An annual report by DonRiver Inc.
Mobile Money in Canada 2013 has been edited and designed by Hassard Fay Inc. Hassard Fay designs and runs sophisticated, long-term thought leadership programs – expressed through magazines, conferences, documentaries, themed websites, and other media – for corporations, professional services firms, universities, and non-profits.
www.hassardfay.com @HassardFay
INTRODUCTION By Brent Ho-Young DonRiver Inc.
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LOOKING BACK, LOOKING FORWARD By Brent Ho-Young DonRiver Inc.
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NO TIME TO LAG By Yvon Audette & Naveen Kumar KPMG LLP Pg. 7
SWIFT CURRENT By Matthew McGuire MNP LLP
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TRANSFORMING TRANSACTIONS By Rafael Díaz GSMA
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EMULATING CASH By J. Marc Brûlé Royal Canadian Mint
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Q&A With Karim Khoja Roshan
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THE NUMBERS Mobile Wallet Usage Pg. 28
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veryone likes to chart progress. Parents track their children’s growth via tick marks on doorframes, historians note advances via retrospectives, and we’ve all at one time or another crossed off squares on a calendar as we approach a certain date.
This report marks a similar kind of forward movement. The mobile money industry, though still in its infancy, is in the middle of a rapid succession of growth spurts. For those of us passionate about this industry, taking stock of its progress allows us to both celebrate our individual and collective achievements and better anticipate the challenges to come. As a mobile financial services consulting firm, we at DonRiver decided that an annual report, representing the best of the industry’s thinking and showcasing Canadian mobile money innovations, would further encourage discussion and collaboration within the mobile money community. It’s exciting to think about the developments and ideas that future reports will cover. In addition to our own firm, five other industry players contributed to this inaugural report: leading Canadian advisory firms KPMG and MNP; the GSMA, an organization representing the interests of mobile operators worldwide; the Royal Canadian Mint; and Roshan, Afghanistan’s leading wireless telecommunications provider. We would like to take a moment to extend an extra-special thank you to the key folks working every day to advance our industry and who have collaborated on this report: Yvon Audette (KPMG), Matthew McGuire (MNP), Rafael Diaz (GSMA), Marc Brûlé (Mint), and Zahir Khoja (Roshan/MasterCard)—thank you for your invaluable support. Each contributor essay focuses on a different critical aspect of the mobile money industry. DonRiver’s article identifies significant trends, paying particular attention to Canada’s unique role. KPMG notes the growing number of smartphone users with mobile payments solutions on their devices, and details the ongoing impact of key corporate innovators on the industry landscape. Moving from trends to challenges, MNP’s essay provides a comprehensive summary of the latest anti-money laundering regulations and their potential impacts on mobile money providers. The final three essays speak primarily to the industry’s future. The GSMA describes developments in the increasingly important and innovative area of mobile contactless payments and near field communications, while in its essay, the Royal Canadian Mint discusses MintChip, its solution to the coming digitization of currency. And in a feature interview, Karim Khoja, CEO of Roshan, describes what mobile money means to the developing world—and how M-Paisa, Afghanistan’s first mobile money transfer service, is changing the lives of Afghans. We hope that this report will become another spark for an ongoing discussion between industry players in Canada and around the world. As the sector continues to grow rapidly, Canada’s prominent role is driven in large part by our aptitude for collaboration. The publication of this report is in keeping with that spirit. Thank you for taking the time to read the report and thanks to all of the invaluable contributors who helped to create it. Sincerely, Brent Ho-Young Managing Director, Mobile Financial Services Practice DonRiver Inc. 2
By Brent Ho-Young, DonRiver Inc. www.donriver.com
WE AT DONRIVER BELIEVE IN THE VALUE OF OCCASIONALLY PRESSING PAUSE. TAKING A MOMENT TO REFLECT ALLOWS US TO EVALUATE THE PROGRESS MADE, THE CHALLENGES CREATED, AND HOW BEST TO OVERCOME THESE CHALLENGES IN THE FUTURE.
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n the last decade, developments in the mobile money industry have been fast paced. Be it a mobile wallet app or a smartphone banking solution, industry products save everyone time, and they’re created in what feels like no time at all. In the face of all this movement, we at DonRiver believe in the value of occasionally pressing pause. Taking a moment to reflect allows us to evaluate the progress made, the challenges created, and how best to overcome these challenges in the future. The new year provides the perfect opportunity to make this type of evaluation. As with the years before it, much took place in the industry in 2012. Canada played a leadership role in this progress, adding coherence to these developments via our collaborative spirit. Oftentimes we see either banks or operators lead payment initiatives, without any cooperation between them. In Canada, however, various players are coming together to move the industry forward. Two examples of this type of collaboration are the Rogers-CIBC initiative and the Mobile Reference Model guidelines. In November 2012, Rogers and CIBC came together to launch the first mobile contactless payment solution in Canada to allow credit card purchases through a smartphone. The service allows Rogers customers with near field communication (NFC) enabled BlackBerry devices to associate their CIBC credit card
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credentials to their phone, with the information being stored on the phone’s SIM card.1 We expect Rogers will announce collaborations with other banks in the near future. The Rogers-CIBC initiative is important for another reason. Establishing relationships with financial institutions is key to growing the industry and accelerating customer adoption of mobile payment services. Customers have long trusted banks with their financial matters. This strong relationship means it’s advantageous for mobile operators and financial institutions to collaborate rather than attempt to build expertise, solutions, and consumer trust on their own. In addition to collaborations between banks and operators, we’re also seeing Canadian financial institutions and credit unions band together. In 2012, for example, these stakeholders created a set of mobile payment standards, drawing on industry, consumer, and security perspectives. Released by the Canadian Bankers Association (CBA), the voluntary guidelines are known as the Mobile Reference Model. They act as an instruction manual for how mobile payments can be offered in the Canadian market, and include recommendations for how data should be exchanged between financial institutions, payment card companies, telecommunications companies, and merchants. Canadian industry players are not the only ones collaborating. Visa has partnered with financial institutions around the world, in particular the US and the UK, to deliver a mobile wallet product known as V.me. Multiple credit cards can be stored in a customer’s V.me account, and like all mobile wallet products, customers can make purchases via their phone. As with Rogers’, we can expect Visa’s initiative to continue to expand in 2013.
CANADA IS WORKING RAPIDLY TOWARD THE DIGITIZATION OF CURRENCY.
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The Canadian mobile money industry—as well as the industry at large—can thank much of its progress in 2012 to the types of collaborations demonstrated by Rogers, CIBC, the CBA, and Visa. Ongoing collaborations such as these only stand to propel the Canadian mobile money industry forward.
PROJECTIONS FOR 2013 RETAILERS QUICK OFF THE MARK Rather than wait for NFC technology to develop, and for leading handset manufacturers such as Apple to decide whether or not they will even adopt the technology, retailers and other organizations are moving forward with their own mobile money initiatives. In 2013 we can expect to see more of this type of strategy. Two organizations leading the way are Starbucks and Square. Working with mFoundry, a mobile solutions company based in California, in January 2011 Starbucks began offering their American customers a mobile payment solution—without using NFC. By November of that year the app was also available in Canada.2 Loading the Starbucks app on their iPhone or Android devices, coffee drinkers can now pay for their grande, extrahot-no-whip mochas via a 2D barcode. The barista scans the image displayed on the phone, and the customer walks away happy and caffeinated. More than 70 million mobile payments have taken place since the app’s launch.3 The initiative benefits both the retailer and the consumer: Starbucks need not replace their point-of-sale systems, and consumers need not change their behaviour or purchase a product they don’t already have. Moreover, baristas can move people through the line more efficiently, and the corporation can gather more detailed analytics as to who’s buying what, at what location and at what time. Barcodes aside, other projects are helping merchants take advantage of mobile technology. Though it was founded several years ago, Square, a company developed by Twitter co-founder Jack Dorsey, launched in Canada in 2012. Square allows a mobile card reader— shaped, not surprisingly, like a square, and about an inch long on each side—to be inserted into a mobile phone or iPad, allowing credit cards to be swiped. The card reader means that merchants previously unable to accept plastic—think vendors at flea markets,
MOBILE PAYMENT SOLUTIONS ARE SOPHISTICATED AND COMPLEX TECHNOLOGIES. CONVINCING CONSUMERS THAT THEY ARE AN EASY-TO-USE WAY TO ADD CONVENIENCE TO DAILY TRANSACTIONS WILL CONTINUE TO POSE A MAJOR CHALLENGE.
garage sale hosts and taxi drivers—can now do so. The Square Register app links directly to the merchant’s bank account, and funds are deposited within one to two business days. Like the Starbucks initiative, Square allows consumers and merchants to take advantage of mobile money technology without upgrading their software, their physical infrastructure, or waiting for NFC. It also means consumers are increasingly aware of what their mobile phones can really do.
