What a marvel it is that a couple living in a remote region of the world, despite limited education and financial means, could use their cell phones to receive money from their children in the capital city! Like many techno-wonders of our world, the mobile financial services people all over the world use operate atop a complex set of distinct technologies zipped together. A host of systems work beneath every successful transaction, each driven by and subject to forces specific to that system, not all of which prioritize mobile money. It’s not a wonder, then, when things sometimes fall apart.
CFI Fellow Leon Perlman has the technical chops to unpack these systems, and this is exactly what he has done in his research for us. He went to 12 countries and tested multiple mobile financial services, the main handset brands available, and their component hardware and software. CFI just released his report, Technology Inequality: Opportunities and Challenges for Mobile Financial Services, and I recommend it to the technology savvy and novice alike.
I suggest using Perlman’s work as a mobile money technology primer. For example, do you understand the difference between Unstructured Supplementary Service Data (USSD), SIM Application Toolkit (STK) and Java-based applets used in mobile financial services? I didn’t. Now I know that each technology has its own merits and shortcomings and that in the dynamic telecoms market the relevance of each is continually shifting. Leon’s paper explains these interface technologies, along with handset features and mobile signaling technologies—and more important, how they work together, or sometimes don’t. Along the way, readers are introduced to the many companies and government bodies involved: telecoms regulators, banking authorities, competition regulators, MNOs, handset manufacturers, operating system providers, user interface designers, and financial institutions. These organizations have a wide range of objectives, interests, and constraints, making it challenging to bring all the requirements together into a functional operation and viable business model.
The report sends a clear message: We cannot abandon the successful combo of technologies that have been the main platforms for mobile financial services: feature phones using USSD or STK platforms. The smartphone revolution is on its way, but it is not yet mature and these legacy systems remain especially important for base-of-the-pyramid consumers.
The widespread coverage, low cost, and reliability of legacy mobile money systems make them the technology of choice for reaching financial inclusion target populations for the foreseeable future, according to Perlman. The gaps in geographic coverage of high-speed data transmission, the shortcomings of smartphone handsets that sacrifice quality to sell cheaply, and numerous compatibility issues with smartphone apps, are among the factors contributing to this conclusion. Even though smartphones are penetrating markets quickly, the handset capabilities and data transmission speeds are often below the standard needed for mobile financial services to work reliably.
This finding warns regulators and technology providers against dropping their support of the more basic technology even as they work to create paths for the new generation of services. In fact, as we reported recently, sales of feature phones are rising, and feature phone handsets are getting better and smarter.
After considering the issues, I am left with this question: Who can — or should — act on these findings? As we discuss Perlman’s report in various industry settings, we are eager to explore how to move forward.