Affinity Mobile Is Banking on the Unbanked

Affinity Mobile is about as two-faced a company as you’re likely to find. Right now, they’re both looking pretty. The company is part MVNO, part platform provider. But both business units address the same constituency. They target folks who exist outside the daily fabric of the traditional banking system, folks who frequent Currency Exchanges and Western Union offices and send a lot of money back home to Mom in Guadalajara. For this they pay a high price. Affinity Mobile wants to relieve the burden of those high prices, and sell a few phones and platforms in the process.

It is through the mobile phone, supplied by its MVNO Trumpet Mobile, that Affinity Mobile plans to bring the unbanked and under-banked into the mainstream, and subsequently into its revenue stream. And through its mobile application delivery environment (MADE) and business partnerships, the company hopes to bring them into the revenue stream of other operators.

Face One: The MVNO

Trumpet Mobile is a prepaid wireless service provider with national coverage by way of the Sprint network and some back-office support from Accenture, Seibel and Telcordia Technologies Inc. One of its features is the Trumpet CashCard, which supports mobile money transfer services from almost anywhere in the United States to most of Latin America and the Caribbean through Western Union.

The company made a big splash at CTIA last month by announcing that its pilot days were over and that it had partnered with RadioShack to launch Trumpet Mobile nationwide and make the service and its international remittance features available at more than 4,300 RadioShack locations.

“We see it as a form of branchless banking. And we think it is the next big wave of mass adoption for functionality out of the cell phone,” said John Carney, CEO of Affinity Mobile.

International remittance is not its only feature. The service also features a prepaid family plan, a low (for prepaid) domestic rate plan of 10 cents per minute, affordable international long-distance, messaging and a loyalty rewards program. However, international remittance is the driving force behind the service. And why not? Unbanked and under-banked people in the United States conduct more than $13 billion in alternative financial services transactions annually, according to the Center for Financial Services Innovation.

For these users, there is no free checking or keeping up with minimum balances, there is no paying your bills online or mailing your mother a check. Every transaction, though relatively convenient thanks to the international reach of Western Union, is costly.

“Being poor is pretty expensive,” said Nick Holland, senior analyst at AITE Group, a Boston-based research firm focused on business, technology and regulatory issues.

The Inter-American Development Bank (IDB) recently reported that Latin American immigrants working in the United States will send an estimated $45 billion to their home countries each year and are expected to be sending more than $100 billion annually by 2010. Globally, the remittance market is valued at $239 billion. And at $20, $50 or $100 a pop, these people are spending an enormous amount on the transactions alone. For instance, a Western Union Money Transfer of $200 to Mexico costs $14.99.

Trumpet Mobile believes that by using the mobile phone as the basis for transactions, it can reduce the cost of completing most financial transactions to 0.4 cents. It can eliminate the cost of cashing payroll checks; it can reduce that $200 money transfer charge from $14.99 to $5 and reduce the cost of paying utility bills through Western Union from $12 per bill to $2. And through its MADE platform, it can help other mobile operators get their piece of that revenue.

“Trumpet Mobile has done a lot of intelligent things to address some chronic pain points of the market it is after, which is [primarily] the Hispanic population in the U.S.,” Holland said. “They are making transactions cheaper and more convenient because users won’t have to go physically to a Western Union location.”

However, Holland said some uncertainties remain. For one, this is not a greenfield opportunity; others are going after the immigrant market.

Mobile banking was a hot topic at last month’s CTIA event in Las Vegas as Anam Mobile, based in Dublin, Ireland, launched SMS-based global money transfers, and a Massachusetts-based company called MoreMagic Solutions launched an MWallet mobile cash solution that does person-to-person transfers, bill payment and purchasing. However, it doesn’t have its own MVNO to use as a proving ground and it doesn’t do international remittance. And even AT&T Inc. launched its nationwide mobile banking initiative as recent as last November.

Then there are questions about the MVNO model itself. Holland said sometimes MVNOs are used as incubators. “This is unfortunate, because you could argue that the model will be replicated by the service providers themselves,” he said.

For now, Holland said, they have an innovative service ready and available, and having a direct plug into Western Union through the mobile device is pretty compelling.

