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The Development of Mobile Payment in Mongolia

by

Gombo Bolor-Uyanga

Under the Supervision of Fei Zhong Lin

Submitted in Requirements for the Degree of Bachelor

International Economics and Trade Department

School of Overseas Education

Nanjing Tech University

June, 2019

Abstract

In the beginning of 21^st century, the money exchanges took a completely new non-material form, which included card transactions, payment orders, online banking etc. Nowadays especially mobile payment occupies a great niche in electronic transactions. Its implementation grows worldwide with an increasing speed. But does this tendency has the same strength in the country as Mongolia? Which impact it has on this exact country? In which development stage mobile payment currently exists on Mongolian marketplace, what perspectives it has in the future and what initiative steps we could make to accelerate the mobile payment growth in the country, all of these issues I would try to sufficiently analyze in the following report.

Key words: Mobile payment , electronic transactions, Mongolian marketplace

Table of Contents

Abstract I

Chapter I Introduction 1

1.1 Research background and motivation 1

1.2 Literature review 1

1.3 Research content and methods 2

Chapter II The Development History of Mobile Payment Services in Mongolia 4

2.1 The birth of the commercial banks in Mongolia (year 1990-year 1995) 4

2.2 The start of the Non-cash payment system in Mongolia. (year 1995-year 2009) 4

2.3 Non-cash payment to mobile payment. E-payment era (year 2009-year 2019) 5

Chapter III The Environment of the Mobile Payment Industry in Mongolia 6

3.1 The Opportunities of Mobile Banking app (Most money) Development in Mongolia 7

3.2 The Threats of Mobile Banking Development in Mongolia 8

Chapter IV The Strengths and Weaknesses of the Mobile Payment Industry in Mongolia 9

4.1 The Strengths of the Mobile Banking Development in Mongolia 9

4.2 The weaknesses of the Mobile Banking Development in Mongolia 10

4.3 Summary 10

Chapter V Conclusions and Implications 12

5.1 Research Conclusions 12

5.2 Research Implications 12

References 13

Chapter I Introduction

1.1 Research background and motivation

I would ask the reader to firstly accept that Mongolia is still a developing country, and it will be clear after reading the thesis, that mobile payment in the country is a relatively new phenomenon. While American non-cash payment instruments were already issued in 1950 (by the Diners Club), whereas non-cash payments in Mongolia began to grow rapidly only since 1990. Mobile Payment came here also several years later. Therefore, it hasn’t been introduced enough investigations on this matter yet. I, on my side, despite the above-mentioned fact, will try to carry out a research in this field, to get the transparent picture of the electronic payment situation in the country.

1.2 Literature review

Mobile Payment refers to a mobile financial business based on a mobile network. Currently, mobile payment has various definitions. Different researchers and institutions have defined it from different perspectives. For example, Au and Kauffman (2008) defined M-payment as “any payment in which a mobile device is utilized to initiate, authorize and confirm a commercial transaction” ^[1]. By contrast, Batmunkh Namuun’s definitions of M-payment is much narrow. Batmunkh Namuun (2012) defines M-payment as transactions conducted using a digital method and instrument of payment that include banking method and stored value accounts ^[2] etc.

Chinzaya Gantumur (2011) “Mobile Payments Risks” about an understanding of the whole process as the payment made for different methods. The book highlights as to how mobile devices have altered the purposing of everyday life, business and how financial transactions too are go through a change in the modern outline ^[3] . Consumers are willing to utilize mobile phones for payment purposes apart from various other infotainment purposes. Mobile phones are already creating a space and opportunities for the growth of different financial activities in different countries. There already exists a scenario where the number of phone users are exceedingly more than the individuals having bank accounts. This is a very important indicator for interpreting the scope of growth of mobile based payments in the global market space.

About internet users and e payment in Mongolia different researchers described. For example “Batmunkh Dayan (2010) reported in Mongolian Economy and Finance blog”. Internet usage in Mongolia has grown rapidly over the last few years, having surged by 1,000% for the decade. Despite such an enormous growth the volume of Internet subscribers in the country reached 10.9 % by the end of 2009 ^[4]. That may be compared to 1.1% in 2000 and 10.3% in 2007 .

From the targets of transaction, M-payment can be categorized into P2P payment, C2B payment and B2B payment. Moreover, from the provider’s perspectives, M-payment can be classified into three types: mobile network operator, banking institution and third-party platform (Hongorzul Nayan 2011)^[5]. Now in Mongolia, there are two main mobile network operators: Mongolia Mobicom Corporation , Mongolia Unitel Telecommunication Corporation. All these two operators are authorized to provide mobile and data service. The most popular banking institution activating in M-payment is Most money banking, which facilitates make transfer or bill payments via online. The third party payment platform is still to be developed in Mongolia.

