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Mobile only: the payment dilemma

Vito MargiottaVito Margiotta

At the core essence of every successful company is the ability to generate revenues. Everyday new products are designed, developed, tested, shipped, improved etc to solve problems by offering better and newer solutions to the hungry mobile customers. It is a somehow consolidated flow that million of companies diligently use with the hope and desire to improve lives AND to make a profit while doing it.

And in this new yet extremely technologically under-served mobile world where two billion new users and 110 new million businesses are coming online by 2020, the business opportunity is incredibly huge and clear.
I believe is not questionable that in the next few years several billion dollar companies will be born while solving the "mountains" that still separate the mobile-only economy from being mainstream.

At Snapp we decided to focus on and climb first the mountain of mobile creation (we are hiring: Join Us!), but while doing it we are seeing at the horizon few other mountains and we are interacting and partnering closely with their respective brave climbers. And one of the highest, yet the enabler of many others, is the mountain of payments.

Payments in a mobile-only economy is a very complex topic to approach as it lies in between technical problems and lack of technological solutions alongside lots of common misconceptions on the availability of purchasing power of end-consumers. While it counts several success stories that make us dream of a bright future, it still scares the most and yet little to none coverage and literature revolves around this major phenomenon.

Consumers want to pay and have the financial capability of doing so, but have no way of doing it. Hence demand and offer are not matching not cause of a lack of capital, but cause of a lack of a mean of payment, and no one yet figured out I believe how to properly solve this issue...welcome to the payments dilemma! :)

In the next few paragraphs I will provide you with an initial overview of this industry and on how mobile payment works. For more detailed info etc please Contact Us or refer to the white papers we are constantly publishing in the Snapp Knowledge Center.

Mobile Payment: how it works and which are the main players

For every user in a mobile-only economy processing transactions is by far one of the hardest tasks online. With an extremely low penetration rate of debit and credit cards, most if not all of the services offered by international companies cannot be purchased and are generally unavailable to the average user and with a huge impact on both economical and technological development of the affected economies.

For any company or developer willing to build products for mobile-only users, credit and debit card will not suffice, easy to implement and ready to use payment solutions like Braintree and Stripe are not enough, and Mobile Payments becomes crucial to the venture success.

Mobile Payment (oftentimes also referred to as Mobile Money) generally refers to payment services performed from or via a mobile device. Instead of paying with cash, cheque, or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or physical goods.
Mobile payment is being adopted all over the world in different ways (SMS based, Direct carrier billing, WAP payments, and many more) and with SMS based billing playing a major role especially in mobile-only economies as Africa, Latin America, and South East Asia.

For instance, in the specific case of SMS payment, the logic of the transaction performed is very simple: when the user wants to pay for a service, he/she sends an SMS to a short code and which triggers a payment requests. A premium charge is then applied to her phone bill or online wallet.

In the industry of mobile money (especially in the case of SMS based or direct carrier billing), telecom companies (Telcos) play a major role acting as the gatekeeper in between the service provider and the purchaser/client. They own not only the communication channel and infrastructure needed to perform the transaction, but also the relationship with the 'wallet' of the client, and as such they are able to charge an average commission of 20-50% of the total value of the transaction.

Note: While such a gigantic revenue share is still ok for the offering of digital services, it is unfortunately a major blocker for the development of any e-commerce industry, and as such several solutions are emerging for tackling this issue, as I will cover in following posts.

There are few companies which are today leading innovation in this space, with and being my suggested safe choices for an early but less cost effective implementation of mobile payments before testing alternative solutions.

What's next and the huge potential for industry disruption

Despite the presence of few established players, the mobile payment industry is extremely ready for disruption and it is already undergoing a major cycle of innovation.
Thousands of companies spurred in the last few years, building both faster/cheaper/more-developer-friendly solutions, as well as tackling the issue in completely novel ways both in terms of the way in which the transaction is handled as well as in the mean of payment used (from Bitcoin to virtual bank accounts to cash on deliver solutions to many more).

Source: GSMA - State of the industry: Mobile Financial Services for the Unbanked, 2014

Note: Please note the geographical distribution of this new wave of innovators

This industry is at the onset of a major positive change, and I believe every business owner and company should think twice before not looking into the mobile-only market and into the mobile-only payment industry.
Mobile only users are hungry for purchasing services but have no way to do so, and I believe this is an incredible opportunity to tackle and I am very much intrigued to see how innovators will solve this major payment dilemma.

The Snapp Team