Mobile commerce (mCommerce) has the potential to substantially change retail in Saudi Arabia in the next few years. While mCommerce pathways are still unclear globally due to a lack of interoperability, Saudi Arabia's developed infrastructure and high mobile penetration create a prime environment for mCommerce adoption. The country's large young population, high smartphone usage, and majority of purchases still conducted with cash indicate that a collaborative mCommerce model between banks, mobile carriers, and the government could boost electronic payments, lower costs, increase consumption, and contribute to economic growth.

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PROSPECTSFORCOMMERCE
IN SAUDIARABIA
ChrisSimiriotis
Managing Partner,FANERA LTD
A. Introduction
The hype surrounding mCommerce is at an all- time high. This is
mainly spurredby a multitude of parties vying for a position in
this lucrativeecosystem. The ability to manage a disparate range
of applications; marketing,sales, payment, loyalty, storelocation,
among others, throughone device is perhaps the main
distinguishing feature of this technology,whichis expected to
changethe retail sector substantially in the next few years. Yet,
while thereis no doubt about the future of mCommerce as a
viable transactional channel, the path to a universal business
model is still unclear.The lack of interoperability is exacerbated
by the launch of many initiatives by MNOs, retail chains, national
and international payment schemes, banks,mobile
manufacturers,and solution providers.In this paper, we shed
light on mCommerce as an emerging technology,the underlying
ecosystem, its importance to a country’s retail economy, , and
the practical business model(s) when introducedinto an already
progressive infrastructure.
B. What is Mobile Commerce?
The definition of mCommerce is still evolving on a par with the technology it
represents.For the purposes of this paper, we will simply define mobile commerce
as the use of a mobile device by consumers to acquire a variety of retailing
information, pay for goods and services at merchant locations and manage loyalty
and other programs offeredby businesses through a mobile communication
network. In fact mCommerce, is an extended version of mobile payments.
To understand mCommerce, it is important to chart the evolution of this technology
in terms of customer experience as
illustrated in Figure (1):
The previous figuredemonstrates
the evolution of transactions from a
customer experience perspectiveat
retail locations.It is evident that as
technology and shopping consumer
buying patterns changed, so did
consumer behavior. With an ever
increasing young population and
smarter mobiles,shoppers today enjoy
far more options and flexibility than
ever before.However, and in contrast
to traditional transactional interaction,
mCommerce has not yet achieved the
level of standardization, regulatory
governance and interoperability
currently enjoyed by the card-based
and eCommerceecosystems. Thedelay
in these aspects has led to many
disparate initiatives that have added
complexity and delayed the emergence
of a plausible infrastructure.However,
perhaps the most unique featureof
mCommerce is its ability to deliver
a shopping cycle that starts before,
during,and after the goods or services
aredelivered.
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C. mCommerce
Ecosystem
The mCommerce ecosystem(see Figure
2), unlikethat of a card scheme or
eCommerce infrastructureis much more
diverse and complex; the main reasons
for this are:
•A banking industry that is adamant at
holding customer funds ( perhaps
rightly so) and exercising due diligence
in audit, security,and compliancethat
has served it fairly well in the past
decades;
•Mobile network operators trying to
expand beyond their traditional role into
more lucrativebusinesses suchas
payments, the realm of well-established
and entrenchedplayers;
•Regulatory bodies, in many countries,
that arevery hesitant to allow deposits
and fund transfers outside the banking
system;
•Third parties such as providers or
payment gateways, mobile solutions,
and TSMs( Trusted Service Manager
) that areexploring the best possible
combinations betweenbanks,MNOs,
and national/international payment
structures.
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mCommerce
Ecosystem

3. Advertising
Figure 3
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Banking
Brokerage
Money
Transfer
Insurance
Mass
Transit/Ticketing
Coupons
LoyaltyAirtime
Security
StoredValue
Gift Cards
Parking
Students
Payment
Wallet
Payment Card
P2P
Bill
Payment
D. Services
Figure (2) illustrates that here could be
up to 8 parties involved to process an
mCommerce transaction comparedto
4-5 for a card payment or 2-3 for an
online payment. So why is mCommerce
still gaining popularity and support?
Perhaps the main reason is the diversity
of services that can be offeredthrough
one device; Figure (3) illustrates some of
these services:
E. Technology
The underlying technology has been
evolving as well through:
• Wap;
• Mobile Sites;
• SMS;
• USSD
• Mobile Apps.;
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• NFC
The UI layer is built using several mobile
client technologies depending on the
operating system and the application
interface supported by the handset.
These include:
• JAVA ME;
• Windows Mobile OS7;
• Android;
• Iso7;

