Over 12 billion dollars of international money transfers are now sent annually using mobile phones. But the remittance market cannot thrive until mobile providers embrace the next big innovation: interoperability.
Interoperability creates the opportunity for a user of one mobile money service to send money directly to a user's phone on any other service. For instance, this would allow for money sent from Easypaisa, the largest branchless banking service in Pakistan, to be received by another of Pakistan's mobile banks, like Omni.
In Pakistan, where adults who own mobile devices outnumber those who have bank accounts four to one, branchless banking is paramount: people use phones to deposit cash, pay utility bills and send and receive money nationally and internationally. But although remittances in Pakistan are on the upswing, sending money back home is only half the battle. Currently, the majority of mobile payment services do not connect one customer’s money transfer to the mobile wallet of a customer who has a different service provider. Instead, the receiver must find a kiosk and cash out to collect the money. This means that remittances cannot be stored immediately into digital savings or used to pay a bill directly from a mobile device, as this person is not yet “banked.”
But the solution, mobile money interoperability, is on the way.
Interoperability eliminates the chance that a customer may be influenced to choose a mobile money provider based on which provider the customer’s friend or family is already using. Currently, depending on which provider the customer chooses, they are restricted to whom they can send money. Think subscribing to Verizon, trying to send money to a friend on T-Mobile, and being blocked. The only way around this restriction is to sign up for multiple services swapping in different SIM cards for each, an expensive proposition that can lock poor people out of the mobile money system. Interoperability can drive customer acquisition which can lead to an increase in the number of remittance transactions.
CGAP, an independent policy and research center that advances financial access for the world's poor, has begun to look into interoperability and explore the various models available today. One of the most promising is a "many-to-many" model, which would provide a central transaction processing system so all banks can 'talk' to each other. This model provides the greatest connectivity and therefore supreme outreach compared to other models models including the "one-to-one" and "one-to-many".
Interconnectivity among mobile payment services has been emerging around the world. Examples include G-Cash, Western Union-affiliated M-Pesa, BICS’ HomeSend and India’s IMPS.
Considering interoperability is currently attainable for banks and credit card payments, it may be the next natural technological step for future mobile payments. Discussions about the potential of platform interconnectivity have already been taking place between the Pakistan Telecommunication Authority and the State Bank of Pakistan. CGAP, which has been working alongside the State Bank of Pakistan, is looking into interoperability as part of its major policy goal of achieving financial inclusion for the unbanked. Other institutions would be smart to do the same.