In addition, numerous applications have been introduced, which facilitate the payment process. Prominent examples include Most money and Money gram mobile banking (Х.Баттушиг 2017) ^[6]. B.Tugsbilig 2017 mentioned that a total of 2.8 million people has been using the mobile bank application ^[7].

More and more advanced technologies with easier online transaction systems are being introduced to the market. For example, local commercial banks are opening their online platforms and new services for smart phones. Using QR codes, Trade and Development Bank and Khan Bank users now can receive and make transactions. The user’s account information is changed into QR code and can be used on every commercial bank’s mobile applications.

The recent trend towards cashless payments is evident in the marketplace. Mobile payment is offered by a growing number of companies from different sectors including banking, hospitality and retail. Restaurant chains like Subway and Burger king now allow making payments through the NFC technology (М.Ууганбаатар, 2017) ^[8]. Stores that accept mobile payments include for example Adidas, Nike, Hamp;M and Whole Foods Market. Some of them provide mobile payments through dedicated services like Most money app, Apple pay etc. Others offer mobile payments via their own applications.

1.3 Research content and methods

To avoid unreliable results out of my research, I had to choose the research methods very thoughtfully. The problem stated, development of Mongolian mobile payment, has dynamic essence, therefore, I tried to avoid out-of-dated and non-actual information via taking the examples about mobile services from actual real working Mongolian bank and other money platform websites in the first instance. All the analysis represented is also grounded on the real-life facts.

In my research I used “Most Money” service as a main mobile payment example, as it is the most widespread, trustful and powerful online money platform in Mongolia.

In the same time, I still had a lack of data needed to complete my research. Must works concerning my topic are originally written in Mongolian language and are being kept in a paper form, to what I obviously had no access, what created a sort of limitations.

Chapter II The Development History of Mobile Payment Services in Mongolia

2.1 The birth of the commercial banks in Mongolia (year 1990-year 1995)

Initially commercial banks began to develop in Mongolia as a result of the victory of the Democratic Revolution since 1990. As the market opened, a number of commercial banks were established and others began to be bankrupt because of a policy that was not in the competition. Since 1998, the future of the banking sector has been optimistic, with banks being able to compete with new products, services and quality ^[9]. Generally, any manufacturer thinks of how to approach customers. So, for banks, the way to distribute services to the internet and mobile phones is the best step. Therefore, banks are actively introducing these services.

Over the years, the role of the bank has become increasingly diversified into one of the largest financial institutions, creating a modern monetary system. As a result, the bank is directly connected to the money, its products and services are unique in nature.

2.2 The start of the Non-cash payment system in Mongolia. (year 1995-year 2009)

In 1995 the banking “Law on Deposits, Loans and Banking Transactions” was passed which allowed Mongolian banks to start using non-cash-based payment instruments such as payment orders and invoices, letters of credit, checks, bills of exchange and payments cards. The “Bills of Exchange Act”, passed in 1995 further helped banks to offer a wider range of non-cash-based services ^[10] and helped the national stock exchange market grow.

The introduction of the new program which allows promoting interbank non-cash payment system in 1997 was truly a big step in an accounting system of the Bank of Mongolia.

Also several years later Golomt Bank, one of the largest bank in Mongolia, has become a member of Master Card International in the second quarter of 1999 and it has been connected to international payment card network ^[11]. In this way, the payment card service was first introduced to Mongolia as a non-cash payment instrument. Now 9 banks offer this non-cash payment service. Of these, four banks, namely Khan Bank, Trade and Development Bank, Golomt Bank and Savings Bank, have their own payment card network and the rest of the banks are settling their cardholders' settlements on the card. Interbank payment card transactions are transacted through NCB's network. Golomt Bank, Khan bank, TDB banks issue international debit and credit cards (Visa, Mastercard, China Union Pay) and act as acquirers for payments received through international cards including Visa, Mastercard, China Union Pay, American Express and JCB.

In addition within the scope of World Bank project - 2006 ‘Extending the Financial Capacity’, the gate to execute the interbank transactions in separation of large and small amount was opened. Furthermore, the 2009 conveyance of ‘Bank network’ RTGS was significant advance to maintain the secure, fast and effective payment system of the interbank large amount transactions.

2.3 Non-cash payment to mobile payment. E-payment era (year 2009-year 2019)

Mobile money service in Mongolia was originated with the name of “Most money” in 2009 by “Mobifinance” NBFI. Customers of “Mobifinance’’ NBFI were able to use their mobile phones to create a mobile wallet where funds were being stored ^[12]. The funds could be accessed using the mobile phone. The funds could be used to the prepaid mobile phone, to send funds to other mobile phone users within the same system, or to purchase products from the mobile network operator and to purchase goods and services from a limited number of merchants. The service is operated by MobiCom, a cell phone network operator. Now this app is one of the leading mobile payment platforms.

