11
Transaction-Centric Software
11.1 Financial Transactions
Transactions are normally thought of as financial transactions. Many of them are, but a transaction can cover almost any exchange between two or more people or two or more devices and are normally enabled by some form of identification and trust-establishment protocol.
However, let us start first with financial transactions and the role of mobile phones in the financial transaction process. Economic theory suggests that economic activity expands in line with population growth, particularly in developing countries. This may be true up to a point but at some stage growth becomes limited by resource and/or environmental constraints, and politics often gets in the way as well.
The disputed election at the end of 1997 in Kenya resulted in 1500 deaths and the displacement of 600 000 people. No shops or banks were open for 5 days and no air time resellers were available to top up prepay accounts. Safaricom1 the local operator continued to allow calls and texts but more significantly a few months earlier a service called M-PESA had been established.
The service was disarmingly simple. A sender wishes to send money to a friend or pay for a product or service. He/she enters the recipient's phone number, the amount and a PIN number. The SIM-based software (either downloaded over the air or factory loaded) encrypts the SMS message. A centralised accounting system then transfers the funds and a confirmation message is sent. If the recipient owned an M-PESA account then this is a simple SMS receipt. If not, then a voucher is sent that is redeemable through a network of nominated agents.
One year on there were more than two million registered M-PESA users in Kenya, totalling 20% of Safaricom's installed base. Another one million people had received money through the system and 10% of Kenyans had used the service with an estimate that as much as 20% of Kenyan GDP was passing through the system. A similar service was launched in Afghanistan and Tanzania with India and Egypt following later.
Globally, only 1 in 7 people have a bank account, whereas (as we know) there are more mobile phones in the world than people, we just need to share them more evenly. Put another way, five billion people own a phone, one billion people own a bank account.
Just on its own and/or counting partner and associate networks Vodafone reaches a billion people. The Vodabank (our name not theirs) is therefore potentially the largest bank in the world in terms of addressable customer numbers, if not by value. This looks good for Vodafone but let us suppress the cynicism for the moment and at least give credit (no pun intended) where credit is due.
A simple SMS-based application has made it possible for a new generation of relatively low income users to pay bills or buy goods or send money securely and safely to friends and family without the need to handle cash. Employers can also pay employees and contractors through the system. Less cash means less crime (less incentive for mugging and theft and extortion).
So SMS saves lives, allows governments to communicate and allows individuals to spend and send and receive financial transfers. Not bad for an almost accidental add in to the GSM specification and living proof that simple things just occasionally can deliver spectacular value.
Case studies of the impact on other developing economies can be found at the Safari Com web site,2 the Vodafone web site3 or the Iceni Mobile web site.4 The principle is being extended into agribusiness and medicine and health care.
11.2 The Role of SMS in Transactions, Political Influence and Public Safety
The short message service has been the unsung hero of the mobile telecoms industry. The first SMS message was sent in December 2002 with the first SMS phones available in 1993. 15 years later (2008) over 80 billion texts were sent and received in the UK making the UK, the second highest texting nation in the world, though dwarfed by the US that sent and received over 800 billion.5
SMS is a story that could fill several books of which at least two have been published by John Wiley6 so repeating the story here would be duplication but a summary would be that SMS has been eye-wateringly profitable with a per bit revenue three orders of magnitude (1000 times) higher than voice but has also made a substantial political, social and economic impact.
So, for example, it has been widely reported that the revolutionary movements that swept through Tunisia, Syria and Libya in 2011 were enabled to a significant degree by SMS texting combined with picture messaging and video feeds to U tube. If this is true then apparently mobile phones can dictate to dictators. It can also save lives.
Over the past ten years the telecoms industry has had to respond to a series of natural disasters, Katrina, The Asian Tsunami, the Chinese Earthquake and unnatural disasters including 9/11. These events disappear from the daily news but have a long-term impact on the telecommunications industry. Conversely the telecommunications industry has had a vital role to play in responding to the events both in the immediate aftermath and in the longer-term recovery and rebuilding process.
In the specific context of the role of SMS, the following announcement is from May 2008.
‘Earthquake Collapses China's Unicom's Two Networks
May 13, 2008
China Unicom (CHU) says that due to the earthquake, its G net and C net in Wenchuan, Sichuan Province have both broken.
About 200 base stations of the company's G net and C net in the Aba area of Sichuan have reportedly been paralyzed. And because of busy traffic, the company's two networks in Chengdu have been congested, thus resulting in a slowdown of SMS communications.
As a result of the earthquake, the communications of four counties in south Gansu Province have also been interrupted and about 500 base stations in Shaanxi Province halted.
China Unicom says it has initiated an emergency plan and sent technicians to the disaster areas to recover the communications. There is no firm timeline on when the systems will be fully operational again’.
The news item highlighted two issues, one that cellular networks are not immune to natural disasters, a fact already well proven by Katrina and other relatively cataclysmic events, the second that SMS, (the short-message service) one of the simplest parts of the cellular protocol stack, continues to expand its role as a fundamental enabler for emergency communications and a mechanism for getting on with life in troubled times.
In practice, the Chinese networks were restored quickly but SMS had provided the most bandwidth efficient and link budget efficient mechanism for getting in touch with friends and family affected by the disaster. Also, because an SMS text is more robustly channel coded and has a high energy per bit than voice the text will get through in conditions in which a voice call would fail.
