Real-time payment systems launched across the world

When a person receives a check and has to wait for two-four days for its clearance, that’s not a good scenario. Many say that they have gotten used to it, but the younger generation is living a fast-paced life; millennials are challenging the status quo. There is a rising need for immediacy in payments whether it is banks, businesses, or even peer-to-peer. Solutions are available in some parts of the world for immediate transfer of funds. We have been tracking real-time payment systems launched across the world on an ongoing basis and have had discussions with people who built them. I thought of sharing it in the form of a timeline infographic to understand the trends.

People and businesses worldwide want payment systems that can achieve the desired speed of transactions, minimize the cost of transactions, reduce risks of fraud and bring satisfaction of service across different channels. That’s where real-time payments come into the picture. It has already been implemented in some countries and the US is not on the list.

Below is an infographic showing a timeline of countries adopting real-time payments:

1973: Zengin (operates 08:30-16:40)

Japan was the first country in the world to implement real-time payments.

1987: SIC

Switzerland was the first country in the Europe to implement real-time payments.

1992: TIC-RTGS (operates 08:30-17:30)

Turkey was the second country in Europe to implement real-time payments.

1995: CIFS

Taiwan was the second the country in Asia to implement real-time payments.

2000: Greiðsluveitan (operates 09:00-16:30)

Iceland was the third country in Europe to implement real-time payments.

2001: HOFINET

South Korea was the third country in Asia to implement real-time payments.

2002: SITRAF (operates 07:30-17:00)

Brazil was the first country in South America and among the BRIC nations to implement real-time payments.

2004: SPEI

Mexico was the first country from North America to implement real-time payments.

2006: RTC

South Africa was the first African country to implement real-time payments.

2008: TEF

Chile was the second country in South America to implement real-time payments.

Faster Payments

The UK was the fourth country in Europe to implement real-time payments.

2010: IBPS

In 2010, China introduced real-time payments.

IMPS

In 2010, India introduced real-time payments.

2011: NIP (operates 08:00-17:00)

In 2011, Nigeria introduced real-time payments.

2012: Elixir Express

Poland implemented real-time payments in 2012.

BiR

Sweden implemented real-time payments in 2012.

2014: Nets

Denmark implemented real-time payments in 2014.

FAST

In March 2014, Singapore introduced real-time payments.

Countries like Singapore and the UK have this service free of charge. Even countries like Nigeria and India are offering such real-time payment services.

In the US, we don’t have something which people enjoy in many countries across the world and that is an opportunity to build free real-time payments for any amount.

NACHA, the electronic payments association, has recently proposed a solution to provide a new, efficient and ubiquitous capability to expedite the processing of ACH transactions. With the new rule, the same-day processing of virtually any ACH payment can be enabled. But it will take some time for the rule to become fully effective. Same Day ACH would become effective over three phases during September 2016 as follows:

• In Phase 1, ACH credit transactions will be eligible for same-day processing, supporting use cases such as hourly payroll, person-to-person (P2P) payments and same-day bill pay.
• In Phase 2, Same-day ACH debits will be added, allowing for a wide variety of consumer bill payment use cases like utility, mortgage, loan and credit card payments.
• Phase 3 introduces faster ACH credit fund availability requirements for RDFIs (receiving depository financial institution); funds from Same-day ACH credit transactions will need to be available to customers by 5:00 PM RDFI local time.

Phase 1 is scheduled to begin September 23, 2016.

In Australia, the service is in its implementation phase.

(article by Amit/LTP)

The Uberization of banking

The financial services industry must rise to the challenge of disruptive technology and the expectations of enhanced digital experience models to remain competitive as the primary consumer interface for banking services.

Technology innovation is always spawning new words, but it is rare that the name of a company becomes a verb. Google is clearly the most prominent example of this phenomena, but now it seems, at least in the business world, that Uber may be becoming a verb meaning to ‘radically disrupt’ an entire industry.

