As a payment solution provider, OMA Emirates covers the full scope of issuance, acquiring, and retail POS solutions. Its card issuance and management solutions are leveraged for debit and credit cards, consumer loyalty cards, and other requirements for services based industries. Within Africa its portfolio of customer names includes Al Barid Bank, CAM Bank, Ministry of Habous, ANPME, Stareo, Transdev. As a new payment services provider entrant into Africa, it is important for OMA Emirates to evaluate its initial point of entry, roll out milestones, partnership strategy and sales model taking into consideration the realities of the African continent.
On the Middle East side, OMA Emirates started the acquiring business in 2006 and along with its software capability in issuance is now a service provider for telecom companies. It is currently a supplier for e-vouchers for mobile top-ups and utility payments. “First we were selling software. Then we started with services. And then we created an ecosystem and combined both of them, explains Niranj Sangal, Group CEO, OMA Emirates Group. “That is how we started the whole business.”
Progressing through the end to end solution and services ecosystem of issuance and acquiring as well retail POS, brought up some significant opportunities for OMA Emirates to reposition itself both in Africa and Middle East. “We found that there is huge disconnect between all three platforms when it comes to creating an end to end ecosystem.” As an example, he points out across the Middle East region, almost all banks inside a country typically issue debit and credit cards, amongst others and hence are termed as issuing banks. However, a much smaller number of these banks invest in acquiring the payment cycle of spending, and those that do are called the acquiring banks. Inside UAE there are only four banks playing the role of acceptance, and all other UAE issuing banks depend on these four to complete the payment cycle. “This is the standard case worldwide. I mean everybody does not get into it.”
The decade plus experience of OMA Emirates in the end to end, payment services provider role, has also prompted it to look more closely at the under-utilized role of the retail POS terminal. In day to day life, the maximum frequency of visits by most consumers is to a retail outlet for purchases. This is in comparison to visits to an ATM kiosk, using a mobile device for e-commerce or a PC device for Internet and e-commerce. The POS terminal inside a retail outlet is mostly setup by acquiring banks for the purpose of collecting transactions from the issuing bank’s customers. But the POS terminal can also be reconfigured by payment service providers like OMA Emirates for the acquiring bank to facilitate utility payments, as an example, amongst other payment options.
A customer at a coffee shop or a provision store can therefore not only pay for their coffee and provisions at the time of check out, but also if prompted pay for their overdue utility payment, near to expire parking ticket, and other integrated services.
The African continent also has its nuances of how retail transactions are conducted. The high risks associated with cash and the lack of access to formal banking channels, has migrated consumer transactions to mobile based payments. Telecommunication service providers like Vodacom, Safaricom, have been instrumental in building the enabling platforms for mobile money transactions. “Africa is more of a continent where we are talking of cashless on mobiles predominately. Cash is a very risky thing in Africa. I am not saying all the countries but most of the countries have cash as a problem to carry.” Access to ATM kiosks are also fewer and their distribution are skewed to large urban and commercial centres.
Another innovation that will increasingly drive movement towards mobile based POS payments is availability of virtual mobile cards. Issuing banks in Africa can save millions of dollars by not producing the physical card and relying on scaling the platforms for delivery of virtual mobile cards. “The virtual card is a total cost saving, I mean there is no physical card. It is just a virtual card but it allows you to use it anywhere. That is where the world is now moving. We are using a mobile application to actually disperse what we wanted to use as a service.”
For OMA Emirates, access to consumers through telecommunication service providers and their deployment of country wide networks is critical in its next moves into the African sub-continent. The customer base that uses formal banking channels, and those that can be reached through telecommunication service providers, differ by a couple of magnitudes of scale. A bigger African country with a higher population has a direct impact on the number of mobile driven transactions enabled by telecommunication service providers.
However, for a new entrant like OMA Emirates, the entry into the African payment services market is quite complex for multiple reasons. Unlike more developed markets like the Middle East, the connectivity between the retail merchant’s POS terminal and the acquiring bank is typically through the telecommunication service provider rather than the bank’s own communication network. In fact, in Africa, Sangal points out a lot of banks are using third party providers to complete their transaction processing. In most cases, it is the telecommunication services provider themselves that play the role of the third party for transaction processing. This is because of their dominant investment into networking and communication technology in comparison to banks.
“Phone is the carrier in Africa today. If I do a payment transaction, the line that carries it, is through the telecommunication services provider. It is not a bank that gives the line. The telecommunication services provider carries the bandwidth and does the authorisation. The only thing banks have is the license to actually execute that part, which the telecommunication service providers do not have” elaborates Sangal.
