A digital economy requires at least three critical elements: The easy movement of information; the easy movement of money; and the rigorous management of identity. Founded in 2009, Boku is no newcomer to the world of mobile payments and has expertise in at least two of those three areas. So, when the opportunity arose to speak with Mark Stannard, Boku’s Chief Business Officer, 6GWorld™ leapt at the chance.
Competition and Standardisation
The conversation arose from a recent announcement about a new mobile payment platform service from Boku called M1ST (meaning Mobile First, pronounced ‘Mist’). As mentioned, Boku is hardly a start-up in this arena… so why the announcement? It relates a development of the mobile money and mobile payments market which in many ways parallels the evolution of mobile telephony itself.
“You have to realise that it’s still very embryonic,” Stannard explained. Just as mobile networks were built out, call roaming systems between networks were organised, and then global applications and services emerged in addition to calling, so it seems to be going with payments.
“We’ve worked with […] digital merchants to effectively build out a technical infrastructure and essentially a set of scheme rules, which has basically enabled the mobile payment ecosystems to grow exponentially in the last few years,” Stannard explained. “M1ST now begins to add in other layers of payments technology that we are seeing become incredibly popular with very high usage in large parts of the world, such as mobile wallets and real-time payments networks.”
The system appears to be driven largely by the end users rather than the major payment providers. “We are plugging in systems that consumers are choosing to use, and then effectively creating a scheme around that. Mobile payments have not yet reached the level of maturity of credit cards, where all of the difficult elements have been managed through a small number of global schemes. This is why Boku is creating the scheme for mobile payments, offering a single API to global merchants, with a core single payment integration along with all the scheme rules. For merchants, the M1ST network makes their lives much easier,” according to Stannard.
This appears to create a market that works in the opposite way from credit card systems, where two or three major providers dominate. If merchants are able to support almost any mobile payments system, then the friction for consumers to swap between payment providers or methods is marginal. Will this stimulate additional competition between payment providers? Not necessarily, according to Stannard. The market is moving quickly already.
“A few years ago – say even three years ago – someone would have probably said, ‘Hey, look, there’s seven or eight wallets that we really need to integrate in Asia Pacific or globally’. Now that could be 40 or 50 and they’re growing exponentially as well. And what was the dominant wallet in one market three years ago may not be the dominant wallet in that market any more. It’s really that fluid,” Stannard explains.
In itself, this competition is likely to be a good thing, but it creates challenges for merchants in the shorter term.
“It’s creating requirements around standardisation and interoperability as well,” Stannard noted. “If you need to do a hundred different types of connections to get into a hundred of these new payment methods, most merchants just do not have the infrastructure to do that.”
This is where platform providers such as Boku come in, developing platforms to allow a simple integration between many payment systems instead of merchants connecting to payment platforms one by one.
“Generally, I would say that’s the evolution that we’ve seen most of the merchants taking. And I think that’s actually adding fuel to the payment ecosystem itself,” explained Stannard. “So there is competition within the wallets, there’s competition within the merchants, but I think what they’re all requiring is a degree of standardisation that enables all of them to scale.”
The Operator as Payment Provider
Looking at the most prominent payment systems on mobile globally, there are obvious successes like WeChat Pay and Alipay in China, GoPay in South-East Asia, and Apple Pay in the USA. None of these are related to mobile operators. Do operators have a place in the evolution of the market? Quite possibly, according to Stannard.
“WeChat Pay is essentially a mobile payments technology that didn’t spring from the carriers but sprang from the mobile app ecosystem. It was the first of the mobile super-apps which had a payment system within it for its own services, and then they basically made that a third-party service as well. Whereas something like AliPay has come from a large, dominant e-commerce player that has essentially re-used its own payments infrastructure. I think some of the mobile wallets though – things like True Money in Thailand, or Gcash in the Philippines – have been spun off by the carriers there as well. So whilst what they came from may have differed, what they’re kind of evolving into is becoming much, much closer and much more similar.”
The way Stannard is speaking, it is clear that Asia Pacific is a hotbed of convergent evolution in mobile payments. Would it be fair to say that it’s the centre of the mobile payment world?
“Asia Pacific has been the dominant growth area and an engine for these types of payment mechanics,” Stannard concedes, “But it’s also been the dominant growth engine for e-commerce for the last decade or so as well.”