While Google grew out of the first ‘dot-com-boom,’ Uber is one of the largest companies to have grown out of the second tech boom. This time round, the boom is being built around two main themes, ‘apps’ and the ‘sharing economy’.

An interesting infographic has been making the rounds on social media, highlighting the success of new ‘sharing economy’ disrupters. The references, illustrate how the middle men get cut out and how companies that take over the customer interface are the ones to gain.

“The new breed of disruptive companies are the fastest growing in history. Uber, Instacart, Alibaba, Airbnb, Seamless, Twitter, WhatsApp, Facebook, Google are indescribably thin layers that sit on top of vast supply systems (where the costs are) and interface with a huge number of people (where the money is),” states Goodwin.

While this is a fun infographic to share with our more luddite friends, there are fundamental questions we need to ask to understand how these companies have been this successful. We might also ask what this means for innovating in the financial services industry.

To answer that question, we must first understand the attributes of both the industries they serve and their solutions, so we can see what is applicable outside of these spaces. Then, we can look at how this can, and will, be applied to banking, investing, insurance and other financial services.

The attributes of disruption

Some innovations are 100% new. Before Google (or before search engines) it was just not possible to find most of the world’s knowledge, or cat videos, in seconds. And while Apple may not have invented the MP3 player, it was their innovation of the iTunes store that made it possible to legally, and easily, fill your iPod with music.

Other innovations make existing tasks so much easier and accessible that they can create whole industries and markets. Ebay is a good example. Before Ebay, you could buy and sell items and collectables through classified ads and special publications and events. But it was hard and time consuming to do, and hence dramatically limited the people who would participate in these activities.

Ebay’s innovation was twofold – scale and ease. Ebay saw that the global reach of the Internet allowed small pockets of interested parties to easily find each other, and their Pez dispensers. And, they made it easy. A few clicks, and you were done. They created a truly massive marketplace (with very low friction) that let individuals easily participate.

Uber and Airbnb are in this latter category … simplifying an existing process and providing an easy customer interface. Before Uber, you could get a taxi or car service and before Airbnb you could rent a property. It was just much more complicated for both the property owner and the renter, especially if the property was in a more obscure location. Again, they have taken the friction out, and created true marketplaces.

While the ‘sharing economy’ is a bit of a misnomer – after all, you are not ‘sharing’ your house on Airbnb, you are selling it for a defined period – Airbnb has created a completely new type of market that was just not open to participants before.

Like Etsy before it, Uber, Airbnb, and other ‘sharing apps’ have allowed participation in markets as a secondary income stream for millions of people. In essence, the ‘sharing economy’ is better applied to the idea that these services provide people with a share of their income, based on using a share of their time or assets, rather than being their full-time role.

They have enabled the efficient application of millions of ‘shares’ of peoples’ time or assets to a new marketplace.

So before Uber, the taxi was a physical thing (a car) that was only applied to being a taxi (it was not used for going to IKEA with your spouse) and driven by a person whose job it was to be a taxi driver. With Uber, there’s a person that may be working a few hours, using their own car, amplified by thousands of people.

As with the eBay example, these new disrupters also make it very easy for consumers. They have a beautiful digital experience, and with a few clicks on an app you can be on your way. And, that ease moves through the total customer experience.

Finally, and most relevant to the financial industry, Uber and Airbnb have targeted highly regulated industries and fought them head on – to the point where new laws have been written to fight, or allow, these services. Beyond the safety issues (e.g., ensuring properties have fire escapes, etc.) it can be argued that the regulation in this area was overbearing to the point of damaging the market. And because issues tended to be local in nature (e.g., taxis are typically regulated on a city basis), they were more prone to cronyism – something less true with financial industry regulation.