CHALLENGES TO COME While we made significant advancements in 2012, there are still challenges left to tackle in 2013. Perhaps most importantly, stakeholders are increasingly concerned with protecting consumer data. It’s interesting to us that Alastair Lukies, CEO of the mobile payments company Monitise, observed in a January 2013 Forbes article4 that many mobile wallet companies have limited experience in the world of banking and payments, yet need to be able to handle the transaction process as well as the customer’s overall experience. Financial institutions, not brands like PayPal or Google, have the infrastructure necessary to process private information in a secure way—a point that further encourages collaborations between banks and operators, such as the Rogers-CIBC initiative mentioned
earlier. The mobile money industry has experienced no security breeches so far, and hopefully with collaborations such as these, it will stay this way. We’ve also noted that companies are increasingly preoccupied with talent shortages. Previously, people worked in either the mobile operator space, the mobile services space, or the financial services space. The three domains didn’t mix. Now, companies are looking for innovative people able to work in all segments of the industry. As employee expertise lags behind the rapid evolution of the field, it can be challenging for mobile money businesses to build efficient, knowledgeable teams. Independent players feel a third challenge. With limited resources, these companies must decide which part of the industry they want to contribute to. Knowing they can’t do everything for everybody, smaller businesses must choose between such options as offering a mobile payment capability or a direct-to-consumer service. Smaller companies need to focus their energies and not extend themselves too far. Finally, perhaps the biggest obstacle for industry players of any size is consumer adoption and awareness. Mobile payment solutions, though well-understood by those of us who think about them on a daily basis, are sophisticated and complex technologies. Convincing consumers that mobile payments are a cost-effective, secure, and easy-to-use way to add convenience to daily transactions will continue to pose a major challenge.
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THE FUTURE: DIGITIZING MONEY Having mapped out where we’ve been and where we might go, let’s take a step back and see what could happen in the years beyond 2013. It seems inevitable that in a decade or less we will see the complete digitization of money. Soon, everyone will have a computing device in the palm of their hand with the ability to hold digital funds and make digital payments and transfers. Money will exist in the “cloud”, allowing people to access it wherever and whenever they want. In many ways, the digitization of money holds more promise for the future of poor countries than it does rich ones. For us, mobile money products make our already convenient lives more so. In the developing world, however, mobile money means access to financial services for people who previously had none. It also means individuals previously storing money under their mattresses now have a safe and secure means to “carry” their money with them.
Canada, meanwhile, is working rapidly toward the digitization of currency. Though still in the development phase, the Royal Canadian Mint has created MintChip, a digital currency stored on a secure chip. Meant to replace cash, the chip will allow consumers to transfer small amounts of money without attaching any personal information to the transaction.5 Regardless of location, the future of mobile money stands to benefit everyone. For some consumers the digitization of currency means saying goodbye to overflowing wallets, for others, it means conveniences of time and access. Either way, the future of mobile money in Canada is bright.
Roshan, Afghanistan’s largest mobile operator, is one of the companies offering a mobile money solution to the developing world. Called M-Paisa, the system allows Afghans to save and to make other financial transactions via their cell phones.
Brent Ho–Young is the Managing Director of the Mobile Financial Services Practice at DonRiver Inc., working with mobile network operators and financial services providers around the world to define product strategies, develop software solutions, and integrate payment networks across the mobile money ecosystem. Brent has guided the development of several of the mobile money industry’s most innovative products and services, including the software behind North America’s first international mobile money transfer service.
http://business.financialpost.com/2012/11/02/rogers-cibc-unveil-first-tap-and-go-digital-payment-app/ http://www.cbc.ca/news/technology/story/2011/11/08/starbucks-pay-iphone-app.html 3 http://www.mobilecommercedaily.com/starbucks-app-surpasses-70m-mobile-payments-transactions 4 http://www.forbes.com/sites/ciocentral/2013/01/11/paying-with-your-data-the-real-promise-of-mobile-wallets/ 5 http://www.thestar.com/business/2012/04/11/royal_canadian_mint_to_create_digital_currency.html 1 2
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By Yvon Audette & Naveen Kumar, KPMG LLP www.kpmg.com
THE FUTURE OF MOBILE PAYMENTS IN CANADA
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he last year has seen substantial talk and considerable media coverage around the Canadian mobile payments landscape, though so far the dialogue hasn’t translated into substantial action. This doesn’t mean, however, that nothing is going on behind the scenes. Canadian consumers may think the country is dragging its tail on the mobile payments front, but it may be more accurate to say that the planning phase hasn’t quite hit critical mass. There’s a lot of work happening in banks and corporations of all sizes, to either develop their own mobile payments schemes and technological partnerships, or to be prepared to take advantage of a broad industry platform when and if it takes hold. Both planning and action are clearly growing necessities. To say that consumers are emptying their pockets for technology refers as much to the fact that they’re embracing a wave of personal consolidation as it does to the public penchant for purchasing the latest, greatest apps and products. The number of physical items and communications devices people need to carry to effectively conduct their daily lives continues to shrink as smartphone capabilities grow, with credit cards and wallets the next to go. Clearly, consumers are ready for a mobile payments environment that expands their convenience-driven, option-hungry appetites. According to a SurveyMonkey poll, more than 50 percent of smartphone users have used a mobile payments solution, and a slightly higher number say they intend to use them.1
It’s imperative that financial institutions leverage these trends and implement a mobile payments strategy that will pay off sooner rather than later. To help frame the challenge, this article outlines convergence trends involving industry players, examines the key players working to develop a broad mobile payments platform, and looks at innovative companies that have developed their own systems. It also considers the factors shaping mobile payments ecosystems and the future of mobile payments in Canada, including technology and innovation, global geographical market shifts, and the industry drive toward partnerships.
RESPONDENTS TO A GLOBAL SURVEY OF 668 TECHNOLOGY INDUSTRY LEADERS BELIEVE MOBILITY WILL BE THE SECOND MOST “INDISPENSABLE CONSUMER TECHNOLOGY” OVER THE NEXT THREE YEARS.2
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WORKING TOWARD A STANDARD
DOING THEIR OWN THING
The broad, efficient adoption of mobile payments technology by the public will depend on the development of one (or possibly more than one) standard user platform. At present, there are three major players in that space:
With the adoption of broad standards proceeding slowly, recent months have seen a number of major corporate players entering partnerships to develop their own mobile payments solutions and downloadable apps. This suggests the corporate community believes an immediate investment in mobile payments technology and the client base it will attract is worth it.