Red Gillen, senior analyst at Celent, an international strategy consultancy based in Boston, said all the pieces are in place for a service like Trumpet Mobile to come along and add some value. “What makes them interesting is that they are the only sender-side mobile remittance option in the U.S.,” Gillen said. “The Trumpet CashCard levels the playing field by enabling these transactions. It makes the unbanked life easier.”

And although the unbanked life is getting more interesting to more vendors, nobody else in the United States is doing international remittance the Trumpet Mobile way. Matt Dill, general manager at Western Union Mobile, said Trumpet Mobile is the company’s first demonstration of the mobile money transfer service and is applying lessons learned through this partnership to pilot programs it has around the world. “We see Trumpet Mobile as an exciting way to introduce financial services to a new segment of consumers,” he said in a statement.

It wasn’t supposed to be this way. Not exactly. Carney laughs when asked to explain the origins of Affinity Mobile and what came first: the platform or the MVNO. He said there were many iterations of the company before he came to lead it in January after spending 10 years at T-Mobile USA Inc. where he launched the company’s prepaid service and drove the distribution organization.

“It’s hard to say what came first,” he said. “The original idea was from First Data Corp. (FDC) when Western Union was still part of that company. They thought there would be an opportunity to improve their customer base if they could do some of their transactions from the cell phone.”

From there it got messy. The short version is that FDC had a relationship with RadioShack, which wanted to become an MVNO. Affinity got started with the idea of supporting RadioShack’s MVNO as its MVNE (mobile virtual network enabler) and began developing the MADE platform that would provide the interfaces between the network and Western Union. But Western Union split from FDC — which is never good for any half-baked project — and, ultimately, Affinity took control of the MVNO known as Trumpet Mobile, which is basically a house brand for RadioShack. It then attached its value-added platform to address this huge, risky, but ignored (until recently) unbanked market.

Carney acknowledges there have been some spectacular failures in the MVNO space, such as Amp’d Mobile, Disney and ESPN. “But I am very bullish on the MVNO model if it is done right,” he said. “If you understand the economics behind the MVNO, it has always been clear to those on the inside that a postpaid model is a pretty tough row to hoe. Your effective rate per minute in prepaid is significantly higher and makes your underlying cost sustainable. Besides, we are the only one in the world that has Western Union money transfers on the handset — and that is just the beginning,” Carney said.

So it seems that despite its youth, Affinity Mobile is a survivor — a survivor whose corporate name may not be so lucky. For before the history described above, there was more. “Affinity originally was going to be in the business of providing celebrity-based calling cards, with guys like Michael Jordan and Shaq. One of our investors was a big wig in the entertainment industry. The crazy celebrity card idea didn’t work out, but the name never changed. We’re working on changing that,” Carney said.

In the meantime, Accenture is helping the company take its message global. It was Accenture to whom the company turned to help it identify the right target market for its platform. At the time, Accenture was involved in mobile banking initiatives at the GSM Association. Recently, Affinity Mobile itself was selected by the GSMA to participate in the Mobile Money Transfer workgroup.

Accenture makes a distinction between the mobile banking segment and mobile payments. Mobile banking is a relatively high-end service for high-end customers, which they use for paying bills and shopping. Although operators such as AT&T have national mobile banking initiatives, most of the drivers behind these initiatives are the banks. Carney sees these sorts of solutions as pure entertainment. Mobile payments on the other hand, refer to transactions between people or between people and machines.

While banks are driving the initiatives as a way to provide another convenient channel for its clients, they still are struggling to find a way to make money at it, said Shahad Ahmed, head of the technology consulting practice at Accenture.

Mobile payments, being transaction-based, offer a better opportunity. However, the unbanked segment is anything but highend and some banks see this segment as very risky. “Banks are all about risk management,” Ahmed said. “But that’s not to say this isn’t an attractive segment. Forty million is a big number — and growing.”

Part of the risk associated with this demographic is exacerbated by the ease of churning in a prepaid environment. The mobile payment solution from Affinity Mobile helps address that, said Duncan White, managing director of Accenture’s telecom portfolio in the United States. “By creating services that tie the provider more tightly to the rest of a person’s life creates stickiness around Affinity’s prepaid model,” he said.