Looking at these ‘sharing economy’ services and technology-led innovations, we see consistent attributes that are key to success:

• Consumer need – Addresses a core human need, whether for a ride across town, somewhere to stay, or to buy a handmade unicorn ring.
• Simplification – A model that reduces friction in existing ecosystems or creates a new way to address the customer need. They just make it much easier.
• Marketplace Creation – Brings many people to one source and creates large, transparent marketplaces for customers and sellers.
• Scalability – The ability to scale the model quickly, and to take advantage of the network effect.
• Experiential – Makes the customer (and seller) experience accessible, easy and virtually pain free. This is a critical attribute.

While a company does not need all of these to be successful, the more qualities that are embraced, the more successful the disruptor seems to be.

The foundation for disintermediation

Many financial services firms rely heavily on intermediaries to drive distribution for their business, such as insurance agents or financial advisors. It could be argued that bank branches can also be seen as intermediaries, although clearly not independent.

That said, the first dot-com boom promised, and delivered, a lot of disintermediation. The poster child for this was the travel industry. It moved away from travel agents to direct booking with airlines, hotels, and others, as technology enabled the transparency needed to price and select the choices we all wanted in our travel plans.

But some of the new ‘sharing economy’ firms are intermediaries, in the sense that they are between you, the customer, and the actual service provider. Where they differ from the old travel agent model is that it’s the technology and the algorithm that is now the intermediary, not a person in a local office. And that technology is transparent and enabling to the user, not limiting and obfuscating.

“In the modern age, having icons on the homepage is the most valuable real estate in the world, and trust is the most important asset. If you have that, you’ve a license to print money until someone pushes you out of the way.” – Tom Goodwin

It’s this kind of new technology-based intermediary that could well disintermediate financial advisors, agents and even branches. The new crop of ‘robo-advisors’ such as Wealthfront, Betterment and Personal Capital, are doing just that. They focus on exceptional digital-led customer experiences based around the technology/algorithm doing the heavy lifting. And for many people in the mass market and mass affluent market whose finances are not particularly complex, these firms can easily replace the value of a financial advisor.

The same could be said for the mass market use of branches. We have already seen a tremendous exodus of physical branch transactions to online and mobile banking. We have also seen a tremendous battle for the customer interface from fintech providers such as Simple, Moven, PayPal, Venmo and hundreds of others that are unbundling banking.

The future for financial services

So, what does this analysis of Uber and its ilk tell us about the financial services industry and the opportunity (and need) to innovate? Firstly, it says the industry, despite its sheer size and level of entrenchment, is not safe from radical innovators and disrupters.

Like Uber not owning cars, could a bank exist without capital or a vast physical distribution network? In some places this is starting to happen. Peer-to-peer lending is growing strongly with firms like LendingClub and others. Payment technologies (Apple Pay, Square, etc.) are nipping at the toes of lower-end banking transactions, although many piggy-back on traditional financial services providers.

While there may not be a single large disruptor, traditional banks and credit unions are being targeted from many sides, and as each profitable business gets disrupted, it becomes harder for a bank, insurer, or investment firm to sell more products to each consumer.

In fact, this may be the biggest challenge to the financial industry. As customers use more and more of these disrupter apps and services, their expectations of their bank or insurer (and every other type of service they use) changes rapidly. They want powerful services, delivered at the swipe of a smartphone screen, wherever and whenever they happen to be. And as more of their financial services are delivered in this way, it will be easier and easier for them to step away from the inertia of their traditional bank, insurer or investment firm.

To adapt, the financial services industry needs to get ahead of the disrupters and disrupt themselves, and maybe slay a few sacred cows along the way. They need to:

• Become customer advocates – Learn and focus on their customers and deliver around what those customers need to have positive outcomes in their financial life.
• Become digital delivery platforms – Focusing their operations on efficient use of technology to seamlessly delivery their services.
• Understand change is good – Some lucrative businesses will go away. Other new models will enter. Focusing on past success will not prove successful moving forward.