The Chinese government has also shown a developed awareness of the political value of SMS. The following is an extract from a blog just after the earthquake
Earthquake: China uses text messaging to assure public
Mon, 05/12/2008 – 11:48 am
The full extent of the damage caused by the 7.8 magnitude earthquake that hit China's Sichuan Province on Monday afternoon is just starting to become clear. The quake was felt in Beijing and Shanghai and in places as far reaching as Taipei, Hanoi and Bangkok.
In order to reassure people and to squelch false rumors, the Chinese government is using SMS text messaging to mobile phones as well as internet postings to inform people that the areas where they live are not in the seismic zone. Over a million such messages were sent in nearby Guangxi Zhuang Autonomous Region and Guizhou Province.
The government plans to use text messaging not only for emergencies, but for various situations relating to the public interest. The plan is part of the government's new openness in information regulations which it says will promote “openness as principle, being closed off as the exception” in an effort to provide timely and accurate information to the public’
As Western observers, we are conditioned to be cynical about Chinese politics and Chinese political motivation but to all intents and purposes the response by President Wen Jiabao to the crisis seemed heartfelt and genuine and considerably more open than the response of the Burmese leadership to the Cyclone Nargis7 disaster that happened at the same time.
SMS broadcasting was used to a lesser extent after the Asian Tsunami8 in 2004 but now appears to be becoming an alternative to radio as a mechanism for disseminating government information in an emergency.
11.3 The Mobile Phone as a Dominant Communications Medium?
Can you get to as many people by phone in China as you can by radio?
Well no. According to the Chinese State Administration of Radio there are 1.2 billion people in China listening to long-wave, medium-wave and VHF radio. According to our colleagues at The Mobile World, as at March 2008 there were 557.8 million cellular subscribers in China. Radio therefore still had the advantage in terms of numeric reach but this discounted two factors, cellular subscribers in China were being added at a rate of nine million per month and three years later had passed the one billion user mark.
By the time you read this, the mobile phone will be the dominant communications medium by user volume. Cellular users in China, anecdotally at least, are also more likely to have their phones on rather than their radios at any particular time. Mind you, many of the phones have an FM radio, which is a much used function both in China and particularly India (see also Chapter 21).
Whether it will also be a dominant payment and transaction medium is open to debate and this may be determined by how easy it is to use, which in turn may be determined by how successfully near-field communication is implemented as an enabling technology for the contactless smart card. NFC-enabled contactless smart cards are typically close-coupled applications in which the two devices (the reader and the smart card) are either touching or within a few millimetres of each other hence the description ‘near-field communication’. The technology and the software associated with the technology is covered in Chapter 19, but many of us already use NFC enables devices to pay for bus and train journeys or going through passport control.
11.4 Commercial Issues – The End of the Cheque Book?
Legislation can also have an impact on adoption. The Payments Council in the UK9 for example decided in June 2009 that cheque guarantee cards would no longer be valid in the UK from 30 June 2011, the start of a process to abolishing cheques introduced in Britain 700 years ago. This was justified on the basis that there had been a 65% decline in the use of guaranteed cheques over the previous five years. Only 7% of the one million cheques written in 2010 were guaranteed. The average transaction value per cheque was £392 but 88% of all cards had a guarantee of £100 or less. The announcement was packaged with a plan10 to develop a mobile payments plan using mobile phones – a good example of how slowly the regulatory process moves in the financial services sector (sometimes for good reason).
The point to make is that the technology and engineering issues are relatively straightforward to address, the commercial issues are more complex. Similarly there was no technical reason why phones cannot replace passports but the regulatory and political barriers to this would be substantial.
Essentially, as the value of a transaction increases the identification and security associated with that transaction should increase as well. Conversely, as the value of a transaction decreases the cost of the transaction also has to decrease. The interesting thing about mobile phones as a payment method is that potentially they combine both low transactional cost and a potentially robust authentication and security process.
The obvious point to make here is that mobile phones can only do this if they are connected to a radio network that in turn provides connectivity to a banking network that can fulfil the transaction. The radio network can become a banking network and has some, if not all, of the billing and financial management procedures in place to realise this, but this brings us on to the narrative of the next ten chapters, network hardware and software.
1 http://www.safaricom.co.ke/index.php?id=250.
2 http://www.safaricom.co.ke/index.php?id=745.
3 http://www.vodafone.com/content/index/about/about_us/money_transfer.html.
4 http://www.icenimobile.com/.
5 http://consumers.ofcom.org.uk/2009/12/uk-consumers-embrace-digital-communications/.
6 SMS statistics from Short Message Service (SMS) The Creation of Personal Global Text Messaging by Fred Hillebrand. http://eu.wiley.com/WileyCDA/WileyTitle/productCd-0470688653.html and also ‘GSM and UMTS the creation of mobile communication’, edited by Fred Hillebrand, also John Wiley.
7 http://abcnews.go.com/Technology/Weather/story?id=4806331&page=1.
8 http://news.bbc.co.uk/1/hi/world/4136289.stm.
9 http://www.paymentscouncil.org.uk/media_centre/press_releases/-/page/1560/.