Mobile Money is a subsystem of electronic payment systems. This paper lays the foundation of analyzing mobile money systems. Article 2 of a 10 part serious on issues related to mobile money.

1. Mobile Money Systems Part 1
Article 2 in a 10 part series on Mobile Money and Related Issues.
Author: Mike Makwani
http://biznessinventor.blogspot.com
Electronic Payment Systems
A few points are in order before we embark on our journey to the center of the earth.
One , first mover advantage is unduly overrated and NOT for nothing, it does be store
on the mover depending on the industry and the service offering at hand some
tremendous power unless you squander it with always referring to your completion in
all your public utterances .
Case in point, Celtel in Kenya wasted its first mover advantage to Safaricom by
constantly carrying out adverts with overt and covert reference to the competition,
basically sharing their marketing budget with Safaricom and in the process creating a
powerful sublime message in favor of their competitor.
Lesson, black out your competition completely, don’t ever mention or acknowledge
them in your customer communications or presence.
Two, it is a believe among many professionals, that the spectacular success of Safaricom
Mpesa is due to an alignment of the sun, moon and the stars, that is the right fertile
circumstances.
True chance and luck play a role in any enterprise undertaken by man, but just to a
point. For Mpesa, the alignment was a hungry market (with needs and pains) meeting
excellence in strategy formulation, alignment and execution:
Lesson, Observe (look and see), Orient (think), Decide, Act (do), then check, align, and
reload the OODA loop again and again, and during this if the sun, the moon and the
stars smile on you and grant you their 2 cents worth so be it..
Now, back to the business at hand, understanding electronic transactions landscape so
that we may observe and decipher how we can get in and or create our own offering
(remember what a brilliant tool the businessmen of old created, money as a book entry).
Payment Transactions
Now a cash transaction looks as follows:
Cash moves from the buyer’s account to the merchant’s account via face to face
exchanges:

2. 1. The buyer withdraws a certain amount of money from his account.
2. He transfers the cash to the seller.
3. The seller deposits the cash into his account.
In the non-cash transaction:
1. The buyer will transfer the payment information to the merchant.
2. Adjusting the appropriate accounts of the seller and buyer (via check or credit
card) (If the merchant uses different bank from the buyer, a payment clearing
service between the 2 banks will be necessary in order to adjust appropriate
accounts in different bank Diagram 2 below).
Diagram 1: A simplified Model of a Transaction
With the development of the Internet, it provides the buyer and merchant the ability to
do the online transaction instead of the above non-cash transaction process. In this type
of system (electronic check, online credit card), the sensitive information is transferred
online along with the orders through the internet.
In addition, because the transaction is done online, the probability of using different
banks (or banks located in different countries) between the merchant and buyer is high.
Therefore, the payment clearing services is added in order to adjust appropriate
merchant and buyer bank’s accounts

3. Diagram 2: A Notational Funds Transfer System
When we come to the e-commerce transaction, the lack of face to face interaction makes
some problems about the security of the sensitive information and identity.
As a result, we need an intermediary party (PayPal, Google checkout) to provide the
security, identification as well as payment support.
In this process, the buyer don’t need to transfer his sensitive information to the
merchant but to the intermediary and the intermediary will confirm the
identification of the buyer to the merchant (Noted that the transaction between the
intermediary and the banks can be performed in another type of electronic payment or
conventional process).

4. Diagram 3: Non-sensitive Transfer system
There are many different researches about the types of electronic payment systems, and
different people use different criteria to categorize these systems.
Classification of Payment Systems
In a basic classification of e-payment systems, two criteria’s are used to categorize the
electronic payment systems:
1 Pre-paid, Pay-now or Pay-later, and
2 Online or Offline Transactions.
If we use the first one, we get following systems:
a) Pre-paid: customer pays before the transaction (e.g. she buys electronic
tokens, tickets, coins, and uses them to pay for her transactions).

5. b) Pay-now: the customer’s account is checked and debited at the same time
when the transaction takes place (example: internet banking).
c) Pay-later (credit-based): customer pays after the transaction (example:
credit card).
Based on the second classification method we get the following:
a) On-line: a third party (the bank) is involved in the transaction (e.g., it checks
solvency of the user, double spending of a coin, etcetera ) in real-time,
b) Off-line: the bank (or financial organization) is not involved in real-time in
the transactions.
Now for our purpose as business inventors we need slightly more information on what is
really happening than the above two classification schools can give us.
Hence we shall use a criterion based on the form of money presentation and based on
this the payment systems can be divided into 2 groups:
1. Electronic Cash Systems.
2. Credit-Debit Card systems.
Electronic Cash Systems
The Electronic Cash System is based on the ideal of conventional cash, such that when
parties want to pay for something, they exchange electronic tokens (intelligent money)
that represent value, just as banknotes (semi-illiterate money) determine the normal
value of conventional money.
In this system, in order to have the electronic cash (or tokens) to pay the merchant, a
customer will request the bank (or the intermediary) who has the ability to create
tokens. Of course, the customer needs to pay the bank (or the intermediary) the
equivalent value comparable to the tokens needed.