And some of the sacred cows that need slaying:

• Branches – Saving the money from a few oversized and/or misplaced branches and investing in innovative technologies has a much better ROI. But, branches are banks, and it’s hard to let go.
• Low-value intermediaries – Most if not all basic administration and activation type tasks are more easily achieved with technology, and it’s what customers want. Agents and advisors need to be focused on true expertise and advice, not pushing paper. The initiation of a new relationship must be simplified and provided for those who want to open an account on their mobile device.
• Unnecessarily complex products – Any product that ‘needs to be sold’, should not be sold. If the value is not clear, the product is designed badly and is ripe for disruption.

We are on the verge of some exciting times in financial services. We all carry around a powerful computer in our pocket, and are ready to manage our finances in exciting new ways. If we can deliver the disruption that is needed in the core financial industry models, maybe driving positive outcomes for our financial situation will be as easy as grabbing that Uber uptown?

(article by S.Mathews) 

The State of Mobile Money Access

How does the mobile money industry manage to make financial services accessible to millions of unbanked and underbanked people?

While using a mobile phone makes it more convenient to conduct payments and make transfers, mobile money users still need to be able to easily cash-in and cash-out from their mobile wallet, and these cash-in and cash-out (CICO) activities have to be supported by a physical network of distribution points. In an article published last week, we estimated that every month, around 54m unbanked and underbanked people make mobile money transactions.

How far are mobile money agents reaching?

To facilitate deposits and withdrawals from accounts, the mobile money industry has been relying on large networks of agents. First, let’s consider the reach of these agents. In 2013, the number of mobile money agent outlets grew quickly at an annualized growth rate of 71.5%, reaching 886,000 in June 2013. In comparison, the established global money transfer service Western Union has a network of just over 500,000 agent outlets around the world.

On average, there are 28.4 agent outlets per 100,000 adults in markets where mobile money is available. This is six times more than the average density of bank branches in these markets, which stands at 4.6 per 100,000 adults. This signals that mobile money is able to significantly expand access to financial services for the unbanked and underbanked. In countries where there are more mobile money agents than bank branches, agents rather than banks are becoming the face of the financial services industry.

What percentage of mobile money agents are active?

While the reach of mobile money agents is impressive, it is important to consider the level of activity of these agents. In 2013, mobile money providers registered large numbers of new agents. Unfortunately, a significant portion of them are inactive. 464,000 mobile money agent outlets were active in June 2013, performing at least one transaction in that month. Globally, 47.6% of registered agent outlets were inactive in June.

Viewed at a more granular level, the average number of transactions per active agent outlet per day increased slightly between September 2012 and June 2013, from 5.6 to 6.7. Based on MMU benchmark data, any ratio above 10 is usually quite healthy. When that ratio is too low, agents may not generate enough revenue from transaction commissions to justify participation in the service. However, when the ratio is too high, the quality of the service declines because agents do not have enough time to serve customers properly or educate new ones about the service. 

What are the trends in mobile money distribution?

As the industry matures, new distribution trends are emerging which contribute to improving accessibility of mobile money services.  One of these trends is agent sharing. Traditionally, every mobile money provider builds and manages its own network of mobile money agents, although in some cases agents can service multiple deployments in one market. In 2013, we began to see agent-sharing models becoming formalized, with service providers recruiting and managing agents that other companies use to deliver their own mobile money services. Examples of this model already exist in Nepal, Nigeria, and Zambia. This emerging trend highlights an interesting alternative for operators seeking to manage their cost structure.

Another interesting trend is the extension of mobile money distribution beyond agents using ATMs; as of June 2013 a global network of over 260,000 ATMs could be used to access mobile money accounts. Indeed, ATMs can be an attractive complement to a traditional network of agents: they are available 24 hours a day / 7 days a week, and usually have enough liquidity to support cash-outs. Some ATMs also enable cash-ins, but in most cases, they are used as alternative cash-out points. Our 2013 survey of mobile money providers revealed that 23% of the respondents were using ATMs as cash-in and/or cash-out points in June 2013. This percentage is growing fast as it was already twice as many as in September 2012. Some mobile money providers are particularly keen to leverage ATMs; check out our interview with Yolande van Wyk to find out more about the example of FNB in South Africa.

