Original URL: http://www.theregister.co.uk/2010/10/01/nokia/

Nokia runs all the way to the bank

Building loyalty among the bankless

By Simon Rockman

Posted in Mobile, 1st October 2010 13:30 GMT

Nokia's move into Mobile Money seems at first to be another one of the firm's many plays in services. Having seen the importance of meshing services with devices and how iTunes supports the iPhone, or BBM the Blackberry, it's not surprising that the company has worked so hard at Ovi and maps.

For a technology company, Mobile Money is remarkably low-tech. Only the tiniest amount of bandwidth is necessary for a financial transaction, and it doesn't need to be instant - the store and forward of SMS is perfectly good enough. There are a number of technologies used in Mobile Money, including USSD, SIM toolkit, Java and plain old voice through IVR – which is great for places with an illiterate population. None of these technologies are new. The barriers to Mobile Money are business models and logistics.

So while it might seem that Mobile Money is just another ecosystem in Nokia's service strategy, look closer and you find that Mobile Money is a peculiarly good fit.

Technology might not be important but two things are: brand and distribution.

People are cautious with money, and they are slow to adopt new forms. It took the credit card twenty years to get established - five years ago buying a newspaper with anything other than cash would have been completely alien. To a person who has never encountered any kind of payment that wasn't cash or barter the idea of putting money into an account means you really have to trust the brand associated with it. According to Interbrand Nokia is the number five brand in the world - one of only two non-American brands in the top 10. The highest financial services company is American Express at 20 and the top bank HSBC at 32. This is a global ranking; in developing markets Nokia is even stronger. It's the top brand in India.

Distribution is every bit as important. For Mobile Money this means distribution of cash. A common use of Mobile Money is for people who have left a rural area to work in a city. They want to send money home. The traditional way to do this is to go to the bus station, find someone heading for their village and entrust them with the money for a fee. This is fraught with costs and risks. With Mobile Money the person in the city goes to an agent, hands over the cash and has their mobile money account credited. They can then send a text home where the recipient takes the phone to a rural agent, shows them the message along with some ID and receives cash in return.

It's quicker, safer and cheaper. The recipient doesn't even have to have a mobile money account, although in practice 40 per cent of people who receive money like this subsequently open an account. It's fantastically viral.

But the distribution problem is how does the agent get the cash? He might be a day or two away from the nearest bank. There are solutions which use wholesale master agents but where Nokia's second strength comes in is that it has a strong network for distributing phones.

It's so strong that in some countries it's fantastically hard for any other handset manufacturer to compete. Retailers pay for their stock a few days after delivery, and while rivals deliver weekly, Nokia can deliver in a day. As a result dealers can sell Nokia stock before they have to pay for it, while rival phones require capital to be tied up.

By making their phone dealers Mobile Money agents they provide a community service in the form of a bank. The phone dealer will sell phones for cash and then use that float to let Mobile Money customers cash-out. The delivery driver doesn't need to carry cash because it can be sent as a mobile payment from the dealer to the distributor. Nokia gets to promote its services by using them itself. The African operator Zain has a similar Mobile Money deal in place with Coca Cola for the Zain Zap service.

The third strength of Mobile Money for Nokia is where this happens: Of the 89 deployments of Mobile Money tracked by the GSMA, 78 are aimed at people living on under $2 a day. There are places where mobile phone penetration is massively greater than banking penetration. And they are places where the Nokia brand is hugely dominant.

Mobile Money is a complicated ecosystem which usually excludes the handset manufacturer. It needs the banks, operators, regulators and specialist Mobile Money companies to work together. Nokia bought into this by taking a major shareholding in Obopay. This American company provides the Mobile Money infrastructure which Nokia has used in its Indian roll-out. Nokia provides a Java application which supports the Mobile Money services.

A common mantra in Mobile Money is the need for cooperation. This is usually vertical: an operator working with a bank. Nokia is looking a model that stretches horizontally as well, offering Nokia Money across a number of banks and operators in a region. It sees this as essential for generating the critical mass for Mobile Money to work. Nokia's agnostic approach includes providing the Nokia Money client for non-Nokia phones, which in the regions the company is interested in is primarily Samsung, and potentially using platforms other than Obopay.

Mobile Money also fits in with Nokia's social message. At Nokia World the company trumpeted its use of Biopaints, recycled metals and reduced packaging. From a Western perspective many aspects of a mobile phone feature set such as a torch or radio seem pedestrian, but imagine for a moment the problems of the unbanked. They need to go to the school to pay fees, to the electricity company to pay that bill, the animal food supplier to pay for that. They spend a good proportion of their lives travelling and queuing. The poor are not time-rich either. They work long shifts and managing money drastically reduces their earning potential. The ability to transmit money is fantastically liberating. But as Nokia says, it needs the ecosystem. It doesn't have to be hugely lucrative on a transaction basis but as it makes customers wealthier they spend more on their telecommunications and it makes them more loyal consumers.

Operators take a dim view of attaching services to a device which promotes loyalty to Nokia rather than to the operator, and while Nokia is looking to embrace operators in Nokia Money some will have their own solutions. This will make it hard to ensure that the Nokia Money application is pre-installed. Fortunately for Nokia the target countries tend not to use the subsidy model, and even where they do there will be the option to download the Java app from Ovi.

An interesting trend which helps support this is that many of the second-hand phones recycled from the likes of Fonebak and Mazuma are early smartphones. A Nokia 7650 or Sony Ericsson P800 will be doing service and providing a platform for money, health and education.

As the emerging nations, er, emerge, it becomes more important for Nokia to keep them loyal. The iPhone is every bit as aspirational in Laos as it is in Las Vegas, and Nokia wants to hang onto those customers. Building a financial relationship with them is a good way to do so.

The message at Nokia World might have been that Symbian and Nokia are back, but the message in the Third World is that they have never been away.

Simon Rockman is the head of the Mobile Money Exchange. The GSMA site which provides information and support for the Mobile Money industry.