Cover Story

Payment power to the cellphone

The cellphone can now really do everything, as local mobile payment service companies draw the battle lines.
1 November 2008
POCit's David Reynders is in a position to use his customers as sales people.

Paying a bill, transferring money or checking your bank balance no matter where you are is now simpler than ever before. Many are still concerned with the security and privacy of their personal information, but the modern cellphone and mobile payment services have taken the guesswork out of every equation.

Mobile banking, for one, has progressed to the point where virtually every bank now offers this service to its customers. The mobile payment space, on the other hand, is where all the potential for growth lies. The battle lines have been drawn.

According to Lindsey MacDonald, Frost & Sullivan analyst, the size and potential of the mobile payments market in South Africa is difficult to gauge. "We`ve found the local market is dominated by application providers, many of which are targeting the massive unbanked sector. [Mobile banking provider] Wizzit, for example, is targeting this market and aggressively entering the townships and informal settlements in order to educate people about the benefits of mobile banking. Wizzit has spent a considerable amount of time educating these people and done a good job of it too."

Conversely, a company like MTN Banking failed to capture the hearts and minds of users with its limited original product offering. "[MTN Banking] has subsequently reconsidered its offering and now has a great product," says MacDonald.

The main challenge for all mobile banking and mobile payments players is education of the market - one of the biggest factors restraining growth. "We`re still very much a cash-based society," she says. "If people can`t see and touch money, they cannot attach as much value to a mobile payment service."

Early mover Fundamo, on the other hand, deserves praise for taking South African expertise worldwide, and for understanding the importance of mobile communications in emerging economies.

Fundamo CEO Hannes van Rensburg says the demand for mobile wallets is on the increase because of the market penetration of mobile phones.

If people can't see and touch money, they cannot attach as much value to a mobile payment service.
Lindsey MacDonald, Frost Sullivan
"The mobile wallet is a fully functional and secure account that the consumer can use for convenient and secure payments from a mobile handset. Combined with a payment card, the mobile wallet is used as a purchasing account and person-to-person payment tool." With almost 3.5 billion cellphones worldwide, he`s certainly onto a good thing.

How secure?

The eventual success or failure of mobile banking and mobile payments rests in the security of handsets. Should it be on the handset, the network or must it reside on the payment platform? There`s no clear answer.

Says MacDonald: "The mobile payments market will grow exponentially, even with the financial market we find ourselves in today. As mobile handsets become more ubiquitous and the channel starts to develop, we can expect growth in the next five to ten years."

Adrian Vermooten, head of mobile channels at Absa, says mobile is the bank`s fastest growing channel. "We`re moving away from categorising mobile banking and focusing more on the mobile channel. We`re seeing more convergence and a blurring of functionality of what was push messaging and is now push-and-response and customer pull. Today, the cellphone is an interaction device."

Vermooten points out that Absa`s customers are becoming increasingly more comfortable and accepting of mobile interaction, evidenced by the fact that about 40 percent of Absa`s 9.6 million customers use mobile channels and that R1-billion per year is moved across its mobile infrastructure. With such large volumes, security is naturally a top priority. Absa has a level of customer trust (through education) and functional security that includes SIM encryption (transactions via secure SMS), fully encrypted WAP and mobile network access through secure gateways. "We`ve adopted a very conservative approach that says the mobile channel should be no less secure than any other channel used by customers," he says.

Local company POCit, part of Tradebridge and Healthbridge, which pioneered real-time transaction switching and processing technology in the South African healthcare industry, has developed a secure mobile payment system, which launched in mid-October. Backed by Capitec Bank, the kernel of the idea started two years ago, while the actual development of the product kicked off in December 2007.

David Reynders, managing director of POCit, says the idea behind the creation of POCit was to reduce the pain often experienced with paying people. The service claims to work across all cellular networks and with all banks. POCit`s main focus is peer-to-peer payments made by people on a daily basis, such as paying contractors, friends and family, and even co-workers. "For those really simple payments, this is the way to go," he says.

Instead of relying on a mobile banking platform, POCit has developed its own application that works on "any cellphone introduced after 2004".