This approach seems to be especially popular in the East Asia and Pacific region and in Latin America and the Caribbean. In three markets—Brazil, Indonesia, and Thailand—more than 40,000 ATMs can be used to perform mobile money cash-ins and cash-outs. In June 2013, ATMs processed 1.5% of the total number of cash-ins to and cash-outs from mobile money accounts.

These insights come from MMU 2013 Report on the State of the Mobile Financial Services Industry.

• To download the Mobile Financial Services for the Unbanked – 2013 State of the Industry Report click on the following link: MFSU – SOTI2013
• To download the Mobile Money for the Unbanked State of the Industry 2013 presented at Mobile World Congress in Barcelona this year click on the following link: MMU SOTI2013 (MWC2014 presentation)

(article by GSMA MMU)

Mobile 3.0 offers mobile users “super apps” [Infographic]

Mobile 3.0 offers mobile users a new breed of “super apps” that are displacing one-off purchases with longer term subscription-based services and apps, as well as games offering months of immersive play, explains MEF, a global mobile content and commerce trade association.

“In Mobile 3.0, mobile has become the primary tool for engagement and transaction in consumers’ digital lives, creating exciting new opportunities and challenges,” says Andrew Bud, MEF global chair.

The shift to Mobile 3.0 was identified in MEF’s annual consumer survey of more than 10,000 consumers conducted by On Device Research.

The survey also found that two-thirds of all mobile media users have purchased goods or services from their mobile device. Surprisingly, the poll found that mobile “high spenders” are most prolific in Nigeria, Mexico and Kenya, reflecting the mobile-first ecosystems in these regions.

At the same time, a full 40% of respondents said that trust continues to be a barrier to making purchases with their mobile devices.

(article by F.Donovan)

 

Building a Mobile Money ecosystem – The mdinar© case

New GSMA MMU data analysis framework aimed to accelerate customer adoption

Earlier this week, we presented some insights from the customer transactions records of an active mobile money deployment. By looking at the data, we found that the customer journey to regular usage was longer than expected – 10.5 months from registration to regular usage.  This raises an obvious question: Are there places that operators can intervene to accelerate the adoption of mobile money and shorten the journey to regular usage?

The findings came out of a bigger piece of business intelligence done to segment customers for one specific, successful mobile money deployment. Operators have struggled to bring more users active on their mobile money service, and a more nuanced fact-based customer segmentation framework is helpful to address that. A segmentation framework we found useful for this deployment is presented above. Some high-level findings from this deployment:

• The customer journey was longer than first thought: it took 10.5 months from registration to monthly active usage for the average user. There is a need to help customers along the journey and shorten this timeframe.
• 30% of registered users never did a transaction in the first place, becoming dormant registered users.
• P2P was a ’gateway product’ that brought customers onto the platform. Users readily embrace new products over time, but P2P is the initial use case for most.
• ARPU contribution increased steadily for active users, with the operator seeing their contribution double over the first two years.
• Revenue contribution from the most active user segment, ‘Power Users’, was greater than expected: the 4% of Power users contributed to 46% of the revenue for the deployment. This segment should be identified and their needs fully understood to further grow it.

To get deeper insights of the findings that the data analysis uncovered, we found it necessary to follow up with qualitative interviews with users of the segments identified. The findings in the presentation below include data-based user segmentation with the profiles created from interacting with real users in these segments.

Click on this link to download the PDF: Customer Business Intelligence [GSMA MMU]

Mobile Money guide

Click the link to download the PDF: Mobile Money Guide [GSMA MMU]

How digital will change banking forever

Banks are changing dramatically amid an avalanche of regulatory change and widespread debt reduction. They will be safer and, sadly for users of bank services, costlier as a result. Yet all of this may soon seem somewhat irrelevant, because technology could transform the way banking works far more profoundly.