Furthermore, new regulation "Dissemination of Mobile Banking Service and Electronic Money Policy" by the President of “Mongolbank”, the FRC and the Chair of the Communications Regulatory Commission dated in December 12,2012 claimed to support non-cash payment instruments ^[13], use of technological advances, and provide financial and non-financial services to ensure a safe and efficient delivery of financial and non-financial services regardless of their income level, geographic location and timeliness.

Also, Message banking system was being introduced in 2009 by “Khanbank”. Message banking system allows customers to send an SMS to their bank in order to access their accounts for transactions^[14]. In the past few years, the message banking service has greatly expanded with a total of 10 commercial banks and a non-bank financial institution. The largest network of message banking, AMAR, is operated by “XacBank”. Users of any cell phone operator may pay for goods and services using their cell phone as well as make deposits and withdrawals without visiting the bank branch and through the authorized agents outside of office hours.

In addition, Internet banking system was renewed with advanced technologies and became the new brand “TDB online” in August 2014.

Chapter III The Environment of the Mobile Payment Industry in Mongolia

In this section, I will conduct SWOT analysis on Mongolian third party platform (Most money app) to better understanding of its capabilities. Based on this analysis, the reader will grasp strengths and opportunities of the mobile payment on one side and its weaknesses and related threats on the other.

First of all, I would make a short introduction of “Most Money” mobile banking app:

“Most fintech” Co. Ltd was established in 2008, with a purpose of establishing a nationwide e-payment system for Mongolia. Later on, the Most money service was being introduced into the market in 2012 as the first Mongolian electronic banking to provide over 250 000 customers daily payment needs. ^[15]

In October 2018, The Most Money electronic banking was set up on the market and it is aiming to do online loan services to non-bank financial institutions and commercial banks. The product was being introduced as a “white label”, so the Most money electronic banking service was open to banks and financial institutions.

Most Fintech Co. Ltd itself has expanded into a centralized payment settlement system connecting 5 banks, 7 microfinance institutions, all Mongolian mobile operators, cable TVs, 12 residential providers, and over 180 service providers ^[16].

In this way, this mobile banking app became an extremely easy-to-pay your bill and daily payments anywhere anytime tool. Also, this app could help you to manage your money quickly and easily. To do so, you only ought to have a device with internet. By using “MostMoney” one has plenty of advantages of the following services:

First one is transaction, you can use your own mobile phone to make transactions wherever you are, it includes transfer between own account, intra bank transactions, interbank domestic transactions, transfer by card numbers., etc.

Second one is bill payment, you can pay for electricity, CHP, mobile phone, landline phone, internet., etc. without going to the bank. You also can save your bill payments and pay automatically.

Third one is purchase and cash withdrawals, One of the interesting thing is, you can make ATM transactions using mobile phone. While using this app we can do shopping online, book movie tickets via the phone, and order food delivery.

Fourth one is personal information access, most money app has the capacity to hold all personal information at a single registered account. It will act as a personal financial portal.

Fifth one is personal organizer, this app is capable to store user's Calendar, Contacts, to-do lists and tasks allowing it to be accessed on any system for updating or changes.

The Most money service is becoming a personalized portal for every individual. The Following are some of the benefits individuals can expect from their E-wallet.

3.1 The Opportunities of Mobile Banking app (Most money) Development in Mongolia

Most money mobile banking app has various opportunities. The first one is people will be able to transfer money easily anywhere, anytime and make some business without geographical limitations. Second one is it will be saving energy, time and saving your money(transportation). Instead of going to bank, or even into an office, you can use your mobile phone make transfer, purchasing or bill payment from anywhere anytime, which is very cheap. Third one is that users don’t have to worry about carrying too many cards as all of them securely stored within Most money. Most money also aims to make storage to cards digital. Thus, users are able to store all their cards together in a single device (same as Alipay).

According to my research Most money has started its international market. Most Fintech co. ltd signed a cooperation agreement with AIDAS group of Singapore. Under this agreement, digital banking solutions, PLC based banking system and mobile payment platforms are exported international, including ASEAN or Southeast Asia.

Hence, in my opinion this cooperation agreement is the chance to increase Mongolian e commerce economy.

3.2 The Threats of Mobile Banking Development in Mongolia

First threat of Most money app is security. Customers worry about personal data being hacked or stolen through digital wallets. Most money app can face a threat of hackers and this becomes a huge danger to customer personal data and his wallet. Secondly, if the mobile phone accidentally was stolen or lost, the user cannot make any money operations in case of emergencies (lets imagine a Mongolian citizen abroad, if he lost his phone with e-wallet installed, he can’t freely go to the nearest service provider to restore the access to his account).

Third one, mobile payment is still strongly depending on a device, that user is using (battery capacity, processor etc.). What if the mobile phone is low battery or off, the user cannot make any transactions.