The future may not be all about APAC, though. “In fact, LATAM has overtaken Asia Pacific in terms of e-commerce growth rates. And then I think we’re going to start seeing Africa and the Middle East join those as other really high-growth areas.”
Africa has long been a pioneer in operator-owned mobile money systems, for example with transactions over Kenya’s mPesa (owned by Vodacom) famously now carrying a significant percentage of the country’s GDP. If the markets in Africa or Latin America follow a similar disruption to that in Asia Pacific – perhaps even facing competition from the likes of rich competitors such as AliPay – can the existing operator-backed systems differentiate? If the carriers play to their strengths in managing mobile identity, Stannard believes so.
“Because of the crossover of telco and payment regulation, the telco services tended to get spun off into specialist divisions, but in terms of ‘Who’s making the payment? Who’s receiving the service?’ I do think the telcos have got something that can be used there,” he noted.
This is principally because of the relative difficulty in establishing customers’ identities in places where even births may not be registered consistently. And yet, for transacting on mobile, a baseline of identity management is needed, as Stannard explained: “Whether it’s from a permissions perspective – for content that is only accessible over a certain age – or whether they need to know who those users are in order to transmit P2P [person to person] funds to them compliant with Anti-Money Laundering regulations.”
Because telecoms providers have had to comply with KYC (know-your-customer) requirements to register customers for their services, their understanding of who their customers are is much more rigorous than many app providers. “And what that’s doing, I think, is allowing the carriers to come back in and play.”
Regulation and Disruption
The challenge for operators has been to manage regulation both from the telecoms and financial services angles. Although it is a trope that regulation lags behind markets, Stannard has found that in many countries – especially where banking infrastructure was previously scarce – there are opportunities to build a better relationship and build confidence in new payments systems.
“This is enabling huge swathes of people to get access to digital banking products for the first time. This is important in emerging markets as we are seeing billions of people join the global middle class. From a regulatory perspective, these transactions being electronic is highly advantageous as they’re much easier for governments to see these transactions from a tax perspective.
“Generally we’ve seen that the regulators in many markets are quite supportive of mobile payments and digital cash, as these technologies are driving greater financial inclusion, especially in eCommerce, while also creating greater visibility for cash-based transactions. These are highly aligned to what many governments are looking to achieve over the next five to ten years.”
Since we’re talking of the coming decade, it wouldn’t be a 6GWorld interview without looking ahead to ask where the next disruption would be coming from. The answer is unexpected.
“I’d say the disruption is already here. When you look at companies like GoPay and WeChat Pay these are already multi-billion-dollar companies that are continuing to grow rapidly. In some markets, mobile payments providers have been around for years and have already established a dominant position,” Stannard noted… but that’s not all.
“For many providers, expanding the services they offer will be the next phase of growth. Will they be able to offer additional banking services? Will they be able to effectively offer things like ‘buy now, pay later’ systems within their core infrastructure? I’m sure these are things that we will see.”
The other area where Stannard sees an exciting and challenge growth area is the Internet of Things. “The obvious ones are the B2C [business to consumer] transactions, but there are also lots of transactions that happen between companies as well. And this is growing increasingly automated. The other thing that we’re seeing is the move generally towards recurring revenue streams as well. Subscription-based economic models in IoT are growing all the time.”
“So this is exactly the kind of thing that we’re thinking of as we are building out our technology and payments infrastructure. Boku is continuously looking at the markets where we can deliver the most value and evaluating the need for regulated entities and the licenses to facilitate all of these.”
Once again, in Stannard’s words we can see the tension between working in a fast-moving environment and working in a heavily-regulated one. He clearly relishes that tension and what it might bring about, however.
“I think what’s really exciting about this ecosystem is how rapidly its grown in every corner of the world, it’s very decentralized and not coming from an overarching scheme. It’s very fluid. It’s really following the consumer demands and the consumer requirements, and now the infrastructure has to be built out to support this nascent space.
“It’s a really exciting time for the global payments ecosystem and for the consumers themselves.”
Alex Lawrence is Managing Editor at 6GWorld. His mission is to bring together stakeholders from across industries, countries and disciplines to make sure that, as technology evolves in the coming decade, it’s meeting the changing demands of society, government and business.
He has been involved as a professional nosy person in the telecoms sphere since 2004, with short detours through industrial O&M and marketing.
If you’d like to talk to Alex about your ideas or projects he’d love to hear from you. @animalawrence or firstname.lastname@example.org.