Convergence – My dream is to see the convergence of mobile payments, e-payments, dedicated accounts on the IN system for payments of subscription services, a few value-added services of banks, and artificial intelligence-based techniques for data analytics into one integrated system. This post was originally published on January 26, 2015, on LinkedIn (click here).
Convergence – Introduction
The theme of the article is based on my dream, but the shared details here are at a very high level for a reason. If anyone is looking for some very basic knowledge or an introduction to convergence and its critical attributes and key stakeholders, along with its meaning, then this article can help, but again, only on a very high level with basic understanding.
Experts in any form of billing and charging system like hot-billing (1990), IN System (2000), OCS (2007), CVBS (2010), or even NCS, which is yet to be born, will find this article at a too basic level, but that’s the real idea here. The idea here is to share some basic and collective information from all those millions of papers and articles available on the internet.
Billing and charging systems till today are only doing their main job under the MNO umbrella, i.e., prepaid charging or postpaid billing. Some vendors have already extended their systems and adopted mobile money or mobile wallet components. But to date, full appreciation potential has not been realized. Although Mobile Money had been designed as a peer-to-peer payment system, it has gone much beyond the basic idea, and as of today, it helps with utility bill payments, airtime topup, microsavings, microloans, etc., and this forms mobile payment ecosystems.
In short, FinTech, and with support of artificial intelligence, this whole thing is going on to just another level. The provision of converged services is more important as consumers access services on any device platform and any network.
2014 was the year of innovation in mobile payments and mobile money. The biggest introduction being Apple Pay, which became highlights of the year and shook many MNOs who participated in the mobile financial services space. 2014 will go down in history as the year of mass adoption of mobile payments and from 2015, the industry is geared for many highly innovative and exciting offerings continuing and maintaining the flow for financial transactions.
Evolution and Convergence
Mobile payments are evolving into a widely diversified and highly innovative environment where every individual is thinking of new offerings and adding his or her ideas to the current service offerings of industry giants who will encash them later on.
The classical solution is the use of proximity technology for payments. Near-field communication utilizing a physical, secure element is no longer the only payment option. Alternative options include HCE and other totally different ways to complete mobile payment, such as QR codes, scan codes, ultrasound, or an online solution blended with USSD push.
After the introduction of artificial intelligence and its subsets like neural networks, deep learning, and machine learning, there are clear distinctions emerging. These offer a clear demonstration that the industry’s center of gravity is shifting. Unlike the situation that prevailed a few years ago, Europe is no longer the center of secure transactions; Africa and Asia are not jostling for this position, and they are coming up with great momentum.
Market dynamics are evolving, especially with mobile network operator market restructuring and prepaid market changes. A more drastic change in the SIM market was triggered by Apple’s eSIM announcement, which is aimed at adding more value to its own platform. MNOs typically have many platforms, starting with IN (OCS), billing, electronic recharge, physical vouchers, mobile money, mobile banking, and mobile financial and commerce services systems.
Finally, there is the option to acquire a banking license. Given the regulatory burden, such a move would only be advisable if an MNO aimed to move beyond general payments and into full-fledged financial services.
Some MNOs seem to be considering this option, and at least one, Mobilcom (Germany), has applied for a banking license. It is interesting, however, that Mobilcom has also been seeking a partnership with a bank. Given the complex transformation necessary in order to become a full-fledged bank, it is questionable that many MNOs will indeed choose this option.
MNOs have to make huge investments in order to bring all these services together. This huge initial capital outlay covers the deployment and operating costs of the new services. What if the idea of merging these systems in such a way cuts operating and capital investment by almost 50% or even more?
Regulation, Convergence and Growth
Deregulation, convergence, the rise of the Internet, and the emergence of mobile telephony have forced MNOs to re-think or base their business models onThe traditional activity of transporting information is now a commodity business threatened by new players. Facing tough competition, eroding margins on core business, and a falling market share at the home and international level, MNOs are seeking new markets that provide better margins in order to maintain revenue growth.
MNOs also face falling margins on voice calls and rising financing costs for the installation of the new “G” networks. Out of crowded possibilities, the financial services sector offers MNOs the opportunity to exploit synergies in their existing customer services and billing, airtime, payment, serving banks as an interface.
Settlement capabilities on the fly added a huge benefits in the end, customers will become less dependent on bank branches, automatic teller machines, and traditional bank-based payment systems. Indeed, MNOs may be able to compete more efficiently than incumbents in areas such as cross-border credit transfers.