"We manage the relationship between an external identifier (your cellphone number) and wherever you want money paid into or out of," he says. "Our service is not limited to a phone number."


POCit may be the newest mobile payments provider to emerge locally, but there`s some stiff competition from mobile banking company Wizzit and retail point-of-sale (POS) player WiWallet.

WiWallet is focusing its attention on the retail space. Thanks to its relationship with shareholder UCS, it`s looking to wrap up more of the big retailers.

"We`re currently working very closely with the major retailers and have already integrated with a number of point-of-sale (POS) software providers countrywide. With partner group UCS, we`re well positioned to grow our offering," says WiWallet CEO Bevan Ducasse.

Commenting on the competition in the mobile payments space, Ducasse says there`s always room for peer-to-peer payment services. "I feel that where we`re going is more strategic because point-of-sale is where everyone is likely to spend their money - not paying your friends. Certainly, there`s a need for peer-to-peer payments and, in fact, what we do is complementary."

Ducasse makes no bones about it: getting into the POS space is extremely difficult. "Our biggest challenge is convincing the banks of the viability of what we do. They`re not keen to change and are usually slow movers. Another challenge is generating customer awareness. We`ll need to leverage off the big brands and retailers, and show that our offering is more convenient and secure," he adds.

WiWallet is piloting a service with debit cards, having won acclaim in the credit card space. "We`re also approaching the mobile banking players, but this isn`t something we`re rushing into; they can link into us at a later stage." His message to consumers is: "Keep your bank accounts and cards - we`re making things easier by adding everything onto one device. Our philosophy is about convenience, security and simplifying the way people make payments."

With partner group UCS, we're well positioned to grow our offering.
Bevan Ducasse, WiWallet
Conversely, a mobile banking service offered by any one of the big banks, including MTN Banking powered by Fundamo, is an interface into your bank account via your cellphone. A niche product, it`s only used if you don`t have a PC nearby.

"Mobile banking is like internet banking in a shoebox," says Reynders. "It`s not the kind of thing people will make a lifestyle of, given the choice. It takes all the complexity of an internet banking site and throws it onto a tiny cellphone screen. And you still need to speak bank."

For POCit, the biggest differentiator is credit card haves and have-nots. At this stage, it`s only possible to use a credit card to make payments on POCit. "Being able to pay from a bank account is more complicated and doesn`t work in real time," says Reynders.

Mutsa Sibanda, managing director of Wizzit Bank - a division of the Bank of Athens - says the Wizzit business model and value proposition is vastly different to what South African banks currently offer.

"Our channel to market is through the cellphone, while the banks only use cellphone banking as a value-added service to their customers."

You speak bank?

One of the eternal problems with paying a third party is correctly capturing an individual`s banking details: do you know the bank account number, branch code and branch name? It`s not something that`s very intuitive.

Reynders thinks payments would be far simpler if people didn`t need to "speak a different language". Of course, everyone needs a unique identifier in order to make and receive payments, but it doesn`t have to be a bank account. ID numbers suffice in most instances, as do e-mail addresses such as the PayPal method. With POCit, it`s your mobile number.

Wizzit, which competes with the likes of MTN Banking (and the established banks in South Africa), is adding value for value`s sake. "Function for function, we offer the same type of service as MTN Banking," says Sibanda. "However, we have the first mover advantage and, therefore, a better penetration into the local market." He admits it`s business as usual and that Wizzit continues to deliver on its value proposition.

At the time of going to print in mid-October, POCit was in the throes of making its services available to the mass market. In order to grow awareness, Reynders wants to host a number of "focused launches around the country", starting with office parks and other similar gatherings of people.

"We want to activate groups of people who would have a reason to interact with one another in ways we cannot predict, hopefully activating a number of key payments in that space. Of course, we all would love to pay for everything with our cellphones, but in the short term, we want to enable people to be able to pay for a few key things on a regular basis."

Wizzit`s Sibanda says that with the World Bank`s investment in its services, future prospects for growth in the unbanked sector for Wizzit look increasingly promising. He has a valid point. On its own, banking software is less of a competitor. Rather it`s a business model or service provider that creates real competition in the mobile payment space.