•• PayPal: PayPal has been around for a while now. The PayPal mobile app supports BlackBerry, iPhone, and Android platforms, leading to easier adoption by a larger user base. Its consumer wallet and merchant checkout are feature rich and draw as much attention from merchants as they do from consumers. PayPal’s recent partnerships with Discover and McDonald’s indicate that it will continue to play an important role in mobile payments. •• Google: Combining cloud and near field communication (NFC) mobile technologies, Google’s mobile wallet lets consumers store all their credit and debit card information on secure Google servers, then access them as needed through their phone or computer. Unbound Commerce, a leading provider of mobile commerce solutions, just announced a partnership with Google Wallet that will provide online Google Wallet checkout options at Unbound Commerce-developed commercial sites.3 •• Apple: With Apple forgoing NFC to focus on Passbook, a mobile app that stores purchase aids such as loyalty cards, tickets, and coupons on the new iPhone, the question remains whether Apple will eventually adopt NFC or develop proprietary technology to enable true mobile payment functionality on the iPhone. The uncertainty and potential impact of Apple entering this space also leaves the imminent widespread adoption of NFC in doubt.
•• Starbucks-Square: Square is a phone app that lets Starbucks accept mobile payments based on a transmitted photograph ID and payment information that has been previously stored and approved—without the phone leaving the customer’s pocket. •• Dunkin’ Donuts: Dunkin’ Donuts’ mobile payments app supports Apple’s iOS and Android. Launched even before Starbucks’ mobile solution, it shows that smaller players are also committed to the mobile payments space. •• Discover-PayPal: As of early 2013, users will be able to make purchases through PayPal at millions of retail locations that accept Discover. •• McDonald’s-PayPal: McDonald’s is testing out a similar PayPal solution at a number of locations in France. •• CIBC-Rogers: The Canadian bank and media provider have announced an initiative to provide Canada’s first mobile wallet solution. •• Best Buy, Walmart, Target, Sears, Lowe’s, and Shell: These companies, among others, are working on a multi-merchant partnership to offer customers an app that will work on any smartphone and be usable at a variety of retailers.
WITH SO MANY COMPANIES DEVELOPING INDIVIDUAL APPS, MOBILE PAYMENTS MAY ULTIMATELY BE ENABLED BY A NUMBER OF COLLABORATIVE CORPORATE AND TECHNOLOGICAL NICHES RATHER THAN BY A SINGLE, UNIVERSAL PLATFORM. 8
IT’S IMPORTANT TO NOTE THAT CANADA IS ALREADY BEHIND ASIA WHEN IT COMES TO MOBILE PAYMENTS SOLUTIONS, AND THIS COULD HAVE A SIGNIFICANT IMPACT ON THE GLOBAL MOBILE PAYMENTS ECOSYSTEM.
KEY FACTORS SHAPING THE GLOBAL LANDSCAPE OF MOBILE PAYMENTS TECHNOLOGY AND INNOVATION Traditionally, due to organizational conservatism, complex bureaucracies, and the challenge of migrating away from cumbersome legacy technologies, banks are slow to adapt to technological innovation. This is not a time to lag, though. There are too many players in the race—including technology companies, telecom providers, credit card companies, internet-based services, and individual corporations—and all will undoubtedly be willing to move into other related market areas if their solutions succeed and the opportunity arises. Looking forward, it’s likely that platform-independent solutions will dominate in the short term and, without NFC on the iPhone, that mobile payment solutions will not be exclusively phone based.
GLOBAL GEOGRAPHIC MARKET SHIFTS It’s important to note that Canada is already behind Asia when it comes to mobile payments solutions, and this could have a significant impact on the global mobile payments ecosystem. Not only has Japan, in particular, been using mobile payments solutions for years, Asian countries are enjoying widespread access to the newest mobile devices en masse, and device prices continue to fall. Moreover, a growing consumption-oriented middle class is rapidly increasing the quantity of transactions taking place, at every level. In terms of infrastructure, many of these countries are starting fresh, without the considerable expense and technological challenge of upgrading complex legacy systems. With these advantages in hand, Asia is rapidly becoming the centre of the global payments universe, and Canadian financial institutions need to work quickly not to be left behind.
PLAYING WELL WITH OTHERS Who is in the best position to drive mobile payments in Canada? Financial institutions, given the combination of having a vested interest in the success of the initiative and a relatively strong financial position, are well situated. It’s clear, however, that they will have to adopt more leading practices and enter into the necessary technological partnerships. Mobile payments will be a huge part of financial institution operations and strategy in the future, but do Canadian businesses want to own and control those systems or be a transaction conduit for other players and platforms? Do they want to take advantage of the corollary benefits and value-enhancing capabilities of mobile payments technology, such as reaching customers with targeted marketing materials, engaging in upselling and cross-selling opportunities, and gathering customer data to enhance their overall view of the customer? Do they want to maintain the global advantage Canadian banks currently enjoy and not risk falling behind on a critical transformative technology? Canadian industry players have the technological capability and the infrastructure to move to the next level, but the requisite partnerships, such as the Rogers— CIBC initiative, don’t yet exist. Real-time settlement remains a key challenge, but Canada is generally well positioned to develop world-class mobile payments and solutions.
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SEPARATING THE DESIRABLE FROM THE INEVITABLE The consumer appetite is clearly there, and that, in the end, is the real driver behind mobile payments. Many people have smartphones and want them to deliver as much functionality as possible, so the ability to complete payment transactions in real time, with a wave of the hand, is a highly appealing option. The suggestion that consumer concerns around security will derail or substantially delay adoption is likely unfounded. As SurveyMonkey CEO Dave Goldberg notes, “Security [fear] is often a general fear of the unknown,” adding that “ubiquity and convenience” ultimately prove to be the driving factors in technology adoption.4 Similarly, in a global survey of 668 technology industry leaders, respondents felt that ”pricing outweighs security issues” when it comes to public adoption concerns.5 In reality, mobile payment capability—given its increasing global prevalence and the focus that technology companies have placed on its development— is more a cultural inevitability than a consumer
“nice-to-have.” It’s true that financial institutions are stepping up their commitment to developing mobile payments solutions. However, they need to build key partnerships with their telecommunications providers and implement the action phase before consumer loyalty sours and other global banks, or players in competing industries, take control of the market. The importance of mobile payments in Canada has been recognized by the Canadian government and as of September 18, 2012, an addendum has been proposed to the existing code of conduct for the credit and debit card industry in Canada to include mobile payments. This required change to the code indicates that the existing regulatory and infrastructure frameworks were not designed with digital payments in mind. It remains to be seen how they will fare when mobile payments become a reality and what changes will be required to make mobile payments a real success in Canada.
As a senior leader in KPMG Canada’s Management Consulting practice, Yvon Audette leads the IT Advisory Services portfolio. He is a member of KPMG’s Global IT Effectiveness Centre of Excellence. Yvon focuses on IT-enabled business transformation, governance and performance, IT strategy, as well as outsourcing advisory services. He has helped clients in a range of industries address their need for change and IT-enabled transformation. Naveen Kumar is a Senior Manager in KPMG’s Management Consulting practice with a focus on providing IT Advisory Services to clients. Naveen specializes in IT strategy, IT architecture, business intelligence, and IT outsourcing. Naveen has led a number of assignments that have helped organizations transform themselves using practical approaches, the introduction of new and emerging technology ideas, and innovation to address organizational needs.
http://www.bloomberg.com/video/the-popularity-of-mobile-payments-on-the-incline-bptfydeSS8WSsZqpovXXbg.html KPMG (2012). “Mobilizing innovation: The evolving landscape of disruptive technologies.” http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications technology-innovation-survey/Documents/tech-innovation-final.pdf 3 http://www.equities.com/news/news-headline-story?dt=2012-09-14&val=478922&d=1&cat=headline 4 http://www.bloomberg.com/video/the-popularity-of-mobile-payments-on-the-incline-bptfydeSS8WSsZqpovXXbg.html 5 KPMG.(2012) “Mobilizing innovation: The evolving landscape of disruptive technologies.” http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/technology-innovation-survey/Documents/tech-innovation-final.pdf 1 2
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By Matthew McGuire MNP LLP www.mnpforensics.ca/AML
KEY TRENDS IN ANTI-MONEY LAUNDERING REGULATIONS THAT WILL IMPACT MOBILE MONEY PROVIDERS IN CANADA
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scalating mobile money adoption rates and the emergence of new payment platforms have caught the attention of legislators worldwide. Studies, new standards, and proposed legislation have been published with a view to the increased adoption of mobile payments, as well as the protection of consumers and the integrity of financial systems. Mobile money companies will surely notice the impact of the changes to their compliance responsibilities (both at home and increasingly to foreign jurisdictions), to their compliance budgets, and their processes. In this paper we examine the nature of those potential impacts, particularly those related to the integrity of financial systems with a focus on anti-money laundering.
