IABFM Expert Opinion

World Poor Spell $7.9 Billion in Mobile Cash for Vodafone...

By Michael Preiss

Monday, July 20, 2009 15:56:13 PM

[b]By Marcel van de Hoef and Sarah McGregor[/b]

July 20 (Bloomberg) -- James Muriithi used to make a day-long journey to deliver money to his relatives in a village 100
kilometers (62 miles) from Nairobi. Not any more. He now needs only his mobile phone.

“To be able to send money standing here, so that my sick mother can get medicine, is one of the best things to happen in my life,” said the 45-year-old who sells newspapers off a folding table in Kenya’s capital, and has no bank account.

Phone companies are making a beeline for emerging markets to win mobile-money business from the likes of Muriithi, who uses the M-PESA service from Safaricom Ltd., 40 percent owned by Vodafone Group Plc. Operators such as Vodafone and MTN Group Ltd., Africa’s largest wireless company, are targeting about 1.7 billion people with no access to banks. Mobile-money in emerging markets could ring in $7.9 billion of sales for operators by 2012, says GSM Association, an industry group in London.

“It’s hard to ignore the impact and potential of mobile as a conduit for developing financial services,” said Mark Beccue,
an industry analyst at New York-based ABI Research. “It makes perfect sense to marry the two together.”

This is how it works: Customers store money on handsets by opening an account with the operator. They can then send cash through text messages to recipients, who collect it from the operator’s local agent. In villages, the agents could be at the hamlet’s grocer, gas station or post office.

[b]Growth Potential[/b]

Mobile money is attracting global names, including Vodafone, France Telecom SA and Nokia Oyj. Some have announced partnerships with financial-services companies, including Visa Inc., Citigroup Inc. and Western Union Co. The European operators’ interest coincides with a push into emerging markets as demand slows at home, where there are more wireless connections than people.

“Operators are looking at emerging markets because penetration is lower and they’re still growing,” said Joris
Franssen, who helps manage about 400 million euros ($564 million) at Kempen Capital Management in Amsterdam, including France Telecom and Vodafone stock. “If you want to do it well, you should offer functionalities that are desired over there. Mobile money could be one of them.”

The business is currently a miniscule portion of the mobile-phone industry. Still, the GSMA, which hosted a conference on mobile money in Barcelona last month, says sheer volumes will drive the business.

[b]More Mobile Phones[/b]

It estimates that by 2012 about 364 million handset owners without bank accounts will sign up for services that allow money transfers and payment of bills. Mobile money’s reach will increase as it becomes available in more countries and customers get more familiar with it, the group predicts.

Zain, the Kuwait-based operator whose Zap offering competes with M-PESA, plans to expand that service to 22 markets from three. South Africa’s MTN started MTN MobileMoney in Uganda in March and announced “a series of planned launches” across Africa and the Middle East. Orascom Telecom Holding SAE, the Middle East’s biggest mobile-phone company, this month began money services in Pakistan with Citigroup’s Citibank unit.

“In emerging markets not many people have access to financial products,” said Howard Wilcox, a Basingstoke, England-
based analyst at Juniper Research Ltd. “Typically many more people have a mobile phone than a bank account and therefore the mobile phone has in many cases become a much more trusted brand than the bank.”

[b]‘For the Future’[/b]

M-PESA’s registered users almost tripled to 6.2 million at the end of March from a year earlier. The business, which started in 2007, accounted for about 4 percent of Nairobi-based Safaricom’s 70.5 billion shillings ($920 million) in sales in the year ended March. That may rise to 6 percent this fiscal year, Michael Joseph, East Africa’s biggest mobile-phone company’s chief executive officer, said in an e-mail on July 3.

Newbury, England-based Vodafone, the world’s largest wireless operator, also offers money-transfer services through
majority-owned Vodacom Group Ltd. in Tanzania and a partnership with Roshan in Afghanistan, said spokeswoman Caroline Dewing.

France Telecom and BNP Paribas SA announced the start of their Orange Money service in the Ivory Coast in December. Nokia this year bought a stake in Redwood City, California-based Obopay, which started a mobile-money service in India last year.

“Investing in something like Obopay is about building business for the future,” said Mark Durrant, a spokesman for
Espoo, Finland-based Nokia. “Mobile payment is a topic that many people are interested in.”