Chapter IV The Strengths and Weaknesses of the Mobile Payment Industry in Mongolia

In this section, I am going to compare the “Most money” mobile banking app with “SBERBANK ONLINE” mobile banking app. As I have mentioned that Most money app is the Mongolian most popular mobile banking app, “SBERBANK ONLINE” is a top rated mobile banking app in Russia too.

Firstly, I would make a brief introduction of “SBERBANK ONLINE” mobile banking app.

The year of 1841 – the year marking the inception of Russia's oldest bank ^[17], Sberbank. From day one, Sberbank of Russia makes it its policy to serve all social groups, mobilising deposits from peasants, the gentry, merchants, the military, officials and even the clergy. In 1993, Moscow branches of Sberbank deploy the first ATM's. And finally in 2009 the new Sberbank Online service enables customers in the Moscow Region to complete online bank transactions 24/7.

4.1 The Strengths of the Mobile Banking Development in Mongolia

When we come to the point of comparing these two mobile payment services, we should to consider, that the Sberbank has a much longer history, than the one of FinTech. That is to say, Sberbank has much greater capital and opportunities in overall. We could also refer the Sberbank and other western payment companies as a role model to the Mongolian companies, including MostMoney. But when we compare exactly these two companies, we could notice, that Mongolian mobile payment still did a great work while developing their app features, which Sberbank, due to unknown reasons still hasn’t implemented. These are:

Payment via QR code. Russian citizens, despite of having Sberbank app in their pocket, still ought to pay with their plastic cards (in this comparison bounds we don’t mention the possibility of using Apple pay, what in Russian big cities is a common practice). When Mongolian citizen goes shopping, is it clothes, furniture or ordinary products shop, he always can pay with a phone via QR code.

Secondly, we barely can find any opportunity to buy a movie ticket online, order food delivery etc. with the Sberbank system, while all of these are available with MostMoney.

Last but not least, Sberbank doesn’t have the feature of synchronizing with user’s calendar, reminders and other organizer tools of a device. What makes the MostMoney app quite competitive and we could mark it as an strength of the Mongolian service.

4.2 The weaknesses of the Mobile Banking Development in Mongolia

On the other side, when we talk about, what Sberbank Online can do, and what Mostmoney still cannot, here we can write down not such a persuasive list of properties. But still let’s talk about three most important of them:

First of all, when we mention coverage advantages and weaknesses, Russian Sberbank undoubtedly wins. The MostMoney provides its service only in three big cities (which includes Ulaanbaatar, Erdenet, Darkhan), whereas the one of Sberbank based its filial throughout the country and outside of it (for example, in Ukraine, Belorussia, Kazakhstan users still has the full pack of features available).

Secondly, as the Sberbank is a national bank in first instance, it’s being acknowledged everywhere throughout the country. Financial, tax and other governmental institutions often require an account in this bank. Consequently, the active user of verified Sberbank account is much more reliable from such kind institutions point of view. User can make an appointment in a hospital, get monthly pension, track its opened fines and even pay study fees at university. Unfortunately, MostMoney doesn’t still have such level of trust and might not be used for any online social programs.

The third property, where MostMoney should reconsider its policy is a communication with clients. In contrary to high quality Sberbank tech support, customer service at the Most money website are too ineffective. Many complaints from time to time claim that Most money has shut down a customer’s account arbitrarily and won’t listen to any reason. But it’s not hard to know that Most money works very hard to keep its system secure and when it finds out customers doing things that skid along the edge of its policies, it may shut them down. As Most money is act in such way for good reasons, it should try to communicate with customers and let them know more about their action like send e-mail or phone call them so the misunderstand can be decrease.

4.3 Summary

To sum up, Mongolian mobile payment MostMoney app has almost all essential features, what modern app of such kind is actually needs. It has already had its rush and promising start, but still doesn’t have a sign of maturity. Maturity includes trust and outworked philosophy of working with clients. Both is being acquired with time, money investments and patience.

Chapter V Conclusions and Implications

5.1 Research Conclusions

According to my research digital cashless alternatives are increasingly present in the everyday life and progressively reach different types of customers. So providers should focus on convenience, efficacy, safety, and cross- platform interoperability while designing their applications. The same attributes M-payment providers can promote the service by offering discounts or other incentives. They can also improve the system quality and service quality by ensuring the success of transactions, keeping the operation easy and expanding the scope of availability.

5.2 Research Implications

The thesis presents a study of mobile payment services in Mongolia and lays special focus on the key mobile payment systems which include Mobile banking and Most money. The results of the thesis are supplemented by analysis results which include SWOT analysis.The analysis results critique the research results of the thesis objectively and allow the reader to quickly determine the comparative strengths and weaknesses of each mobile payment system.

References

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