M-Commerce, Mobile Wallet and SMS Banking
Study case of the Algerian Market
International Forum of Finance
13th & 14th May 2008, Algiers

White paper by:
Esfih Mohamed, PHD in Payment Systems and E-banking
UNIVERSITY TECHNOLOGY MALAYSIA

Introduction:

Mobile telecommunications is now a non negligible part and trend of today’s and tomorrow’s technologies.
Indeed, where banking and Broadband penetrations are sometimes limited in third world or developing countries, the Mobile GSM phones are a very common device, that people carry out with them every day, in every country, even in the most remote areas. The GSM networks have surpassed the traditional landline and in most of the world countries today there are more GSM phone subscribers than landline phone subscribers. The reason is very simple.
First the propagation of GSM technologies reaches further and faster, thus covering much more geographical areas with much less costs and efforts than landlines do.
The second point is that it is now affordable for virtually any individual to buy a GSM phone as compared with buying a computer and affording a broadband Internet connection.

We are going to venture in this new ocean of possibilities for secured transactions via Mobile Phones, in order to show how important the M-Commerce can be in the world of global e-commerce.

To do so we will study the M-Commerce solutions under 3 main categories or types of usage:
Mobile Wallet, Sms Micro Payment, and Sms banking technologies.

But first, lets start with some definitions

What is M-commerce?
Mobile Commerce is a commercial process which uses an Internet enabled phone or a PDA to conduct transactions over the Internet.

What is Mobile Wallet?
It is basically an online payment system that allows transactions to be initiated via mobile phones and offers also a web admin to manage the account and the transactions

What is Sms Micro Payment?
It is a payment technology that allows a user to pay for a service by sending an sms to an “overtaxed” phone number and the amount of the transaction will be deducted from the prepaid GSM card or added to the postpaid GSM billing.

What is Sms-Banking?

It is a communication process between the bank and customer that can allow the customer to manage or interact with his banking account through his mobile GSM phone. The Bank interacts with the customer in 2 ways:
- Pushed Messages: The bank initiate the message without client’s request
(Send Password, Balance Statement, Insufficient funds etc…)
- Pull Messages: The client initiate the communication and the bank replies (Balance request, Bill Payment, Transfer between accounts etc…)

How does an SMS banking or SMS Payment system operate:

In this graphic we can realize how straightforward the communication can be between a banking system and it’s client’s mobile phone. Basically the first computer icon named “Core Banking Applications” can not only be a bank but any financial system, or payment system or any Web based application willing to interact with it’s user through the GSM network.

Now a closer look must be taken especially in this case where critical financial information are going to be communicated between the Banking Application and the user’s Phone Application (SMS)

One has to consider how secure is the transmission of the Short Messages, i order to have a better understanding of the security of such a system the following graphic is proposed

Secure Mobile Architecture (image)

Basically, you can see that the tubes with HTTPS are already encrypted thus secured against interception and abuse of this information. But the last part of the communication, meaning between the Wireless Carrier and the Customer Mobile phone is to be taken seriously as there might be soon on the market, Telecommunication tools that could be able to intercept financial information communicated through SMS. And this is the part where my Research and Development focuses, and i will address this later in my Research papers.

How this Mobile based finance started…. to be interesting:

Western Union realized it quiet early
(Cf press release Oct 18th 2007, http://ir.westernunion.com/press/releaseDetail.cfm?ReleaseID=269902). The fact speaks for themselves, “Mobile networks now cover more than 80 percent of the world’s population and 3 billion people have a mobile phone, creating an unprecedented opportunity to extend the benefits of financial services to the majority of the world’s families for the first time.” said Rob Conway, CEO of the GSMA

 Realizing the potential of penetration of their financial service Western Union liaising with GSMA and therefore they decided to launch a “Mobile Wallet” technology

What is the point here ?
This fact means that in many countries, a person may not have a bank account, 
or internet access or not even a TV, but he would most probably have a GSM phone.

The GSM Market:

We need to realized how the GSM and mobile phone market has extended and here are few key information on the development of this market since the year of 2006:

* With more than 2.5 billion subscribers worldwide at the end of 2006, mobile telephony has become the most popular telecommunication access mode. Well ahead of landline calling and its base of 1.2 billion fixed main lines. Mobile service now constitute operators’ prime source of revenue: earnings estimated at 573 billion USD, or half of the globe’s telecommunication service market.

* Mobile GSM phones sales exceeded 770 million units this past year (2008), representing an estimated 95 billion USD (40% of the telecoms equipment market).

* The global mobile terminal market size for 2006 is expected at 934 million units up from 836 million units in 2005, i.e. nearly 12% growth. In the long term, the mobile terminal market is forecasted at 1086 million units in 2009, i.e. a CAGR of 7.4% from 2005.

* The global mobile terminal market revenues for 2006 are expected to reach USD 113.5 billions from 110 billion in 2005, i.e. +3.2%. In the long term, the mobile terminal market is forecasted at USD 121 billion in 2009, i.e. a CAGR of 2.5% from 2005.

Subscriber bases around the Globe (picture)

GSM Forecast (picture)

=============================== Study of a Local Market: Algeria ===============================

Statistics on the Algerian Market:

GSM Penetration (Mars 2006): 65%
The Telecom Market in Algeria Continued to Grew by 200% for the Fourth Year
In a Row and soared past the 65% penetration mark. (total population is 33 million)
Publication: Business Wire, March 2006

Internet penetration (August 2007): 7.3%
http://www.internetworldstats.com/af/dz.htm

banking penetration (june 2006):
The banking institution covers only 30% of the Algerian population in terms of proximity of a branch.
 Rapport final, “Bancarisation de masse en Algérie” Juin 2006 
Mission du CGAP & l’AFD, sous le haut patronage du ministère des finances

Note: Our former remark about a person who may not have a bank account or internet access
but most probably would have a GSM phone seems very accurate for the Algerian market.

Sms technologies how does it work ? (picture)

Tariffs/Prices of the SMS Industry in Algeria (picture)

Benchmarking of the SMS tarrifs for Algeria in comparaison with it’s neighbours (picture)

Relatively speaking, Algeria Telcos practices fair SMS pricing compared to it’s 
North African Neighbours such as Morocco and Tunisia.

Conclusion:

Mobile phone could be today and tomorrow banking and commerce
devices as it is very popular and much more people have GSM phones
Than Internet connected devices or computers. 
Not to mention the reasonable prices of SMS.

Already in Japan, Docomo company has a very advanced Mobile Wallet
Technology that allow Japanese people to pay for many public services
Using their mobile phone.

In Malaysia, in 2006 was launched the testing phase of “VISA WAVE”
Technology, which allows customer to do shopping in their usual stores
by waving their phone at the cachier machine. The Mobile phone actually
Incorporate a bank chip. (VISA + Maybank + Maxis + Nokia)

For more details please download our Power Point Presentation click here

References:
ARPT, Quarterly report, N°6, March 2006 (Algeria)

Levine,Joseph.“As the Mobile Commerce Market Grows,Mobile Payment Systems Must Meet Changing Needs,” 2004 The Yankee Group