Transaction routing
Globally and in Africa, retail transaction authorisation and fees settlement follow the same step-wise process. When a transaction using an issuing bank’s virtual card in a mobile phone is requested for at a retail merchant’s POS terminal, the request is first routed through the acquiring bank’s network to the acquiring bank. From here it is routed through the national switch to the issuing bank’s network and then further to the issuing bank. After the approval is generated from the issuing bank, it follows the reverse path to the retail merchant’s POS terminal.
After settlement, the final transaction value is forwarded to the retail merchant from the consumer’s account at the issuing bank. This will include a deduction for network access and the acquiring bank’s fee in the settlement. Both the issuing bank and the acquiring bank may also make direct deductions into the consumers account based on where the retail transaction is done from. This transaction path may be much simpler if the issuing and acquiring banks are one and the same, in other words they share the same network and processing steps as well, usually referred to as on-us.
Global payment schemes such as Visa and MasterCard do not recognise telecommunication service providers as being eligible for either an issuance or acquiring bank’s license. “Somebody has to issue a card and then somebody has to accept a card. Both issuance and acquiring as a license is only given to financial institution which are categorised. It is only banking institutions who get this license from the scheme. Schemes like MasterCard and Visa do not give it to a telecommunication service providers, the reason being they are just a carrier,” points out Sangal.
While telecommunication service providers have been carrying the volume of transactions as well as enabling them through their country wide and regional reach, till date they have not been able to benefit from the value of the transactions they have been carrying. Sangal believes that consumer facing eco systems have already been put into place across the African continent. There are a large number of small ecosystem that are already operational but are not able to scale because of the fragmented nature of the payment acquiring process. By working closely with issuing banks and telecommunication service providers in its African role as a payment services provider, OMA Emirates hopes to bridge the gap between the retail merchant, issuing and acquiring banks, and the telecommunication service providers. The role of payment service providers is to invest in the local ecosystem and connect everybody on the same network.
“There is no single perfect player that does everything, and we felt this is going to change in Africa. So, we become a kind of a mediator for both parties to actually complete an ecosystem. We decided this year what we are going to do is, we are going to take every bit of the ecosystem and connect it on a platform. Whether bank A has a product and vendor B has a product, we will be able to merge them on a single platform. So, when I say that, I am not creating an ecosystem there. There are preset ecosystems that allow acceptance on the devices. The solution front is already certified and you can complete your transaction on it. It is cashless and the best part is, it is safe and secure. It will be covering everything. We are only looking at banks and telecommunication service providers at this point,” Sangal elaborates at length.
In order to reach a large scale of transactions across the African continent to justify its significant investments, OMA Emirates had two choices. Either develop a distribution type of operation with local presence everywhere and invest significantly in upkeep of the local presence. Or leverage the reach of telecommunication service providers and invest in virtual card extraction devices allowing mobile driven transactions to start rolling without delay. A key objective is to integrate the existing system of mobile money users that are already operational with telecommunication service providers. This is where mobile money transactions are being used for value added services over a phone, and will use the same network ecosystem that OMA Emirates plans to deploy into, bridging issuing and acquiring banks.
With OMA Emirates investing into building such multi-bank network platforms with its own resources, and charging banks on a service fee basis to ride its network, Sangal believes the barriers to integration would be significantly lowered. He points out, the major hurdle is the capital injection which most banks are reluctant to do at present, especially in times like this where survival has become a challenge, and keeping a customer has become even more challenging. By adding on additional payment channels to the same retail merchant terminal as well as offering the network option jointly to multiple banks, to opt in on a service fee basis rather than on a capital investment basis, the buy-ins from local players has become a lot easier. “That is a game changer in Africa.”
By operating in global markets including US and Asia, OMA Emirates has a much broader vantage point, and believes what it is doing in Africa is ahead of the timelines but is an important unique selling point in its go to market.
Another reason for OMA Emirates selecting to partner with telecommunication service providers is the lack of cost predictability in setting up Internet connectivity across multiple African countries. “Internet as a channel probably could be a costly affair in the long run, because we cannot define the cost depending from country to country.” Globally telecommunication service providers have been striving to become the bridge between issuing and acquiring banks but have been limited by financial regulations. “We become a kind of a mediator for both parties to actually complete an ecosystem what they have wanted to do in the country that they are in.” Telecommunication service providers would receive a fee for enabling network based transactions for OMA Emirates.
