Asia's mobile remittance payment systems make telcos credit-positive

Yet Moody’s warns that carriers may become too aggressive in mobile payments.

This aggression may lead to the point of lowering their credit standards or trying to cross-subsidize their wireless service.

Moody's Investors Service says that new technology for remitting funds via cell phones will have positive credit implications for the Asian telecommunications carriers.

"Asia is at the center of a global phenomenon for telecommunications companies: the advent and growth of mobile phone payment systems," says Laura Acres, a Moody's VP-Senior Credit Officer and author of the report.

The preponderance of a large "unbanked" but mobile population with the need to remit money is helping drive the growth of mobile money transfers, especially across national borders, according to a Moody's report.

"At this point, because adoption of the technology -- and the practice -- are still at an early stage, the telcos aren't seeing much revenue generated from mobile payments," adds Acres.

However, due to the number of steps involved in setting up regular remittance payments, the service tends to increase customer stickiness -- and reduce churn, which represents a perennial problem for operators in Asia's emerging markets.

"Given that mobile payments can provide a cheaper alternative to the more established money transfer agencies for price-conscious migrant workers who are repatriating funds to their homes, whether in or outside the country, the widespread use of such systems could have a positive credit implications for carriers providing the service," says Acres.

However, the degree of impact will depend on the scale of the mobile commerce, and perhaps more importantly, on where the credit risk of end-customers and transaction clearing resides. At present, the combined value of mobile payments for digital and physical goods, mobile remittances and the smaller market of NFC amount to only several billion U.S. dollars per year for the entire Asia-Pacific region.

In Moody's view, one issuer that stands to benefit from a rising use of phones for remittances is SingTel (Aa2, stable), which has more than 368 million subscribers in 25 countries, many in countries where sending or receiving remittances is common.

In Asia, Malaysia's Axiata (Baa2, positive), like SingTel, should be able to take advantage of the growth in remittance payments due to its widespread holdings throughout Asia Pacific.

In addition, given the large number of foreign workers in Singapore and Malaysia, both SingTel and Axiata could benefit from both receiving and transmitting remittances in terms of the associated SMS revenue, as well as by cementing customer relationships.

Banks also have incentives to link with mobile operators: Rather than having to open expensive branches in rural areas, new operations can work through agents such as local shops, which can transmit cash from mobile customers and then credit or debit their mobile phone accounts.

Similarly, for retail outlets, mobile payments can reduce transaction times and generate more purchases than might otherwise have occurred.

One potentially negative factor would stem from carriers' becoming too aggressive in pursuit of mobile payments, to the point that they lower their credit standards or try to cross-subsidize their wireless service and mobile commerce with revenues from other parts of the business.

For operators investing directly in financial institutions to take part in mobile payments, Moody's would consider the operators' overall tolerance for risk in developing a new business model.

"We would also look at the carrier's ability to manage the investment and concomitant rollout of new payment technology while dealing with the ongoing day-to-day challenges of providing customary services," Acres goes on to say.