Face Two: The Platform Side

Accenture has been involved with Affinity Mobile for about two years, helping them define the market, helping launch Trumpet Mobile and now providing professional services and back-office support for its MADE platform. It also provides sales support and is helping connect Affinity with clients around the world. Accenture, in turn, partners with companies such as Seibel for customer care and Telcordia for the real-time charging engine.

“The mobile banking and payment platform is a much-needed platform for all developed markets and economies. It is very popular in Korea and Japan and it is taking a firm role in the overall mobile payment and transaction economy,” Ahmed said. “But from a developing-world perspective, clearly the financial services infrastructure is not there.”

White said Affinity Mobile, with its network of alliances and partners, has addressed this problem. “That is one of their value propositions. They can go to their customers and say, ‘We have this all figured out,’” White said.

So what is it that Affinity Mobile has figured out? It’s all about the load and spend mechanism, said Craig McNeil, CTO at Affinity. “You can pull the banks and the carriers together, but unless you have a significant amount of load and spend functions, you’re not really driving a lot of economic value through the platform. You have to have multiple ways of inserting money into the system,” he said.

Here’s how they do it. First, a user needs a way to put money onto a prepaid account. That’s the load function. Affinity Mobile currently issues a stored value card that is linked to a mobile phone number. It’s not quite a Visa or MasterCard yet, but it could be, and Gillen said the acceptance is pretty good. In addition to Western Union, Trumpet users or users of other mobile operators using Affinity’s MADE system can use services such as Green Dot Money Packs or Swiftpay to load money onto their card by calling into Affinity’s IVR. Users of Trumpet also can load money at RadioShack stores.

The MADE platform sits, functionally, between the operators’ network, the banks (including Western Union) and the retail and other load portals. It communicates with the operator using IP, SMS or USSD protocols or works with mobile devices using WAP, Java or SIM Tool Kit applications. It has a transaction-processing engine, a policy engine and a compliance module that maintains regulatory compliance for account balances.

The spend mechanism relies on these processes to pull money out of the account through money transfer, debit card-based retail transactions or “topping up” the minutes on the mobile phone. Once users have money on their card, they can transfer it back home to the local Western Union, using their mobile phone.

Adding minutes to a user’s mobile account in this way is appealing to mobile operators, Carney said. “Typically, people go to a retail store to buy those minutes and the retailer takes up to 25 percent in the form of commission. We can save an operator 18 points of margin right off the top,” Carney said.

While the global market opportunity is great, Affinity will focus locally for now. “The biggest ‘send’ country in the world is the one we’re sitting in — the U.S. We already have a carrier application in the U.S. and are focused on selling to carriers here,” Carney said.

But they’re not alone. A Des Plaines, Ill., platform provider is making noise targeting the unbanked segment and invoking the name of Western Union. However, theirs is a virtual Western Union. Like Affinity, aKos Technology Corp. is targeting the unbanked market for mobile remittance and it, too, spends a lot of time in Mexico City. The company has developed a Mobile Remittance Gateway that enables secure mobile remittance, but uses the retailer as a middle man rather than Western Union.

Finally, in a development last month that can be viewed as either positive or negative, Movida, another MVNO targeting the Hispanic market in the United States, went bankrupt. Some will see the failure as reflecting badly on the MVNO model itself or on targeting the Hispanic demographic. However, it could be that they hadn’t figured out the business model. Perhaps Affinity has. The uptick in activity in the space makes it likely someone will figure it out soon.

It could be as simple as this: “These customers are already making tons of transactions and all I am saying is that you can do it cheaper on your cell phone,” Carney said. “That’s the message.”

2008 Stimulus Package: Near Field Communications

Thank goodness for leap year. On February 29, the GSMA European Telecommunications Standards Institute (ETSI) adopted the technical standards governing mobile Near Field Communications (NFC).

The completion of the core of the technical standards removes potential obstacles to, and lets operators prepare for, the rollout of contactless payment services and other applications that use NFC.

Members of ETSI also selected the software protocol to control communication between the handset’s NFC chip and the SIM card, completing the standards necessary for handset makers to begin production of NFC-enabled phones in large volumes.

The effect of NFC on Affinity Mobile’s business model? “We’d love it,” said CEO John Carney. “The holy grail of NFC would get rid of the debit card. We would love to get rid of the card and the cost associated with it. But we think NFC is five to 10 years away due to infrastructure costs.”