GLOBAL INFLUENCE The Financial Action Task Force (FATF) is the international entity that steers the global fight against money laundering, terrorist financing, and the crimes they support through standard setting, research, and naming and shaming countries with weak anti-money laundering (AML) regimes. In February 2012, the FATF released revamped standards for countries to follow to contribute to their AML efforts. As a member of the FATF, Canada is expected to adopt those new standards into its legislation. These new standards focus on transparency of entity ownership (for example, requiring financial services entities to know the identities
STUDIES, NEW STANDARDS, AND PROPOSED LEGISLATION HAVE BEEN PUBLISHED WITH A VIEW TO THE INCREASED ADOPTION OF MOBILE PAYMENTS, AS WELL AS THE PROTECTION OF CONSUMERS AND THE INTEGRITY OF FINANCIAL SYSTEMS.
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of those who own and control corporations and other entities), anti-corruption efforts (to prevent, detect, and deter those that would covertly and illegitimately profit from their positions of power), and enhancing the integration of the “risk-based approach” to AML efforts. The risk-based standards direct financial services companies to specifically consider the money laundering and terrorist financing risks of new technologies and products—such as mobile payments— and to put in place procedures to mitigate their risks. These measures will be further enhanced in Canadian legislation, and their impact will be addressed in the next section. Notably, the risk-based approach text of the FATF standards permits countries to impose reduced client scrutiny measures for proven low-risk situations, which may be applicable to mobile money products which permit only micro-loans and payments, for example. The FATF has now listed tax evasion as a predicate offence to money laundering (a step taken by Canada years ago). Accordingly, every dollar of tax avoided is a dollar that is the proceeds of crime. This addition triggers new money laundering risk analysis (particularly with respect to geographies), and may result in an increase in suspicious transaction reporting. This is particularly true for mobile money companies that permit transfers to known tax-haven jurisdictions from high-tax environments.
NATIONAL INFLUENCE - CANADA Two consultations have kicked off the revisions to Canada’s AML legislation, both released in late 2011 with provisions which will come into force in February 2014. Risk-sensitive, ongoing monitoring for the purposes of detecting suspicious transactions, and periodic client re-identification will be required since all of the first consultation’s proposals were adopted. Reporting burdens would also escalate in the regime proposed in the second consultation, requiring all reporting entities to report every international electronic funds transfer (today, there is a CAD 10,000 threshold), and also to report every activity conducted for the purpose of a financial transaction deemed suspicious (that may include multiple failed logins from different IPs, for example). The proposed regime would also give the regulators power to order historical reporting lapses remediated—a potentially disruptive situation for a small financial services company. A significant part of the second set of proposals deals with new ministerial powers for countermeasures that would permit the minister of finance to impose a range of special measures (such as increased scrutiny, mandatory delays, or reporting) on transactions involving countries the minister designates from time-to-time (beyond those required by economic sanction laws). For a mobile money company, all these proposals point to the need for an incisive assessment of money laundering risks, and technology to automate otherwise crippling manual processes.
FOR A MOBILE MONEY COMPANY, ALL THESE PROPOSALS POINT TO THE NEED FOR AN INCISIVE ASSESSMENT OF MONEY LAUNDERING RISKS, AND TECHNOLOGY TO AUTOMATE OTHERWISE CRIPPLING MANUAL PROCESSES.
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The second proposal also considers the potential for prepaid card companies to be subject to AML obligations, including the requirement to implement and maintain a compliance regime, to identify clients, to keep certain records, and to report prescribed transactions. It would also have prepaid cards considered the equivalent of cash, and therefore reportable if transported cross-border when combined with other cash and equivalents with a value of CAD 10,000 or more. Mobile money providers that offer companion prepaid cards would be impacted by this provision. Depending on the wording of the legislation, mobile money balances themselves could be considered a type of prepaid product. Notably, Canada is considering unspecified changes to the possible client identification methods available to financial services companies that accept clients remotely (for example, over the internet). The rigidity of the current available methods and their largely impossible application towards clients residing outside of Canada have been a competitive disadvantage for companies operating here. In the same way that driving legally requires a licence, a good driving record, and insurance, operating a mobile money company in Canada requires a current registration, a good compliance record, and a banking relationship. If either of the first two is compromised, the third becomes prohibitively expensive or impossible to obtain. Like insurance companies, banking service providers have also been setting the bar for the appropriate standards for behaviour (and penalties for misbehaviour), and those expectations have already risen in many ways to the level of the proposed changes to Canadian legislation.
PROVINCIAL INFLUENCE - QUEBEC Money services business licensing has taken on another level in Canada, with Quebec adopting a second tier of registration effective April 1, 2012 for alternative financial services offered in Quebec, including: currency exchange; funds transfer; issue or redemption of travellers cheques, money orders, or bank drafts; cheque cashing; and the operation of automated teller machines (with the latter two not currently covered or contemplated by Canada’s federal AML legislation). A few of these activities, particularly currency exchange and funds transfer, are common offerings for mobile money companies.
Among other things, licensing requires the submission and maintenance of public registration information (including financial statements), and police vetting of managers and principals. Many of the ongoing compliance obligations mirror the requirements of Canada’s federal legislation, including client identification and record-keeping.
EXTRA-NATIONAL INFLUENCE – UNITED STATES Three significant legislative changes in the United States have reached over our borders: the US regulation of foreign money services businesses (MSBs), the Foreign Account Tax Compliance Act (FATCA), and the Electronic Fund Transfer Act or EFTA (known as the Dodd-Frank Remittance Transfer Rule). Effective September 19, 2011, MSBs located outside of the US, but that provide any of the following services to customers located in the US are considered foreign-located MSBs: currency exchange; funds transfer; issue or redemption of travellers cheques, money orders, or bank drafts; and cheque cashing. A USD 1,000 threshold applies to all services except funds transfers, which have no threshold. Foreign MSB’s subject to US regulation must: register, designate an agent for local service, implement an AML program in respect of prevailing and applicable US legislation, keep and prescribe records, and report cash and suspicious activities relating to US transactions to the relevant regulator (the Financial Crimes Enforcement Network, or FinCEN). Being designated as a foreign MSB in the US may also be an indication that the MSB requires money transmitter licences in the states in which it operates. As mentioned, anti-money laundering is also about taxes. FATCA will require foreign financial institutions to report directly to the US about financial accounts held by US citizens or residents, or by foreign entities in which US citizens or residents hold a substantial ownership interest. Foreign financial institutions are generally entities that accept deposits in the course of banking, hold financial assets for the account of others, or are engaged in the business of investing. Unless they enter into an agreement with the IRS, foreign financial institutions will be subjected to punitive withholdings. To avoid them, the IRS agreement requires demurring foreign financial institutions to: undertake certain client identification procedures for its account holders; provide annual reports to the IRS on account holders that are, or entities that are controlled
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by, US citizens or residents; and withhold and remit 30 percent of any payment of US source income or sale proceeds made to non-participating foreign financial institutions and account holders refusing to provide their details. In November 2012 Canada announced it was nearing an agreement that would obligate Canadian financial institutions to comply with the full spectrum of FATCA requirements, and compliance efforts are already underway at most Canadian banks and insurers. Given the broad definition of foreign financial institution, the application of FATCA provisions to MSBs and mobile money companies, depending on their business model, is questionable. More certain is that banking service providers will not risk contravening their agreement and status with the IRS because of MSB banking arrangements. That might someday mean the application FATCA scrutiny to stated beneficiaries of outgoing USD wires of MSBs. The EFTA is a consumer protection measure that takes effect in 2013 and will generally require companies that send money to foreign countries (including Canada) on behalf of a consumer in the United States (regardless of the method) to: disclose the exchange rate, fees, taxes, and amount of money to be delivered abroad; provide a receipt and delivery date; provide a 30-minute cooling off period; respond to consumer complaints; and bear responsibility for transfer mistakes attributable to their staff.