With OMA Emirates making the upfront investment, and using the available devices and technology investment from the banks and telecommunication service providers as they are and integrating them as well, there has been a significant positive response from within multiple African countries. While the business model is to leverage multiple banks to use the same networks thereby offsetting investments costs and increasing traffic on the same capital investment, the name of the game for OMA Emirates is still to find local partners in its go to market. The requirement is to prioritise its points of entry into various countries with local partners. In its role as payment services provider, OMA Emirates would be required to be locally setup within the specific African country, hence the need to find a local partner as well.
Sangal spells out his way forward. “We want to be very selective and we have to because everybody wants to do it. It is not about money. It is about resources. When it comes to resources that is a challenge every company faces worldwide today.” Potential in-country local partners would have to match the system operating procedures of OMA Emirates, which are used in multiple countries and are well defined. Interconnectivity with the central bank of the country and national switch would also be required as part of the local setup process. Sangal admits this is an uphill task.
OMA Emirates will start its service as a model as a pilot project in North Africa with its local partner, Business Rules Solutions-OMA Emirates Group. This will be followed by a pilot project in South Africa. At present, it has on-going negotiations in eight African countries. “That is what we will do this year to see how deep is the water in Africa. It is a virgin market according to me and a lot of countries are not fully tapped to the potential.”
Switch in the cloud
Keeping in mind the planned roll out into multiple African countries, and the need for more than one switch in large African countries, OMA Emirates has hosted its switch middleware platform in the cloud. A typical onsite switch implementation including interconnectivity with the national bank and national switch and scheme certification can take as long as 12 months to 18 months. By moving the switch to the cloud, OMA Emirates intends to reduce the lead time with the same certification requirements to within 6 months. A second switch in the same country would take less time, at four months. While OMA Emirates would use local datacentres in Africa as well, Sangal is prepared to invest in their own datacentre within the same country or in a suitable adjacent country, to meet any local availability and reliability requirements.
FAQ
Issuing bank
An issuing bank is a financial institution that is in charge of issuing card to consumers on behalf of the acquiring bank or card networks. It is also known as the credit or debit card company and as the name implies, they pay the acquiring bank on behalf of the customer. They are also giving the authority to grant customer credit card or debit card with the bank logo sometimes also with that of the acquiring bank. The most renowned card networks are MasterCard, Visa and American Express. These card networks grant access to issuing banks that are in partner with them to issue cards on their behalf. The bank that maintains the consumer’s credit card account and must pay out to the merchant’s account in a credit card purchase. The issuing bank then bills the customer for the debt.
Acquiring bank
An acquiring bank also known simply as an acquirer is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer allows merchants to accept credit card payments from the card-issuing banks. The acquiring bank enters into a contract with a merchant and offers it a merchant account. This arrangement provides the merchant with a line of credit.
Under the agreement, the acquiring bank exchanges funds with issuing banks on behalf of the merchant, and pays the merchant for its net balance—that is, gross sales minus reversals, interchange fees, and acquirer fees. Acquirer fees are an additional markup added to interchange fees by the acquiring bank, varying at the acquirer’s discretion. The acquiring bank accepts the risk that the merchant will remain solvent. The main source of risk to the acquiring bank is fund reversals.
A card chargeback occurs in a dispute between the merchant and the card-holder over the validity of the transaction. Acquirers are also in charge of clearing and settlement of transaction in a case of fund reversals. Due to the key position of acquiring bank in the payment chain and the high amount of risk it is subjected to, the security of electronic payment is their highest priority.
Network schemes and associations
The best-known credit card associations are Visa, MasterCard, Discover, Indian Rupay, American Express, Diners Club, Japan Credit Bureau, China UnionPay. Visa and MasterCard need issuing banks and acquiring banks because both are setup as networks. Visa and MasterCard do not actually issue credit cards, nor put terminals at merchant locations. They provide a network that allows others to do so. The merchant has a merchant account with a bank that allows them to accept credit cards, debit cards and prepaid cards.
Payment service provider
A payment service provider offers retailers online services for accepting electronic payments by a variety of payment methods including credit card, direct debit, bank transfer, and online banking. Typically, they use a software as a service model and form a single payment gateway for their client’s merchants to multiple payment methods.
Typically, a payment service provider can connect to multiple acquiring banks, card, and payment networks. In many cases, the payment service provider will fully manage these technical connections, relationships with the external network, and bank accounts. This makes the merchant less dependent on financial institutions and free from the task of establishing these connections directly, especially when operating internationally. Furthermore, by negotiating bulk deals they can often offer cheaper fees. Some payment service providers provide services to process other next generation payment systems.
