At a fast food counter in an Abu Dhabi mall, kabobs and financial innovation in the Middle East are being jointly served. The cashier at Shamiana restaurant will only take two kinds of payment for an Indian meal: Either cash, or payment by mobile, via a MOBIbucks account.
With mobile phones ubiquitous — 87% of the world's population has a mobile phone subscription at the end of 2011, according to the International Telecommunication Union — developers have sought to put many of the capabilities of computers into handheld devices. Mobile payment is just one of several markets spawned for the devices, and like app development and web surfing via phone, its growth is tremendous: According to Juniper Research, the market for mobile payments itself expected to reach US$670 billion by 2015.
Silicon Valley-based MOBIbucks offers its customers an account that they can access via mobile to pay for daily expenditures, needing nothing more than their mobile number and a PIN number. It can be either linked to a bank account, or topped up with funds. Having just expanded to the Middle East this year, MOBIbucks aims to capture the regional market for mobile payments, says its CEO and founder Jorge Fernandes.
Yet, though today's mobile phones are as powerful as mainframe computers from 20 years ago, and tablets have quickly become a computing device category, Fernandes doesn't agree that the opportunities for mobile have been borne with new technology. The era for mobile transactions of both payments and knowledge has arrived, Fernandes says, largely because of a global generational shift in comfort with digital living, whether it is learning or consuming.
"What you have is a digital consumer, born into a digital world, coming to the market and saying, I want to be fed digitally," he says. "This is no longer about technology. About seven or eight years ago, it started being about the culture, as consumers started demanding that certain things be supplied to them in a way that is consistent with what they are born into."
The Dominant Consumer
Fernandes says that the technology that enables MOBIbucks already existed in different forms. He recalls a Nokia phone from 1995, that when you were near a Coke machine, you pressed a button on the phone and a can came out. "So the technology was there, the idea was there," he says. "There was some adjustments needed, but the only reason it is becoming visible today is because the consumer is demanding it."
He says it became apparent to him when the company was first testing out the product's reception among the public in Mountain View, California. "From junior high to high school, I would see the adoption rate would be to 100 to 1," he says. "Not only in using the product, but also in understanding it. It would take me about 10 seconds to explain to a younger, digital consumer on how to use MOBIbucks, whereas it would take 30 minutes to explain to an older person, who often still didn't get it.
"The environment you put it in makes all the difference. All those digital consumers back then in high school are now becoming the real consumers. They are now the dominant consumer, and they expect everything digitally."
There are other changes that have facilitated growth of mobile devices and their markets, Fernandes says, including the willingness of businesses to accept payments, and governments to facilitate such commerce. One example he gives is how businesses are shifting away from centralized processing. "It's a lot harder now to say, I'm going to set up a server in Sunnyvale, California, and have all the transactions in the world come there," he says. "The awareness to create local solutions that are also global is now ingrained, no matter where you go."
With the sophistication of mobile phones, he adds, companies can unhook themselves from past needs to have operations centralized, often at high costs. "I can put my product into your cell phone, and that means I can leverage your infrastructure to process that information. That's another big change. The technology itself enables it to be distributed."
A Currency Replacement?
The idea of making payments through a phone brings up questions about the future of currency and the security of such transactions. Fernandes is quick to point out that, unlike other virtual currency innovations such as BitCoin, mobile payment systems such as MOBIbucks are based on real currency. "It's still going to have some relationship to paper money," he says. "It's still going to be a dollar, it's still going to be a dirham. You're basically taking your hard assets, and your digitizing the front end of it."
He claims that in one crucial way, mobile payment is more secure than some forms of payment people already use, such as checks and credit cards. "When you write a check, you expose all of the money in your account, but when you put a MOBIbucks account in front of it, you're only exposing a small part of it.
"You'll have real time management. It's like your wallet. How much cash are you carrying? Only as much as you're willing to lose. The trend is that there isn't going to be a new currency — you'll still have cash currency, but behind a payment type that protects you, and allows you to manage your spending."
Because there is real time management available for the mobile account, he adds, mistakes and fraud would be easy to catch. A MOBIbucks customer is able to set how much funds are in an account, and how much can be spent at a time. Whereas with a credit card, fraud could continue until the credit company were to stop purchases. What's important to note, he says, is that security features exist for online banking and other networked payment options already. "It's been proven already, it's going to be expanded," he says.
There is another benefit to mobile payments for developing countries, Fernandes says, since the issue of keeping currency is a real life security issue too, even in rural villages. And, for governments trying to implement policies, cash payments for programs are easily defrauded.
"It actually improves the community, because you have all this money out there that exists in cash form, and that leads to problems, the moment you convert it into digital currency, it becomes secure. In cash it can disappear. What started with good intentions ends up abused."
Painkillers Versus Vitamins
The market for mobile payments is still largely in developing countries that lack infrastructure, such as Africa. Though populations in these countries are not as wealthy as those in the West, the market has attracted big players: In March, France Telecom-Orange partnered with Visa for its mobile payment service, Orange Money, to users in the Middle East and North Africa. It counts already 3.5 million subscribers in Africa.
Fernandes says that much of the innovation aimed at these countries is about addressing their needs and making lives better. He likens it to the difference between offering a vitamin and a painkiller.
"Business is all about pain," he says. "Don't show me vitamins, show me painkillers. People show up with a good idea, but it's a vitamin. It's nice for you, probably make you healthier, but it doesn't remove pain. The level of pain is greater in developing countries, so you're going to get business if you can remove pain. Which means now you can create a business faster with profits, because the more pain you remove, the more you can charge, relatively speaking. Whereas, in the developed world, it's a vitamin. In the U.S., I can pay 10 different ways; I can pay cash, plastic, cell phone, PayPal. So for markets in the U.S., [mobile payments] is a vitamin."
Yet, such innovation will soon find its way into the hands of Western consumers too, Fernandes predicts. "Soon it will change, because you'll have more demand, and everyone will have to follow. The speed of innovation around the world is suggesting a change, but in my opinion it's not, a delta there is more pronounced than it is in the West. People are forgetting that if it is a painkiller somewhere else, it might be a vitamin in the West. Yes there's a lot of innovation, there's more innovation now happening elsewhere, but it's a completely different baseline."
He also predicts that the developing world will benefit from mobile devices not only aiding in commerce, but also learning. "Through mobile phones and tablets, you're going to have greater social impact all around, because the kinds of things you can teach and manage remotely," he says.
"If you can teach an 18-month-old to use an iPad, fast forward that to the global market; the level of knowledge dissemination is beyond anyone's imagination, because it can be done instantly, and as long as you provide basic training," he adds.
Such potential is the reason why mobile transactions will gain even greater importance, he says. "Ultimately, there has to be an exchange of value from the receiver to the provider. That's where the market comes in, and that's very exciting. On one hand you want to make it easier to pay, on the other hand you want the goods to reach the consumer. If you don't have the infrastructure, payment becomes the baseline for all which this digitalization to occur."