Mobile Payments: Replacing Cash in the “Last Mile”

by guest on January 10, 2010

in Conferences & Meetings, Globalization, Jacqueline Chilton, Mobile Banking & Payments

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Editors note: This post describes the third in a series of panel discussions on mobile payments. The series is organized by MPay Connect and seeks to tap innovators in Silicon Valley and link them to mobile payment pioneers overseas, fostering understanding and discussion of how to apply lessons from the developing world to other markets.  See also our Payments Views posts from the first and second events in the series.

Thursday evening a group of Wharton, Harvard alumni and payments professionals met at Google to discuss  “Will Mobile Payments replace cash in the last mile?” Money in is the “first mile” of using cash to fund a mobile account and Money out or payment for goods is the “last mile.”  Today, typically agents – called human ATMs – are receiving the cash to get it into the mobile payment scheme and a subscriber must go to an agent to get the cash out. Agent commissions make these programs difficult to scale as costs grow as volume grows, unless the mobile money transfer network can move to electronic payments in or out.

The session was moderated by Menekse Gencer from mPay Connect Consulting.  The panelists were

There was an interesting discussion of the distinction between the developed and the developing world.  The developed world has little friction in the current payment models. Many of the economic models that encourage cash replacement will succeed in developing markets but are not expected to work in developed economies.  In many environments where cash is being replaced, the consumers are working in a what is called a “delegated payment” environment. The person funding the transaction and the person in the store making the purchase are different (perhaps a wealthy uncle or an immigrant sending remittances home provides the funding).   Mobile wallets can enable control by the funds originator (the uncle or immigrant overseas) of how funds are sent.

An excellent example of the benefits of electronic money transfer comes from Afghanistan.  When the payroll for the local military /police force was moved to direct deposit they thought they had received a 40% raise.  No one had realized how much the agents distributing the cash payroll were skimming. (See further discussion of mobile payments in Afghanistan from the first in the series of mobile payment panels back in September ’09.)

Thursday’s panel generally agreed that cash might be eliminated for specific types of transactions, but mobile payments will not replace cash more broadly.  Perhaps delegated payments is an example of suitable electronic payments but they do not represent all transactions. Cash is frictionless and too well understood to be replaced all together.

The primary challenge in electronifying the last mile is merchant acceptance.  The panel discussed the problems of limited merchant acceptance leading to lack of use.  In the Philippines with Smart Cash, the users are doing mobile top-up but not necessarily using the card issued with that account.  Even though the chip card associated with the account rides the MasterCard rails there still is a lack of point of sale merchant penetration.

Mobile faces the age-old payments problem: you need enrollment of consumers and enrollment of merchants – not just a great network in between. Perhaps some of the payments views readers have thought through the merchant side of this equation… your comments, as always, are appreciated.

5 Responses to “Mobile Payments: Replacing Cash in the “Last Mile””

  1. Thanks for the great write-up, Jacqueline! I really enjoyed the issues people raised and look forward to following the comments here.

    All the best,

  2. John Mavriyannakis says:

    I agree whole heartedly with the commentary above and the difficulty associated with gaining merchant adoption.

    One distinction that I have been working with different providers is “is it a new payment type or a new channel to an existing payment”. This is an important point as the line between payment type and channel which used to be 1:1 is now becoming all:all – credit card via Card, Mobile NFC, Card NFC, etc etc etc. The same will evolve for other payment types as well. In developing issuance strategies payment providers, banks etc, need to focus on developing a payment type agnostic platform strategy which allows them to add to channels easily and link existing and new payment types as simply as possible as well.

  3. Jacqueline, Thanks again for another great writeup and for coming to our session. For anyone who’ll be in NYC on Feb. 18th, I’ll be presenting at the Harvard Business School Alumni Club on Mobile Payments. I’ll post info on it on my website:


  4. Great article Jacqueline.
    Thanks for capturing so well the main points of this event, specifically the new payment chain involved in the emerging markets : Originator (Funds owner) –> Buyer (perform the payment act ) –> Merchant.

    I think most payment systems (cash, cards,…) ignore this “funds owner” needs which makes them difficult to adapt to such markets. There is a clear technology gap to fill to make it happen.

    Thanks Menekse and to all attendees.


  5. I agree with the main point of this article, in the western world the success of the widespread availability of electronic card based payments and access to funds prevents an easy uptake of the mobile phone as the new token for payments. A mobile payment definition could be a payment that is initiated via a mobile phone and the control over the funds is confirmed via the mobile phone. Mobile payments can be either be related to remote or proximity payments, the challenges for both payment contexts are very different. The mobile phone can be directly of added value for remote payments (as long as they are guaranteed by the schemeowner) either B2C or P2P. The internet is often an involved channel for providing the content or community where the transaction is originated. The case for proximity payments is closely related to convenience within the shopping experience, this could be a faster checkout or a combination with a better service, loyalty and in store transactions. In the Netherlands we like to think that the proximity payments are aimed at low value transactions (currently settled for in cash or pre paid chipcards) and remote payments also for macro payments.

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