Mobile money, M-Pesa
M-Pesa is a mobile phone-based money transfer, financing and microfinancing service, launched in 2007 by Vodafone for Safaricom and Vodacom, the mobile network operators in Kenya and Tanzania. It has since expanded to Afghanistan, South Africa, India, Romania, Albania. M-Pesa allows users to deposit, withdraw, transfer money and pay for goods and services easily with a mobile device. The service allows users to deposit money into an account stored on their cell phones, to send balances using PIN-secured SMS text messages to other users, including sellers of goods and services, and to redeem deposits for regular money. Users are charged a small fee for sending and withdrawing money using the service.
M-Pesa is a branchless banking service. M-Pesa customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as banking agents. M-Pesa has spread quickly, and by 2010 had become the most successful mobile-phone-based financial service in the developing world. The service has been recognized for giving millions of people access to the formal financial system and for reducing crime in otherwise largely cash-based societies.
The initial concept of M-Pesa was to create a service which would allow microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. This would enable microfinance institutions to offer more competitive loan rates to their users, as costs are lower than when dealing in cash. The users of the service would gain through being able to track their finances more easily.
The user interface technology of M-Pesa differs between mobile operators, although the underlying platform is the same. This includes SIM toolkit and USSD to provide handset menus for accessing the service. Transaction charges depend on the amount of money being transferred and whether the payee is a registered user of the service. The actual cost is a fixed amount for a given range of transaction sizes.
OMA Emirates solution portfolio
Issuance solutions
OMA Emirates provide solutions for personalization and post-issuance management of single and multi-application smart cards where information gathered from a number of locations are collected at a central point and all cards are personalized and prepared for distribution to the cardholders. Complying with EMV security standards, high-level security ensured through encryption using key management schemes and import data from the card management system is provided with the necessary cryptography using SafeNet HSM.
The central issuance solution allows banks to take full control of the issuance through in-house personalization supporting multiple databases and allowing data Retrieval, image capture, card Issuance and reporting facilities. The solution supports issuance of Java TM, Multos and native card as well as customizable import process and interacts directly with CIM Machines.
Acquiring solutions
Retailers are now seriously considering mobile POS solutions to address challenges and opportunities in the new connected world. Retailers realize that they cannot monetize well if they do not deliver the right interaction and user experience. The key challenge for merchants is to provide a seamless, personalized interaction with connected consumers during their digital shopping journeys.
The mobile POS ecosystem has emerged. It is transforming traditional checkout, payment acceptance, and merchant supply chain by enabling improved interaction between merchants and customers. Mobile POS technologies are bringing new opportunities and challenges for all players along the entire value chain. Big retailers want robust mobile POS solutions enabling integration with their complex backend systems.
Switch
NanoSwitch ATM is a secure online solution for ATM transactions and optimizes the management of ATM activity providing transaction routing, authorization host, settlement and management reports. The solution complies with strict EMV standards and is certified by major payment labels including VISA and MasterCard. The monitoring system of NanoSwitch ATM allows for in depth supervision of ATMs providing clients with detailed information on the ATM activities at any given moment the number of ATMs in service, number of ATMs out of order, number of ATMs without connection and more. A measurement system generates analyses of each ATM performance using stored data and offers both standard and customized reporting capabilities, which can be utilized at any time.
The CMS is a complete EMV certified system that manages both issuing and acquiring functions for private and international banking cards including card and merchant functionalities, payment authorization and account clearing and settlement. All approved authorizations can be controlled and monitored with the CMS and instant transaction reports can be generated demonstrating statistics for all transaction activity. In addition to this, the system also performs clearing and settlement reports for transactions with the other financial institutions.
The CMS supports all card technologies including magnetic strips and smart chip cards as well as all types of cards such as credit, debit, loyalty, EMV, and can incorporate loyalty and incentive programs. The EMV Authorization Host determines whether a transaction is accepted, rejected or referred to a card authorization organization by card issuers such as VISA, MasterCard, others.
Retail
OMA Emirates offers clients a secure integration tool that integrates software and hardware components with EFTPOS residing on an IP-based LAN or wireless infrastructure enabling the management of external peripheral devices such display screens, printers and keyboards that may be required. The solution allows for automatic routing of transaction from user’s POS terminal to the authorization server securely through the secure key management scheme by Pin Pad.
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