Banking is very ‘digitisable’. Cash is the only part of the industry that is inherently physical and that is a tiny part of what a bank does. The rest is really about transferring and modifying property rights and information of various sorts, all of which can be digitised.

Banks are next in line

Of course banks have invested huge sums in technology – automating processes and enabling customers to bank online – but we haven’t yet seen the fundamental transformation of business models that have taken place in other sectors, such as music.

It will happen, and when it does it will have a huge impact.

Some of the consequences are clear from other industries. Intermediaries disappear or get marginalised unless they discover new ways of adding value.

Look at what has happened to recorded music companies or bookshops. Banks are the primary intermediaries of the financial world, so their margins will fall unless they reinvent what they offer their customers and how they work.

Winners take it all
In the digital world, things work differently. Scale and network effects drive competitive advantage. Winners tend to take all, as Google and eBay demonstrate. Discrete products get turned into bundled services. Customers of Spotify, a music service, do not buy recordings of individual songs – they buy a subscription to a cloud-based archive.

Perhaps surprisingly, the transparency of the Internet doesn’t always lead to the disaggregation of bundles and the disappearance of cross-subsidies. Things get pulled apart and put together in different ways. Monetisation, costs and customer value can be even more often disconnected than in the physical world.

New business models will emerge, as we have already seen: Lending Club’s peer-to-peer model is changing personal lending. Some will thrive, many will fail.

Banking will get cheaper
Above all, customers will benefit enormously. Greater transparency will mean better prices for customers. Digital delivery will mean never having to go to a branch. More information and more flexible service configurations will put the customer in control.

Why is it happening so slowly compared to other industries? Part of the answer lies in the banks themselves. Contrary to what many believe, banks are extremely risk-averse. They don’t like failing, and it’s almost impossible to innovate unless you are prepared to fail. In a context where trust is so important, and where there’s increasingly little tolerance for any kind of failure, that’s extremely difficult.

…it’s almost impossible to innovate unless you are prepared to fail.”

But regulation is an even more powerful impediment – and not only because ‘financial innovation‘ is a four-letter word in banking supervision circles. Technology-driven innovation that leads to big winners and big losers, that replaces established products with flexible service bundles, that overturns established business models and blurs the boundaries of banking, and that sometimes fails to deliver quite what was intended, doesn’t fit well with today’s regulatory zeitgeist.

Real innovation needs to happen
To be fair to the regulators, it’s not like banks are straining at the leash. Mostly they’re investing in technology to meet ever-increasing regulatory demands, or to reduce costs. There’s relatively little investment in real innovation that offers major changes in customer experience; and the prevailing ‘zero tolerance’ environment is toxic to new ideas.

Moreover cyber-security and privacy issues are becoming ever more acute. The more finance becomes digital, the more important it is to prevent intrusion, disruption and digital theft.

Yet, despite such challenges, and whether they like it or not, banks and their regulators are going to have to embrace technology-driven innovation. Otherwise it will simply happen by stealth, driven by players outside the industry. We have already seen examples such as M-Pesa, the mobile payments solution pioneered in Kenya, the ubiquitous Paypal, or most recently, Bitcoin – the online currency.

We should be making banks better
Given the scale of customer benefits, and the scope to seize competitive advantage, there are huge prizes for those who can innovate successfully. Too much of the debate about banking is about not repeating the mistakes of the past. We risk missing the opportunity to make banks much better in the future.

We’re stepping up the pace of innovation at the bank I run: generating more ideas, implementing them more swiftly, being quicker to discard the ones that don’t work. By making everything digital, exploiting the power of Big Data and the ubiquity of mobile communications, we see huge opportunities to enhance the value to our customers, to increase efficiency and to manage our risks more effectively.

The upsides are huge, and the downsides are stark. That’s why accelerating technology-driven innovation is a top priority.

(article P.Sands)

Who is the biggest beneficiary of transition to Mobile Money?

