribution must be specially targeted that reach the BOP market, such as SMS and MIM. Innovations in distribution are as critical as technical products or process innovations.

Get ready everyone, this will have a huge effect on how and who we're going to be targeting as service cohorts in the near future regardless of where you are in the world

Comments

[Padala]

Long time I haven't read your blog. Mobile phone banking is really big help. Bookmarking your blog I can read in the future.

[padala]

Its a good to know that we have also a mobile phone banking applications,Gcash had a good service.

by: missy

[John Owens]

We have actually come up with our own mobile phone banking applications that utilize the GCash platform to facilitate microfinance transactions for clients of rural banks in the Philippines. To learn more about these services, check out our website at www.mobilephonebanking.rbap.org