6. Diagram 4: An Electronic Cash System
And slowly the players are starting to get visible, but let us go on, and by the way this
article is long, it cannot be short!
So the customer will send these tokens (electronic money) to the merchant to pay for
her goods or services. The merchant, in turn, can store these tokens and use them for
later payment or send (redeem) at his bank to adjust his bank account.
A deeper distinction amongst electronic cash systems is between those that use smart
cards for the storage of tokens (Chipper, etc) and those where tokens reside only on
user’s accounts and computer networks (Mpesa, etc).
Systems that used smart cards (Chipper, Chipknip, etc) store the tokens on the card.
When buyer wants to buy some things, she needs first to charge (deposit) the e-money
to her card (through some machines). Then, the token (e-money) on the card is reduced
when the buyer uses it to pay for something.
In systems that use tokens residing on computer networks, (say Mpesa) tokens travel in
a computer environment, and can be transfer between customers or comeback to the
server. At all times the token(s) reside in a computer system. (Remember the money
as a book entry bit, the tokens and their movements are electronic entries).
Credit-Debit Systems
The credit-debit system was developed based on the ideal of credit cards and bank
accounts. When a buyer wants to buy some things, she doesn’t need to exchange any
kind of money or the tokens to the merchant but the information about the payment.

7. Money is represented by records in bank accounts, and this information is
electronically transferred between parties over computer networks.
Business inventors do you see it? Tokens, Records, all book entries, databases.
Diagram 5: Credit-Debit System
In this type of systems, buyer and seller can’t have anonymity (which they can get
from some token based systems) with the payment service provider because their
account is maintain by the payment service provider and the payment service provider
will record all the transactions in order to adjust its customer’s account
These, credit-debit systems are sometimes called account based systems, because of the
fact that they were implemented first, when accounts were accounts and not a database
entry.
A deeper distinction amongst account-based systems is between credit and debit cards
system, the specialized systems and the generic systems.
Credit and Debit Cards
At present the credit and debit cards systems are widely used for electronic payment.
With debit approach, the buyer needs to have a positive balance on the account before
she pays for some things and money is subtracted from her account after the payment
(iDeal, Visa Debit card, etc).
With credit approach, charges are posted against the buyer’s account and billed to the
buyer later (Visa Credit card, Master card, etc).

8. Specialized Systems and Generic systems
Generic Systems (PayPal, NetBill) use simple account-based model for serving
internet payment
Specialized Payment Systems are systems used for some specific purposes, such as:
buying music online, advertising, etcetera.
There are still 2 additional criteria we need to take into account for the electronic
payment systems.
These are micro payment and mobile payment.
 A micro payment system is a system which is designed for transacting small
amount of money (<2 Dollar). Different researches show that there is a market
for this kind of system. In addition, the other above types of electronic payments
(Credit card, PayPal, etc) can also be used for micro payment.
 The same thing happens for mobile payment. That means any and all of
the above mentioned types of electronic payments can be adapted and will be
adapted to some form of mobile payment (such as PayPal mobile). Besides that,
many mobile now have access to the internet like any computer. Hence we can
use the mobile to access any of the above payment system without changing the
technology.
Therefore mobile and micro-payment we shall take as a given, for per the definition of
money, divisibility and portability are a given, and as such included in the following
diagram (Diagram 6 Below).
So our classification of electronic payment systems looks as follows:

9. Diagram 6: Classification of Electronic Payment Systems
Those of you who can see Mpesa above please email me or drop a comment of its
name out of the five above (1-Chipknip, 2-CAFÉ, 3-Ideal Visa Master Card, 4- PayPal, or
5-Content Based EPS).
That is how rigorous the Observe (look and see) of the OODA loop is supposed to be.
After this we are ready to identify the players in an electronic payment system:
i. Buyer
ii. Issuer
iii. Intermediary (or the system itself, such as: PayPal, credit card company,
Chipknip company)
iv. Merchant
v. Acquirer
vi. Network provider (internet or mobile network
With the identity of those 6 players, let us end part 1 of this article there.
Please fellow business inventor, this is only a classification, one that we have identified
and made and historical based at that, it does not mean one player cannot play 3 or
more roles.

10. In the next article we shall demolish our historical based classification (diagram 6) and
fuse it up and then look at the whys and how’s of playing in this exiting money game
keeping in mind our 6 players.
Thank You
Let the mix and gathering begin.
Copy With Pride: Unleash the Next Mpesa Part 1.