Telecoms and payment networks have a lot in common. Both types of networks are basically communication networks that allow the transmission of certain types of data but are regulated by different entities that apply different regulations and rules. In both cases, there have been large, established networks that enable people to transfer information or value.
In the case of MNOs, there is often one large network provider with a dominant network, for instance, AT&T in the US, Deutsche Telekom in Germany, or Telkom Cell in Indonesia. In the case of money systems and networks, the central or reserve bank and the commercial banks jointly run the dominant payments network. All these networks are based on certain standards that allow the transmission, receipt, and interpretation of signals sent through the network. Finally, in both cases, there are subsidiary networks, such as cellular phone networks or credit card and e-money networks, that compete with the dominant network.
3rd party companies are brining in new diversification, and their business model is on mobile money and mobile banking, and their business model talks about payments, micropayments, and merchant acquisition by these 3rd party companies. There are success stories of such companies in Japan, Indonesia, Kenya, and many more, where everything is done by the 3rd party and the rest of the last mile is achieved by the bank and MNO, and interestingly, the bank and MNO don’t rely on their infra structure only.
Through the adoption of a converged MFS-OCS system, subscriber/customer profiling would be easy to the extent that any time the entire transaction history of the customer or subscriber would be readily available for recharge history, call patterns, data spending, mobile money will tell spending habits and shopping choices for daily and monthly, bill payments history, mobile banking will tell payments and transfer history, and payroll history can be combined into a system known as SCB (Subscriber Credit Bureau).
The Innovation Wheel
Merging and creating an excellent innovative architecture of OCS that should give a complete new design and transform IN/OCS into MFS-OCS (Mobile Financial OCS), which would be 100% modular, have separate physical boxes for each module, and look like a “MNO Financial Cage”. Each box will have its own independent function and operate in an optimized manner such that the impact or change on one box should not affect the other box, and at any point in time if any box master (vendor) is trying to control the MNO, then the MNO will have a choice to just replace the box with another master and kick the noisy box out of the data center.
This means the integration and architecture should be very strong, and all the boxes may come from the same vendor to ease up administrative tasks on the MNO side. MNO initiatives, ideas, or intellectual property (IP) should be 100% controlled and owned by the in-house team (Service Creation Platform Box), driven by the product management team, so that no vendor will steal MNO-owned ideas for which the MNO will have paid a great sum to get developed but later on sell to other MNOs across the world.
The converged system has the ability to integrate with any system with universal open APIs and has the advantage of quick time to market for new ideas and the flexibility to offer mainstream MNO-dependent promotions from the MFS part of the business, allowing cross-pollination of ideas and service offerings.
These moves demonstrate that the center of gravity of our industry is moving. Also, events such as the successful Alibaba IPO, the emergence of China UnionPay as a global player, and the ongoing Chinese EMV migration demonstrate in which direction the wind is blowing. The evolution from 4G to 5G can be interpreted as a shift in the center of power towards Asia.
The 3GPP OCS is heading toward multiple charging access provisions for networks bearing different services. To meet network evolution demands, the OCS’s internal components should be further abstracted and modularized. Payments from various channels, i.e., proximity (POS, mPOS, NFC, thin SIM, ultrasound),, Internet, USSD, SMS, ATM, or agents, can be embedded as separate modules that will keep taps and records of each transaction, create temporary wallets in buffers before moving to actual wallets, move temp wallets from buffer to trash, and write logs.
The Final Words
Recommendations for the evolution of the mobile financial services ecosystem and IN system at the MNO end are very important, as mobile money is no longer an enticing possibility or an unproven concept. In the ten years since the first concept, mobile money has provided millions of people around the world with access to finance, and demand continues to increase.
This Mobile Money Article is convened to help the industry or people who want to know more gain a better understanding of how the ecosystem has grown and how each of these factors affects mobile money’s role in developing a larger e-money economy, one in which cash wallets are replaced with mobile wallets and other electronic payment instruments. To continue its growth and begin to fulfill the promise of an e-money economy, industry stakeholders must work together to unleash convergence, drive customer acquisition, and refine enablement technology.
Mobile money must have a clear appeal to consumers, the public sector, and the private sector. The mobile money system identified a number of key lessons for all of the industry’s stakeholders. Primary among these was the fact that mobile money’s development value rests in its ability to facilitate financial sector inclusion.
To do so will require financial institutions and mobile network operators (MNOs) to work together with regulators on a country-by-country basis. Providers will need to introduce basic mobile money services where they do not already exist and foster the consumer’s appetite for more sophisticated services. Effective distribution networks must be developed in order to reach critical mass in the industry.
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