[b]Infrastructure Linked[/b]

Mobile money in Europe and the U.S. predominantly involves using text messages to pay for ring tones and music downloads and bank customers operating accounts from their mobile phones, said Juniper’s Wilcox. It may get a boost in the third quarter when Nokia starts selling its 6216 classic phone, which allows for a wider range of electronic payments, he said.

The electronic-payment business has taken off in Japan. NTT DoCoMo Inc., Japan’s largest wireless operator, says that there were 33 million mobile phones with such capability as of March 31. NTT customers can pay on trains, in shops and at restaurants by waving their phones over a reader.

“In the western world there’s already a good financial infrastructure, so the proposition is not as clear,” said Ed
Achterberg, who heads the Dutch telecommunications research company Telecompaper. “It’s a search for what added value mobile has for consumers. If you can do anything you want with a small piece of plastic, what do you need mobile for?”

Carriers invest in mobile money to increase service revenue and customer retention, while banks aim to expand into rural areas beyond their traditional network of branches.

[b]Savings Accounts[/b]

Zain’s Zap, which started this year and signed a deal with Western Union for international remittances, is already
profitable, as it utilizes the existing network of prepaid agents, said Chris Gabriel, who heads Zain’s African unit. M-PESA charges customers as much as 400 Kenyan shillings ($5.20) to transfer up to 35,000 shillings, according to its Web site.

“The operator has the ability to leverage economies of scale and can charge a lower transaction fee” than post offices,
ABI’s Beccue said. “They have the infrastructure in place and the potential to make money out of it is very high.”

Money-transfer services for handset owners without a bank account may bring in $5 billion of transaction fees and text-
message linked revenue by 2012, according to the GSMA. Indirect revenue, including from greater customer loyalty, will probably amount to $2.9 billion. Sales may further rise when customers stash their life’s savings on their mobile phones and start making international remittances, it said.

In Kenya, Muriithi is ahead of the curve. He’s used his phone to stash his daily wage of 250 shillings for two years.

“Poor people in slums with no security risk home invasions and fires,” he said, pulling out a worn mobile phone from an
inside jacket pocket. “I have no reason to worry. I can put my money right here.”

Cash Is King

By Michael Preiss

Friday, July 17, 2009 04:00:45 AM

For information only:

2009: Best & Worst performing Currencies in the World so far this year

For a certain part of a portfolio, Cash is always King, but then again for us in Private Banking the “real question” is, cash in what currency and at what interest rate and is the market’s consensus view right about “inflation expectation” ?

Year-to-date, the high yielding currencies of Brazil , South Africa are the best performers among the major currencies.

Brazil Real currency swap rates are currently at around +9% and South Africa repo rates are around +7.5%.

The Australian Dollar is very well bid and as a “proxy trade” on the China growth story maybe the best store of value among the western major currencies. The higher yield is indeed a bonus. Investing in high quality earnings, high dividend paying Telecom stocks like Telstra or New Zealand Telecom does seem to make a lot of strategic sense.

Please also note that many of our friends on Wall Street and in the analyst community now seems to advocate that both the Taiwan Dollar and the Korean Won are “strong buys” due to the belief that we will see a recovery in global demand which will benefit export oriented economies. And both KRW and TWD are to some extend benefiting from the longer-term RMD (Chinese Yuan) appreciation story.

Our own Standard Chartered Bank FX research view is that the KRW (Korean Won) is one of the best Asian currency trades for the 2nd half of 2009. KRW current spot rate 1259. Standard Chartered Bank FX forecast Q409 is 1150. This implies a potential upside of +8.6% in KRW.

Templeton Global Bond Fund, the well diversified fixed income fund seems to share this conviction call.

The Templeton Global Bond fund largest single position is in Korean Won assets with 14.8% of the total. Could it be that Mr. Hasenstab, the fund manager could be right on Won ?

As an aside, please note that the world not only has the 1st Black American President in history but 5 of the best performing currencies in the world are from Africa ! Seychelles Rupee (SCR) + 21.5%, South African Rand (ZAR) +17.6%, Lesotho Loti (LSL) +17.5%, Namibian Dollar (NAD) +17.6%, Swaziland Lilangeni (SZL) +17.6%,

Reversion to mean, is again playing out in the currency market, almost clock work wise. The best performing currencies in 2008, namely the JPY and CHF are this year’s worst performing major currencies.