CLOSING Mobile money company licensing and access to the payment systems continue to depend on compliance. The de-facto deputization of financial services companies in the fight against money laundering, terrorist financing, corruption, and tax evasion has increased and complicated compliance requirements and new standards for mobile money are rapidly maturing and being deployed. Sophisticated operations will develop legislative compliance management systems, leverage technology, and enlist local expert knowledge in jurisdictions relevant to their operations as legislation in the jurisdictions where they operate continues to react to market demand and technological innovation. Multi-jurisdictional businesses will face the decision of taking a piecemeal approach to compliance versus applying effective, entity-wide best practices adherent to the highest compliance standards of their most evolved area of operation, and this decision will determine the success or failure of those who venture into this swift-flowing current.
The US influence over the use of funds held in trust is also expected by some to lead to regulations in Canada. A few high-profile US mobile and e-money companies have dipped into client trust funds before bankruptcy, leaving clients out-of-pocket and leading to questions about the soundness of the sector. Telpay is one example of an emerging payments company that has proactively undertaken trust assurance engagement.
Matthew McGuire, CA, is the National Leader of MNP LLP’s Anti-Money Laundering practice. Matthew is also the founder of the Canadian Institute for Financial Crime Analysis, has been qualified as an expert witness by the Ontario Superior Court of Justice, is a Certified Anti-Money Laundering Specialist by the Association of Certified Anti-Money Laundering Specialists, and is accredited as an Anti-Money Laundering Professional by the Bank Administration Institute.
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By Rafael Díaz GSMA www.gsma.com
AN UPDATE ON NEAR FIELD COMMUNICATION
TODAY THERE ARE APPROXIMATELY 6.8 BILLION ACTIVE MOBILE CONNECTIONS WORLDWIDE, REPRESENTING OVER 3.9 BILLION INDIVIDUAL SUBSCRIBERS.
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obile technology is creating a connected economy. Today there are approximately 6.8 billion active mobile connections worldwide, representing over 3.9 billion individual subscribers. This is the mobile revolution and it has just started. The GSMA is working with players across the mobile ecosystem, from operators to retailers, to identify untapped opportunities with a focus on stimulating the successful global deployment of interoperable and SIM-secured near field communication (NFC) services.
A MAJOR FOCUS FOR OPERATORS NFC is one of several strategic initiatives for the GSMA and a major focus of the organization’s work with its mobile operator members, as well as with the broader ecosystem. There is incredible excitement about NFC today, and for mobile operators NFC is a crucial enabler for an array of new services that will become indispensable in people’s lives. Mobile payment is one of these services. We are all familiar with contactless bank and public transit cards. These contactless cards have created interest in the NFC space and are encouraging merchants to put in place compatible point-of-sale (POS) terminals. In the UK, McDonald’s offers NFC payments
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in restaurants across the country, and other merchants, like Eat and Pret A Manger, are following suit. Imagine how attractive it will be for customers to leave behind pockets full of cards and big wallets, replacing them instead with mobile wallets. It’s happening, as more and more operators and handset manufacturers launch mobile wallet solutions. In Sweden, four companies have joined forces—Telenor, Tele2, Telia, and 3—launching their WyWallet mobile money solution, which supports personal money transfers, SMS transit ticketing, and online shopping, as well as POS payments using mobile NFC. Microsoft recently announced that its Windows Phone 8 software will have native support for NFC and a mobile wallet that the company will deliver in partnership with mobile operators and original equipment manufacturers. However, mobile NFC is not just about replacing payment and loyalty cards and physical wallets; it opens up entirely new possibilities. For instance, customers with a mobile phone will have the advantage of getting e-coupons from merchant terminals. Consumers will be able to read smart tags in stores and get up-todate information and offers, creating a whole new information and commerce driven experience, one that is much more personalized and contextualized for the user. Moreover, because mobile technology enables more targeted offers to consumers, it will also encourage merchants to invest in NFC payment terminals and services to drive consumer spending and foot traffic.
GOING BEYOND PAYMENTS While NFC is perhaps most closely associated with mobile payments, there is much more to it. NFC will facilitate a wide range of new applications for consumers, such as mobile ticketing to board public transportation, the exchange of information and content, controlled access to cars, homes, hotels, offices and car parks, and much more. This is just the tip of the iceberg; the possibilities for innovation are endless. Transportation will be a very important application that will likely develop more quickly than payments, and there’s currently great momentum in this area. In Nice, France, Veolia Transport equipped 1,500 bus and tram stops around the city, allowing customers to purchase tickets by touching their NFC phones on smart posters at the transport stops.
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In Milan, Telecom Italia and ATM are conducting a trial of a service entitled “Mobile Pass”. Users of Milan’s buses, trams, and underground network will be able to purchase and validate transport passes with an NFC-enabled phone. Transit is also a key application in Korea, where more than half-a-million subscribers to the telecommunications company KT have signed up for prepaid travel payment on buses, subways, and taxis. KT has reported that subscribers used the NFC prepaid transit service 30 million times in 2011. The mobile phone is at the centre of this NFC revolution, simply because it’s all about the user. Synovate found that 75 percent of people won’t leave home without their mobile phone. In fact, people are more likely to leave their keys or wallets at home than their mobile phones. This demonstrates the importance mobile phones have gained in people’s lives, and why mobile technology is the ideal platform for such new services.
THE MOBILE INDUSTRY VISION FOR NFC The GSMA and its members are focused on stimulating the successful deployment of interoperable and SIM-secured NFC services and ecosystems around the world. The global availability of SIM-based NFC handsets and services is required to deliver economies of scale. Interoperability will give users the ability to use any SIM-based NFC-enabled handset on any network, anywhere in the world. NFC ecosystems will enable developers to create the next wave of innovative services. If these elements are delivered, an exciting new world of contactless services will be certain to evolve for everyone to enjoy. The market potential for NFC is significant: according to Strategy Analytics, nearly 1.5 billion SIM-based handsets will have been sold worldwide between 2010 and 2016, supporting transactions of more than $50 billion globally over the same period. Further, the deployment of NFC-ready POS terminals is set to expand, growing from 3.9 million in 2011 to 43.4 million in 2017, estimates Berg Insight, at which point 53 percent of all POS terminals worldwide will be NFC-ready. Clearly, momentum is growing, but what are the critical success factors driving mass-market scale?
BUILDING SUCCESS THROUGH COLLABORATION A number of elements must now come together on both national and global levels in order to drive NFC to mass-market scale. •• Mobile industry – Mobile operators have a central role in the deployment of NFC services, but they cannot do it in isolation. They must engage their value chain by specifying and ordering appropriate handsets, through developing compliant SIM cards and designing the necessary applications to enable these services. •• Financial industry – The payment value chain is complex. To successfully deploy NFC payment solutions, the industry needs agreement from the banks and card issuers, as well as NFC-enabled POS terminals broadly deployed into the market. It’s critical to engage as many players as possible to create a ubiquitous solution that’s widely accessible and easy to use. •• Adjacent industries – The mobile industry must engage with adjacent industries as they look to NFC to provide ticketing for transport or entertainment services, access solutions for hotel or rental cars, or information exchange services in areas such as retail or museums. •• Public sector – Government, regulators, and local authorities are a critical piece of the NFC puzzle. The mobile industry needs effective regulation to encourage the deployment of NFC services, and agreement from local authorities running transport infrastructure or public information services to support NFC technology, if a seamless experience is to be created across a city or region. The importance of building a strong ecosystem cannot be understated. NFC can only succeed through collaboration across the entire value chain.
