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a2a interoperaBility anD moBile money
Reducing Barriers to Transact
The key findings to take away from studies into the network effect for bank payment networks are:
• studies have found empirical evidence that demonstrates the positive network effects of a2a interoperability;
• Banks with large numbers of customers are reluctant to join networks, worrying substitution costs outweigh the positive net-
work effects;
• customers are very price sensitive, which has resulted in the under-utilisation of certain bank payment schemes in the us as com-
pared to their european equivalents;
• the benefits of a2a interoperability for mobile money schemes would be more likely to apply to more established schemes with a
proven business model and stable distribution network and customer base.
these findings are consistent with the Gsma’s recent paper on the interconnection of mobile money schemes, which highlighted the
6
need for realistic pricing for inter-scheme transactions. the use of multiple sim cards is common practice by customers in mobile money
markets, and switching sim cards and mobile money accounts will likely be an alternative way for inter-scheme transactions if a2a
interoperability is introduced with a steep cost barrier – albeit more cumbersome for the customers, less appealing to the regulator and
without the benefits of positive network effects for the scheme operators.
it may be difficult to conceive of which types of payments would cause customers to take advantage of a2a interoperability between
schemes and with banks . However, it is widely recognized that payments are not undertaken for their own purpose but “in order to
14
15
complete other transactions” . evidence suggests that reducing barriers for customers across the whole payments network is enough
to generate positive network effects that can help raise economic activity and have a positive effect on the profitability of mobile
money schemes. By adding a2a interoperability to mobile money schemes, they may become a foundational element of a national
payments infrastructure.
Interoperability and Financial Inclusion
in a number of markets, the mmo payment schemes have been successful in increasing financial access and, where successful, this has
led to a rise in uptake and usage of formal financial services. interoperability has the potential to increase uptake further as the ability
to transact across different schemes will be available. However, it is equally important that any move to a2a interoperability does not
restrict access, eligibility or affordability of services by adding restrictive practices or prohibitive cost to payment schemes.
Having the participating players in the market investigate the implementation options to identify the appropriate option for a2a interop-
erability for that market is preferable over mandated solutions, which would have a greater risk of being under-utilised or overly costly.
the benefits of a2a interoperability in the area of financial inclusion are likely to come into play not immediately but in the longer term,
as most options are associated with increased costs for the end customer, at least in the short term.
14. improving access to mobile money services is one area where interoperability would bring benefits. For an example see http://www.pnas.org/content/109/26/10257.full
15. What’s in it for us? network effects and bank payment innovation, alistair milne, Bank of Finland research, Discussion papers, 2005, http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/
Documents/0516netti.pd
7
Reducing Barriers to Transact
The key findings to take away from studies into the network effect for bank payment networks are:
• studies have found empirical evidence that demonstrates the positive network effects of a2a interoperability;
• Banks with large numbers of customers are reluctant to join networks, worrying substitution costs outweigh the positive net-
work effects;
• customers are very price sensitive, which has resulted in the under-utilisation of certain bank payment schemes in the us as com-
pared to their european equivalents;
• the benefits of a2a interoperability for mobile money schemes would be more likely to apply to more established schemes with a
proven business model and stable distribution network and customer base.
these findings are consistent with the Gsma’s recent paper on the interconnection of mobile money schemes, which highlighted the
6
need for realistic pricing for inter-scheme transactions. the use of multiple sim cards is common practice by customers in mobile money
markets, and switching sim cards and mobile money accounts will likely be an alternative way for inter-scheme transactions if a2a
interoperability is introduced with a steep cost barrier – albeit more cumbersome for the customers, less appealing to the regulator and
without the benefits of positive network effects for the scheme operators.
it may be difficult to conceive of which types of payments would cause customers to take advantage of a2a interoperability between
schemes and with banks . However, it is widely recognized that payments are not undertaken for their own purpose but “in order to
14
15
complete other transactions” . evidence suggests that reducing barriers for customers across the whole payments network is enough
to generate positive network effects that can help raise economic activity and have a positive effect on the profitability of mobile
money schemes. By adding a2a interoperability to mobile money schemes, they may become a foundational element of a national
payments infrastructure.
Interoperability and Financial Inclusion
in a number of markets, the mmo payment schemes have been successful in increasing financial access and, where successful, this has
led to a rise in uptake and usage of formal financial services. interoperability has the potential to increase uptake further as the ability
to transact across different schemes will be available. However, it is equally important that any move to a2a interoperability does not
restrict access, eligibility or affordability of services by adding restrictive practices or prohibitive cost to payment schemes.
Having the participating players in the market investigate the implementation options to identify the appropriate option for a2a interop-
erability for that market is preferable over mandated solutions, which would have a greater risk of being under-utilised or overly costly.
the benefits of a2a interoperability in the area of financial inclusion are likely to come into play not immediately but in the longer term,
as most options are associated with increased costs for the end customer, at least in the short term.
14. improving access to mobile money services is one area where interoperability would bring benefits. For an example see http://www.pnas.org/content/109/26/10257.full
15. What’s in it for us? network effects and bank payment innovation, alistair milne, Bank of Finland research, Discussion papers, 2005, http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/
Documents/0516netti.pd
7
