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John Worthy (pictured) and Candice Chapman, partners at international law firm Denton Wilde Sapte

John Worthy


Mobile banking is generating sky high expectations among operators and banks. Success will depend on choosing business models that are sustainable, reward each stakeholder adequately for their significant investments and manage the new risks in this emerging territory. The big question is, which model is best? Often this will depend on who leads the deal.

Bank driven Where a bank takes the lead in promoting m-banking, mobile networks are often essentially additional channels for delivering financial services. The m-banking services offered by the Royal Bank of Scotland, Lloyds TSB and HSBC and many other UK banks follow this approach. In South Africa, First National Bank is successfully using SMS to provide its banking services.

Typically, the bank holds the customer’s accounts and has the stronger distribution network. Crucially, the bank’s brand is dominant in facing the market and will be used to lead the customer relationship. Payment instructions

can be carried by any operator. This model is likely to fit best where a high percentage of the population is already ‘banked’ and the financial services regulatory burden is high.

Many of the most controversial issues, such as who is responsible for managing security breaches and overseeing fraud controls, will be handled by the bank, even if it outsources some of the operations to a service provider.


Joint venture

Where mobile operators and banks both want to play a core part in a new m-banking business, it would be natural to think of a joint venture, such as the MTN Banking joint venture between Standard Bank and MTN, offering mobile connectivity and banking services. Parallels can be seen in the development of non-bank branded products such as credit cards, where banks wanted to reach new markets and major brands wanted to strengthen loyalty and, potentially, benefit from another income stream.

Probably the most important feature here is the natural tension between the bank and the brand relating to customer ownership. Traditionally, both the banks and mobile operators see the customer as ‘belonging’ to them, and hence want to control the management of the customer relationship and all marketing to the customer (respecting the data protection requirements). This will need to be carefully negotiated in the joint venture contract, not least to cover the period after the joint venture comes to an end, when both parties will look to maintain their connections with the customer base.

But is there a better solution? In order to resolve the tension over customer ownership, mobile operators and banks can seek to set up a corporate joint venture, using a special purpose vehicle (SPV) which delivers the m-banking services to the customer. On termination of the alliance, either the party may have rights to acquire the SPV. In this way, the tension is addressed by ensuring that the customers remain with the SPV, under its new ownership.


Operator driven

Where the service is to be fronted by the operator’s brand, one can adopt a structure using a network of agents, including local dealers and retailers, for service distribution, enabling customers to access m-banking services. This approach is likely to work best where only a small percentage of the population is ‘banked’ and the operator’s brand is strong and trusted.

Probably the most successful example of this structure is M-PESA which is up and running in Kenya and Tanzania and is being trialled in Afghanistan. This service, offered through a partnership between Safaricom and Vodafone, allows customers to transfer money using a mobile handset via an application installed on their SIM, without having a bank account. The bank provides a central account to Safaricom, who holds the funds in trust for its customers.


Operator as bank

An alternative approach involves the operator, rather than the bank, effectively becoming the deposit taker and fronting the m-banking service. The operator and its brand play the leading role here: accounts and deposits are held with the operator and the operator’s network carries the payment instructions.

For example, the G CASH service from Globe Telecom, the mobile operator in the Philippines, shows how this approach can work. Globe has now developed the model one step further and is supporting certain rural banks through a form of outsourcing in m-banking.

This tactic is most likely to be successful where a large part of the population is ‘unbanked’ and the operator’s brand inspires greater trust. Crucially, the operator must also have the appetite to take on the financial services regulatory burden.


Trusted third parties

Finally, where major players wish to use a new approach, there is the potential to establish a trusted third party. Trusted third parties represent an intermediary strategy, designed to link traditional players, such as operators, banks and device manufacturers, to deliver m-banking operations.

At its core, this proposition is a technology and service neutral platform, that has open interfaces enabling the support of any bank, device or operator. Among the instances currently in service, NTT DoCoMo, the Japanese operator, has launched its trusted third party alongside its mobile operator business.

For those moving into mobile banking, choosing the model which best suits the drivers for the business will help to establish the foundations for a successful venture. Denton Wilde Sapte is an international law firm with over 600 lawyers. To ensure it delivers the sharpest focus to its work, it has focused its business on four core client sectors: Technology, Media & Telecoms; Energy, Transport & Infrastructure; Financial Institutions; and Real Estate & Retail.


World Wide Webjohn.worthy@dentonwildesapte.com