STANDARD APPROACH TO UNIFY MARKET Differing approaches to NFC will fragment the market, and potentially stifle its growth. There are a number of methods of deploying NFC being explored. For example, there are stickers, micro SD cards, and technology embedded in the device, but GSMA believes the SIMbased approach offers the best solution.
The connection between the NFC chip and the SIM card is industry standard, utilising the Single Wire Protocol. The SIM supports multiple services, can be updated over the air, and provides portability between devices and operators. The SIM is certified, standardized, and tamper-resistant, providing greater security. Further, because SIM-based mobile NFC services can be remotely provisioned over the air, the handset and sensitive data can also be terminated in the event of loss or theft. Standardization of the mobile wallet is also critical. The mobile industry needs to establish a set of model processes for the provisioning, activation, usage, delivery of updates, and importantly, the deactivation of card details stored on the mobile wallet. Industry players need to agree on standard interfaces across the NFC ecosystem to enable coupons to interact with the mobile wallet, transport systems to utilize the wallet for ticketing, and access control systems to use the credentials on the wallet to allow entry to cars, offices, hotel rooms, and more.
MOBILE OPERATORS IDEALLY POSITIONED TO DRIVE ADOPTION Mobile operators are in a unique position to drive NFC services globally. First, operators have the economies of scale to provide contactless services to all. Operators have access to distribution channels to provide and promote subsidized NFC-enabled handsets. It’s particularly important that the industry addresses all phones, and not just smartphones. Operators have an established customer care infrastructure providing a single point of trusted support. Operators have the technical infrastructure for the provisioning of SIM cards, allowing them to remotely provision or terminate services over the air, and operators have substantial experience in interoperability and roaming, ensuring the global compatibility of contactless services. We stand now at the tipping point for NFC adoption, and mobile operators will be the catalyst making NFC a part of everyday life.
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A SUPERMARKET CUSTOMER CAN SEE SEVERAL OFFERS ON THEIR MOBILE, AND BY SELECTING ONE GETS THE DISCOUNT AS THEY CHECKOUT. SALES HAVE INCREASED BY AS MUCH AS 30 PERCENT.
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Mobile operators are rolling out NFC services commercially all over the world. Like credit cards in their time, for many people SIM-based, NFC-enabled mobiles will become an indispensable part of everyday life. Nice, France has seen an evolution in its services bringing added convenience and ease of use for residents and visitors. Whether accessing information, taking a bus ride, or going out to buy food, people in the city are now using NFC technology under the brand name Cityzi as a routine part of everyday life. Retailers in particular have been quick to see the marketing potential of loyalty cards on a customer’s phone. Loyalty cards not only encourage consumers to visit again, they also work to strengthen the customer’s relationship with the retailer while giving the store invaluable information about buying habits. The supermarket chain Marche Bon Prix, for example, is using discount coupons to encourage impulse buys. A customer entering the store can look at their mobile and see several discount offers, and by simply selecting the offer the customer automatically gets the discount as
they checkout. Recent research shows that these retailers have increased sales by as much as 30 percent. NFC technology is also being used in a successful local bicycle scheme. Once registered, people can buy time and then use their phone to activate and release the bikes whenever they want.
monthly fee to banking partners for downloads and apps. The benefits for these partners include reduced overheads, lower operational costs, and an opportunity to increase market penetration. Customer response has been positive as users experience the benefits of convenience and faster payments.
With over 3,000 handsets enabled and four operators (Orange, Bouygues Telecom, and SFR) successfully working together, Nice has shown that NFC services can be popular and successful. France is now planning a national NFC roll-out over the next 12 months.
Looking at Asia, Korea has become one of the most advanced NFC markets in the world. KT Corporation, Korea’s largest telecommunications company, uses SIM-based NFC for e-money, loyalty, ticketing, transport, pre-payments, information, and mobile marketing. The operator is expecting the expansion of NFC transit payments to be a key driver of handset growth, estimating at the beginning of 2012 that 20 million NFC-enabled phones would be in the hands of South Koreans by the end of that year. This expansion is already well underway with 12,000 bus shelters in Gyeonggi province—South Korea’s most populous—having already been equipped with NFC tags providing transit information. Additionally, NFC-enabled advertisements and information services are beginning to appear in subway cars nationwide.
Another operator at the forefront of bringing SIMbased mobile NFC services to market in Europe is Turkcell, Turkey’s largest mobile operator with 34 million subscribers. It was one of the first operators to introduce mobile wallet services to individual subscribers and bring commercially available SIM-based Android NFC handsets to market. The operator makes NFC attractive to customers by waving any of the charges usually associated with the subscription to the service; instead, the business model adopted by Turkcell charges a
Rafael Díaz currently manages the Australian, Canadian and US markets for GSMA. He has been an integral part of the NFC program at GSMA for four years, earlier focusing on the Pay-Buy-Mobile project and the implementation of global interoperable SIM-based specifications. He also provides an advisory role to the NFC program’s project activities in the Latin American portfolio and previously managed its project activities in China, Japan and Korea.
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By J. Marc Brûlé, Royal Canadian Mint www.mint.ca
DIGITAL CURRENCY: AN OVERVIEW OF MINTCHIP
THE AVAILABILITY OF ALWAYS-ON CONNECTIVITY, THE EXPLOSION OF MOBILE DEVICES, AND THE GROWTH OF SOCIAL MEDIA HAVE FUELLED OUR DESIRE TO BE CONNECTED ANYWHERE, ANYTIME – AND IS ULTIMATELY CHANGING THE WAY WE TRANSACT.
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here is little doubt we are living in an increasingly digitized world. The availability of always-on connectivity, the explosion of mobile devices, and the growth of social media have fuelled our desire to be connected anywhere, anytime – and is ultimately changing the way we transact. As a result, the global payment landscape is changing at an unprecedented rate. The continued growth of electronic payments and the focus on displacing cash and coin has resulted in a market demand for new ways to pay. The major payment brands and financial institutions have focused on securing market share with recent roll-outs of chip solutions and mobile commerce products. Mobile network operators have actively been pursuing ways to participate in the emerging digital economy through “wallet” and mobile functionality, while emerging players such as Google, Square, Dwolla, and others have begun offering consumers new ways to complete transactions. Despite all of these new products and services, however, many solutions still rely on the traditional payment infrastructure; there is still no solution that cost-effectively allows merchants to manage their
environments, addresses the very-low-value transaction markets, protects privacy, is available to everyone, and emulates electronically the characteristics of cash. Many of the early innovations in the retail payments market came from the large payment brands such as Visa and MasterCard and were based on a four-party model originally introduced in the 1960s. This model relies on the infrastructure and networks developed by the large brands to facilitate payment processing among card issuers, consumers, merchants, and merchant-acquiring organizations. The four-party model has served the market well over the years and has been the basis for much of the rapid growth in e-commerce. However, this model also requires the sharing, authentication, approval, processing, and settlement of sensitive personal and transactional data, the maintenance of a secure infrastructure, the existence of proprietary networks, and ongoing brand management. All of which comes at a cost. The Royal Canadian Mint has been entrusted1 for over a century with the federal government’s constitutional responsibility for coinage2 and currency. The Mint’s overarching goal is to be the best mint in the world, and the institution intends to achieve that through financial strength, innovation, the flexibility to react quickly to changing business opportunities, and a sustained commitment to social responsibility. It also seeks to achieve a commercial return on the capital it uses today, and to invest in people, research and development, and equipment in order to ensure its long-term viability; to meet or exceed customers’ expectations for quality, service, and value; to achieve or enhance employee satisfaction, engagement, and well-being; and to apply best practices in corporate social responsibility. MintChip is a key element in this broader strategy. Since the late 1990s, the Mint has been monitoring trends in electronic payments and analyzing their potential impacts on the use of coinage. More recently, the Mint began dedicating part of its research and development budget to improving the efficiency of Canada’s currency. This research has led to the development of MintChip, an innovation that could be described as an evolution of physical money with the added benefits that come from being electronic. MintChip, in short, could become the digital equivalent of the coins Canadians use every day to conduct financial transactions with retailers and each other.