When we are talking about the biggest beneficiaries, we have to look at the value created for/added to various stakeholders like banks, telcos and customers. In case of a successful transition to mobile money, the value created for various stakeholders are listed below:

For Telcos
– Subscriber stickiness
– Transaction revenue
– Better market share
– Opportunity to cross-sell and up-sell

For Banks
– Get cash float into the banking system
– Availability of funds to lend and earn interest income
– Earn fee income
– Opportunity to cross-sell and up-sell

For Customers
– Intelligent and better cash management
– Secure & convenient
– Access to various financial products
– Cost Saving (when compared to loans from loan sharks and money lenders)
– Interest Income (though very nominal)

The metric that is common to all the stakeholders is revenue/income. In fact, customers earn interest income and it also saves them money, therefore, I have considered them under the same metric as revenue/income.

Considering the points mentioned above, I feel that the biggest beneficiaries of transition to mobile money are telcos and banks. The logic here is very simple; higher risk, better return (though the vice-versa is not completely inevitable). Telcos and banks are the enablers of mobile money, so they would be taking a larger share of the pie. Nevertheless, the value created for the end customer is also quite high. In fact, it is difficult to quantify the value created for the customer as we cannot attribute a metric to measure security, convenience, access to financial services and cash management – but these do add a lot of value to the customer. The only thing that can be quantified is the cost saved by customer in terms of wage loss, conveyance charges, theft of money and earning in the form of interest. It is a win-win situation for all the stakeholders. Personally, I feel that if it is a win-win situation for all the stakeholders, then it does not matter who the biggest beneficiary is.

What is a mobile wallet?

Recent posts and articles in social media have posed the question: Who will win the “Mobile Wallet Wars”?

Challengers include Google Wallet, Square, PayPal, VISA, ISIS, MasterCard, etc. Ironically many of these services are US based which reflects the often one-eyed, myopic, US-centric, the-world-revolves-around-my-solution attitude in these debates.
Mobile wallets mean very different things to different people, giving rise to confusion and miss-information on this topic. Broad-brush and overlapping references across multiple markets each with differing technology, solutions, contexts and applications, create unrealistic expectations for users. About the only thing in common is that a mobile phone is involved in the transaction.
Because both readers and contributors to this debate are part of a global community across this range of very different markets, we thought we would take an opportunity to outline the differences between the respective mobile wallet models and approaches.

History
Mobile wallets have existed for many years before they appeared in the US. What may not be evident is that the original concept of a mobile wallet has it’s origins in emerging markets where they use a vastly different architecture to those in the current “wallet wars” debate. For examples of some early and very successful mobile wallets see M-PESA in Kenya or Globe GCASH and SMART Money in the Philippines. To this day these mobile wallets still provide greater relative value to end users than their respective counterpart mobile wallets in the developed world.

Definition
To assist with the definition, lets first explore the idea of a wallet and the origin of the term mobile wallet. Most people understand what a wallet is – According to Wikipedia, a wallet, or billfold, is a small, flat case that is used to carry personal items such as cash, credit cards, identification documents (driver’s license, identification card, club card, etc.), photographs, gift cards, business cards and other paper or laminated cards. Wallets are generally made of leather or fabrics, and they are usually pocket-sized and foldable.