RECENTLY, THE MINT’S RESEARCH INTO IMPROVING THE EFFICIENCY OF CANADA’S CURRENCY HAS LED TO THE DEVELOPMENT OF MINTCHIP, AN EVOLUTION OF PHYSICAL MONEY WITH THE ADDED BENEFITS THAT COME FROM BEING ELECTRONIC.
The MintChip digital currency is based on innovative technology—for which the Mint has prototypes and eight patents pending in all major markets—using a secure chip to hold electronic value and a secure protocol to transfer it from one chip to another. In effect, the MintChip Integrated Circuit Chip acts as an electronic purse which can be inserted into a range of devices— mobile phones, tablets, PCs, laptops, USB keys—or it can be hosted by a third party in a cloud account that allows consumers and merchants to transact and manage their MintChip value remotely. MintChip has been designed for easy integration into mobile devices with a flexible architecture that supports a variety of device designs and operating systems, offering consumers and merchants choice with multiple ways to utilize MintChip in their mobile device. MintChip brings the familiar properties and benefits of cash into the era of the digital economy, enhanced by the simplicity and speed of e-commerce. Like coins, MintChip can be used by anyone: there are no age,
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LIKE COINS, MINTCHIP CAN BE USED BY ANYONE: THERE ARE NO AGE, DEMOGRAPHIC, BANKING, OR CREDIT REQUIREMENTS, THEREBY ALLOWING EVERYONE TO PAY EXACTLY AS THEY DO WITH CASH. NO PERSONAL DATA IS EXCHANGED IN THE TRANSACTION, WHICH IS BOTH SECURE AND INSTANTANEOUS. UNBURDENED BY THE NEED FOR A PROPRIETARY NETWORK, MINTCHIP OFFERS A COST-EFFECTIVE SOLUTION TO CONSUMERS AND MERCHANTS AND ENABLES EASY PERSON-TOPERSON PAYMENTS.
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demographic, banking, or credit requirements, thereby allowing everyone to pay exactly as they do with cash. No personal data is exchanged in the transaction, which is both secure and instantaneous. Unburdened by the need for a proprietary network, MintChip offers a cost-effective solution to consumers and merchants and enables easy person-to-person payments. The MintChip distribution model has even been designed to emulate the existing one for physical coins: MintChip will be “minted” by the Mint and distributed into the market through trusted private sector companies, ultimately to be used for trade and commerce. Recently, the Mint hosted a competition targeted at the software developer community to identify innovative ways to use and integrate the MintChip.3 This challenge was designed to allow the Mint to work directly with the developer community to validate the technology, to identify potential opportunities, and to resolve unforeseen challenges in a low-risk environment. The competition was launched on April 4, 2012 with two submission streams, one inviting developers to build and demonstrate innovative applications using MintChip, and one enabling both developers and the wider public to share their ideas on how a digital currency like MintChip could be used. Within 72 hours all 500
spots for the application challenge had been filled and by the end of the submission period the challenge had gained over 5,000 online followers, 57 submitted software applications, and over 300 idea submissions. Winners were announced on September 24, 2012. Building on the success of this competition, the Mint is currently improving the MintChip’s technology, continuing its outreach activities with various stakeholder groups on the applicability of MintChip in the marketplace, developing the business model, and having discussions with its shareholder, the Government of Canada, on possible next steps. Cash has never been so mobile. MintChip is a convenient, secure, cost-effective solution that allows merchants and other stakeholders to deliver payments, monetize digital content, provide person-to-person transactions, participate in the exploding online and nano-payment market, and compete in the mobile payments space. Without the need for proprietary infrastructure or the need to share sensitive personal information, MintChip could ignite new markets, facilitate the growth of trade and commerce, and satisfy the market need for the next generation in payments.
J. Marc Brûlé is Vice-President of Finance & Administration and CFO of the Royal Canadian Mint. Prior to joining the Mint in 2007, Mr. Brûlé served as the Chief Executive Officer of Energy Ottawa Inc., a wholly owned subsidiary of Hydro Ottawa Holding Inc., and previously held the post of chief executive officer at Dynasty Components Inc. From June 1982 until April 2000, Mr. Brûlé was a partner at KPMG Ottawa, where he provided accounting and business advice to a wide variety of organizations in Eastern Ontario. Mr. Brûlé holds a Bachelor of Commerce degree from Carleton University, and earned the Chartered Accountant designation in 1975.
Sec. 3(2) of Royal Canadian Mint Act Sec. 91(14) of Constitution Act 3 http://mintchipchallenge.com/ 1 2
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with Karim Khoja, CEO of Roshan
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Q: Four years since the launch of Roshan’s mobile money service in Afghanistan, what do you think have been the greatest gains for the mobile banking sector globally? Karim Khoja: Roshan launched M-Paisa, also known as M-Hawala, Afghanistan’s first mobile money transfer service, in 2008. At that time, the concept of mobile money was so new to people that it required a degree of explanation. In order to drive market success we launched an extensive educational campaign on the benefits of M-Paisa. Additionally, we pre-register customers to eliminate the barrier of travelling long distances to a physical branch. Roshan also introduced a qualified and authorized set of agents to further fuel the adoption and accessibility of M-Paisa services. Today, Roshan has over 1.2 million registered users for M-Paisa. Globally, mobile money services are being adopted by consumers, businesses, and banks at an exponential rate – there are more than 25 million people worldwide who are using mobile money. Particularly in markets where financial services are not available—mobile money fills the gap. Q: With M-Paisa being on the market for a number of years now, you’ve had the opportunity to solicit customer feedback, make tweaks, etc. In what ways has this impacted the M-Paisa service? Has the service undergone any substantial changes since its launch? Karim Khoja: As the needs of our customers have changed and the Afghan telecom market continues to mature, the M-Paisa service has also evolved from simple cash transfers to salary payments and loan repayments. M-Paisa expands access for all Afghans to basic financial services, bridges gaps in Afghanistan’s financial infrastructure, and contributes to the economic development of the country by encouraging commerce, facilitating savings, and enhancing the security of financial transactions. One of the innovative ease-of-use tools M-Paisa provides to customers is the Interactive Voice Response (IVR) service. In Afghanistan, the literacy rate is 30 percent. Therefore, the IVR system provides customers with verbal instructions on services including how to send money, purchase airtime, pay bills, and salary withdrawal in three languages: Dari, Pashto, and English. In addition, for those customers who are literate, M-Paisa provides them with convenience by distributing text messages in the same three languages.
The new services follow an already robust portfolio of M-Paisa offerings. In the last year, we have built partnerships with proven global mobile money partners including non-governmental organizations (NGOs), government, and industry. In fact, one of our partnerships has enabled M-Paisa customers in Afghanistan to receive mobile money transfer transactions from around the world directly into their mobile wallet accounts. Roshan’s work with an NGO has not only benefited customers by expanding the capabilities of M-Paisa, but also provided life-saving funds to those Afghans hit hardest by droughts affecting nearly 6,000 people in the provinces of Faryab, Jawzjan, and Samangan in Afghanistan’s central and northern regions. Our partnership with government has also provided Afghans with a similar benefit, providing Afghan farmers with access to credit and a means to repay loans. Other additions to our service in the last year have included the implementation of self-service terminals for customers to purchase electronic top-up, in conjunction with our partner. Q: How has M-Paisa impacted the Afghan economy? Karim Khoja: Firstly, the safety, convenience, and security of M-Paisa have revolutionized even the most basic of daily transactions. M-Paisa provides a safe way to transfer money, pay people directly and on time, especially in the most remote areas of Afghanistan. For example, Roshan’s pilot project with the Afghan National Police sees police officers being paid all their salary, which prior to mobile money services were being skimmed up to 30 percent due to the number of people involved in the flow of monies. In fact, when police members received their salary through Roshan’s M-Paisa service they initially thought they received a raise because the salary payment was in its entirety. This means that breadwinners can send money to families in villages, which leads to incremental spending to local businesses. Secondly, M-Paisa eliminates the need for Afghans to buy and sell goods with the physical exchange of currency, making them less reliant on cash.
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Q: Why the drive to reduce cash in the marketplace? Karim Khoja: Cash costs the Government of Afghanistan millions and millions of dollars every year to print. Cash can be lost, stolen, or destroyed – all of which pose problems for the owners of the cash. Using technologies such as a mobile to move money eliminates those costs and issues. They allow consumers and businesses the security they deserve, knowing that their money is safe and that if there are disputes or concerns on their payments, the flow of the money is traceable at all times. Ninety-seven percent of Afghans remain unbanked, whether due to lack of access to a physical banking location, distrust in Afghanistan’s banking sector, or an innate belief that banking is unnecessary when you can just hold on to your money yourself. Where Afghans remain reluctant in dealing with traditional banks, M-Paisa is able to provide an alternative that is not only accessible in even the most rural, isolated regions, but also offers service that is fast and trustworthy. In that context, in my view, Roshan not only contributes to human and economic development in Afghanistan but also in aiding efforts to curtail corruption, which in many ways is extremely destructive to the Afghans and to confidence in the country’s central government’s performance, not only from within Afghanistan, but from the international community, as well.
Q: Do you find that there are still barriers to entry for customers to get on the M-Paisa service, despite the proliferation of mobile money services globally and the expansion of Roshan’s offerings? Karim Khoja: The financial landscape of Afghanistan is changing, as we are slowly making an impact in the lives of Afghans, while we continue to overcome challenges. In many ways, however, the challenges we have faced have only forced us to innovate at a more rapid pace than we otherwise might have in another less complex market. In 2013, Roshan will roll out a fully-integrated mobile wallet, linked with Afghan banks. We are working to make transactions for our customers as seamless as possible. A major part of what we do with M-Paisa is educating consumers. We make the concept of mobile money as concrete and visual as possible. We started out by marketing M-Paisa as ‘The M-Hawala on your Mobile.’ That gave consumers a cultural reference point for understanding what mobile money is and how it worked. Other challenges in Afghanistan include a high unemployment rate with 35 percent of Afghans living below the poverty line and about 42 percent of the population living on less than $1 a day. Seventy percent of the population is illiterate, which presents an obvious challenge when it comes to both marketing to potential customers and sustaining engagement with current customers. Q: It sounds like one of the key benefits of M-Paisa is working with microfinance organizations. How has Roshan done that?
97% OF AFGHANS REMAIN UNBANKED THROUGH LACK OF ACCESS OR DISTRUST OF THE SECTOR. M-PAISA IS AN ALTERNATIVE.
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Karim Khoja: M-Paisa is also expanding its simpler repayment process for Microfinance Institute (MFI) loans through a partnership with MFI Mutahid. Currently, MFIs cannot easily set-up offices across Afghanistan due to cost and security concerns. MFI members have to travel at least five hours just to make loan repayments. Women make up 65 percent of Mutahid’s membership and cannot even leave their homes because of cultural and security concerns. To uplift the lives of the Afghans, M-Paisa, together with Mutahid, has implemented the mobile money ecosystem in Kabul and Mazar and will be expanding in the coming year to other provinces.
The M-Paisa ecosystem is vital as it allows MFIs like Mutahid to serve more members at a lower cost, and increases reach into areas where a full MFI service outlet would not be cost-justified. Furthermore, using mobile money will enable Mutahid members to move their funds from mobile wallets to major Afghan banks for savings, thus enabling the Afghan banking system to gain traction. M-Paisa allows Mutahid members—especially women—to be empowered and have access to their accounts more frequently and manage their loan funds more easily. There are potentially 15,000 Mutahid members to be attained, mostly women, who will regularly use M-Paisa to repay their loans covering areas such as handicrafts, sewing, and carpet weaving. Repayment via M-Paisa can change Afghan lives by increasing incomes with support of the Mutahid services. Q: Recently Roshan has gotten some competition in the mobile money space with the addition of Etisalat, MTN, and the Afghan Wireless Communication Company (AWCC). How do you anticipate this will affect the market for mobile money?
One of the best things to emerge from the increased competition is new opportunities for collaboration. With more operators in the mobile money sector, Roshan is a member of the Association of Mobile Money Operators in Afghanistan (AMMOA) and we were first to chair it. Earlier this year, we participated in a key stakeholder contest among university students to develop mobile money applications that create a real business impact in the areas of agriculture, education, government service efficiency, and women’s empowerment. While the collaboration has helped Roshan educate consumers, tackle regulatory challenges, and cope with other obstacles, obviously more operators offering mobile money services does require increased vigilance in growing the applications’ accessibility to service through agents. At the same time, however, Roshan’s position in the Afghan market is strong. By being the first to market M-Paisa, Roshan has a builtin advantage of growing around unique customer insights that we have gathered throughout the platform development, launch process, and continued education and awareness campaigns. Q: Is there anything you would like to add?
Karim Khoja: Roshan is Afghanistan’s leading telecommunications provider with over six million customers and has always been at the forefront of innovation. Roshan came into the market when no one else was willing to invest and became the market leader within its first six months. In 2008, again, Roshan was the innovator by bringing M-Paisa to the market.
Karim Khoja: Afghanistan is a unique country in that the largest demographic segment is youth. The youth, who are the future of Afghanistan, aspire to be educated, live safely, utilize technologies to better their lives, and live healthy. Growth in data usage is also increasing as is the use of social media. We see this on our Facebook page, RoshanConnects.
In terms of mobile money, Roshan was the first to bring the product to Afghanistan and is the only operator with an Electronic Money License. Obtaining that license was an important milestone not only for Roshan’s M-Paisa, the original M-Hawala, but it also set the standard for other mobile money service providers in Afghanistan. That is an achievement we are very proud to have brought to Afghanistan: transparency when conducting financial transactions.
The Afghans are resilient and optimistic and I am too for their future. But it is clear as indicated in the Asia Foundation’s recent 2012 Survey of the Afghan People that issues critical to the country’s long-term prospects depend heavily on addressing security and corruption issues, job creation, and dialogue with Afghans of all backgrounds throughout this country of over 30 million people.
Karim Khoja, Chief Executive Officer of Roshan, has over 25 years of experience in the telecommunications industry, including starting and managing extremely successful GSM companies in Pakistan, Poland, Croatia, Tajikistan, and Afghanistan. Over the course of the last ten years, Mr. Khoja has dedicated his time to the Aga Khan Fund for Economic Development (AKFED) to bring competition and best practices to the telecommunication industry in Afghanistan and Tajikistan. He has focused not only on financial results, but also on how technology can be used to change lives. Under his leadership, Roshan has grown to be Afghanistan’s market leader, with over six million customers. Roshan has received international recognition for Outstanding Achievement in the Face of Adversity and Special Recognition for Corporate Philanthropy.
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CANADA MAY BE A LEADER, BUT IT’S NOT ALWAYS THE LEADER. Mobile wallet usage (% of mobile users):
Source: TNS, “Mobile commerce reaches the tipping point”, http://www.tnsglobal.com/sites/default/files/whitepaper/TNS_In_Focus_mobile_commerce_reaches_tipping_pointv2.pdf
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USA
CANADA
AUSTRALIA
RUSSIA
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