Developed markets
The “western” or “developed“ market perspective of a mobile wallet seems to have followed the classic definition above in that a mobile wallet is an electronic container which stores one or a range of different payment instruments i.e. credit/debit cards linked to some form of bank account. Critically also, solutions in this market are usually bank-led.
Some mobile wallets include multiple payment instruments while others exclusively allow only one instrument. Physically the mobile wallet can take a variety of forms either by incorporating the physical payment instrument within the handset itself via an embedded secure element (balance physically stored on the mobile handset), a form of proximity solution such as NFC, preloaded account credentials or some form of remote link to the payment instrument itself. Due to their complexity, these services are usually only possible via a Smartphone device.
A user makes a “payment” from the mobile wallet by using an embedded or downloadable APP or via some form of embedded functionality within the mobile phone that may include the ability to select a particular payment instrument. Payments are often restricted to Point Of Sale purchases only. Furthermore, some solutions require collaboration between banks, mobile networks and/or mobile handset manufacturers to function. This can reduce the addressable market size and is a contributing factor to slow take-up in some cases.
The (permitted) use of only one payment instrument or bank e.g. one particular brand of credit card or bank, is a strategic approach often used to leverage take-up by the mobile wallet operator to force all transactions through one service or provider. Other models have a more open approach and allow the user to select from multiple card instruments or products. Under this model, the physical balance for each payment instrument still held by the respective payment institution that manages the payment, which in 99% of cases is a usually bank or financial institution.
Also under this mobile wallet model, the mobile phone serves as an extension or new channel linked to an existing payment mechanism. The physical transaction is usually still switched via the card instrument or associated payment institution. The mobile wallet in this context therefore sits on top of existing and established bank payment infrastructure. While this may provide a level of increased convenience to end users such as reduced payment “friction” etc, it still uses and relies upon existing banking payment infrastructure to function.
The value presented to the end user with this approach is still unclear as the payment is still performed via their existing payment institution (or account) only the channel (device) is different. In most cases, the payment can still be performed via other (traditional) methods so unless the mobile wallet payment method is mandated, users need to be motivated to change their current payment behavior. It is not yet clear if increased convenience alone will be enough of a driver for any one solution to win the “Mobile Wallet War” in this case.

Emerging markets
In emerging markets however, mobile wallets often represent the only form of electronic payment available, which means the relative value proposition to the user is often far far greater.
In emerging markets, most mobile wallets operate using a completely different and arguably far simpler model.  Because of the extremely low number of personal bank accounts in emerging markets, they usually operate independently of banks or financial institutions. This factor has also given rise to the term the “unbanked” – accounting for approximately 5 billion people in the world.
In these markets, mobile wallet payment platforms usually managed by mobile network operators directly. Consequently they are not reliant upon or constrained by legacy banking architectures and instead are built using current, modern day, cloud based, real-time payment switching platforms.
Funds are loaded into and withdrawn from the mobile wallet via a network of retail agents. In some cases where partnerships with banks are available, funds can also be withdrawn via ATM networks.
One feature of mobile wallets in emerging markets is that they almost exclusively only allow a single “payment instrument” – namely the mobile money service provided by the mobile network operator on which the mobile phone operates.
Emerging market mobile wallet payment services offer the same core features offered by their counterparts in developed markets; account balance, paying another person (p2p), and bill payment. Fundamentally and more crucially however, they do not require a Smartphone to operate. Because they do not require the exposure of credit/debit card credentials, payments can be made via ubiquitous technologies including USSD and SMS, available on all mobile networks and supported by all makes and model of mobile phone. The addressable market size for these services is therefore far greater than solutions available via smartphone based alternatives.
It is somewhat ironic in that mobile wallets in emerging markets are able to provide almost the same level of core payment functionality as their Smartphone-based cousins but at a fraction of the cost to the user and service operator.
Critics of emerging market mobile wallets often cite the fact that user interfaces are “clunky” compared to those of a smartphone but in these cases it is basic function and utility that is more important to the user.
What is also often overlooked in emerging markets is that the positive social impact of these mobile wallets is enormous. They have more benefit than bank-led solutions, operate more efficiently and satisfy the majority of needs of users in their respective markets. The benefits they provide to their respective communities far outpace the benefits to society than their counterpart mobile wallets in the developed world provide.

Conclusions
It is likely that we will continue to see a sharp division in terms of the architecture, payment models and range of services between mobile wallets in developed versus emerging markets. It is important therefore that the distinction between these two models is clear in their respective market context as the debate continues.
As to the question of who will win the “wallet wars”, it will depend entirely on which battlefield the war is being waged. The battlefields of the developed and emerging markets are vastly different as are the solutions competing for market share. We will probably have multiple winners – and losers.