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• SMS
• WAP;
• Mobile HTTPclient
Noteworthy is the fact that mCommerce
is in reality is being used extensively
as purchasesfrom otherwiseonline
shopping sites are being made using the
mobile. However, this is closer to online
shopping than mCommerce wheremany
of the transactions occur at physical
locations.
Perhaps the most publicized aspect of
mobile commerce is in the areaof
Contactless Payment s or NFC(Near
Field Communication). This technology
has gained considerable attention with
venues that process micro payments in
mass, and others wherefaster customer
throughput generates additional sales
and therefor revenues.Theadvent of
mobile commerce created technical
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challengesparticular in customer data
protection and security.With payment
cards being emulated in the mobile’
secure element, it became necessary
to manage the security aspects of the
transactions in two ways:
•Device Security : Managing and
protecting the application, card, and
customer data in the device;
•Transport Security: Protecting the
various paths in the transaction through
security protocols.
The above measures have long been
used in the traditional card-based
ecosystems with standards suchas PCI
DSS and EMV among others that are
well documented, standardized,
regulated by local and international
bodies as well as owners of various
payment schemes. The pictureis very
different in the mobile arena where
efforts arestill being made to produce
operational and security standards.But
even if these efforts areproductive,this
does not guarantee acceptance
by all parties. Development in this
areais more local and regional than
international and this will limit the
extension of most mCommerce services
across borders.

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F. BusinessModels
Most adaptations of mCommerce have
manifested themselves throughthree
main hosting scenarios:
• Carrier billing;
• Card billing ( Financial Institution);
• Payment gateway service provider;
Applications that support the above two
directions have led to the development
of several options that arechanging both
the customer and merchant’s experience
as illustrated by the following figure:
The main challengein progressing
mCommerce in any country is the
difficulty in formulating a viable
business case. Not only becauseof
doubts over critical mass, but also from
the two contending yet complementary
parties; MNOs and Banks.The main
challengeshave risen from the fact that
each party has competencies in one or
more areas but both sharecustomers
and wish to retain funding.Several
initiatives werelaunched with varying
degrees of success; these included a
combination of stakeholders.
The most successful ecosystem to
date is a collaborative government led
consortiums that assemble banks,
carriers,payment schemes, TSM, and
solution providers under one roof.This
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model, followedin many Asian countries
suchas Japan,S, Koreaand Singapore,
is producing mass adoption and
transaction volumes that far surpass
other business models.

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G. Thecase for
SaudiArabia
The potential of mCommerce in the
Saudi economy can be gauged through
several indicators:
Many of the factors that have underlined
the adoption of mobile commerce in
several countries do not apply to Saudi
Arabiawhich is a high income economy;
with a developed banking and financial
infrastructure,wide communication
coverage notwithstanding remote areas,
one the highest mobile penetration rates
in the world, and recent government
initiatives for financial inclusion that will
raise the bankedpopulation to as high as
78%of the population particularly with
the opening of banks accounts for the
Hafiz and WPSprograms. The country
also scored37.5 in MasterCard’s Mobile
Payments ReadinessIndex1
comparedto
an international index average of 33.2.
It is thereforeapparent that the
consideration of mCommerce as an
alternative to the unavailability of a
banking infrastructureor the existence
of a largeunbankedpopulation
does not hold true in Saudi Arabia’s
case.Furthermorelaunching mobile
commerce by MNOs as an alternative
to banking as in the caseof mPESAin
Kenya is not feasible in this case.The
drivers form mCommerce in KSA are
thereforebased on operational
efficiency, cost management, customer
and merchant service and regulatory/
fiscal policies such as control of cash in
circulation.
mCommerce is most likely to impact
the retail sector in Saudi Arabiawhere
more than 85%of purchasesare still
concluded in cash. Thereis therefore
common ground between all concerned
parties in the Saudi economy to
collaborate in reducing dependency on
cash which costs the Saudi economy
close to SAR 5bn annually.2
Adding an additional mPayments will
further enhancemigration to electronic
payments leading to several positive
outcomes including:
• Lower cash handling costs;
• Reduction in the gray economy;
• Higher financial inclusion;
• Higher consumption;
• Growth in GDP
With mCommerce as an additional
electronic payment instrument,
customers will not be inhibited by
accessto cash and merchants will
benefit from faster inventory turnover
and lower labor costs.An increase in
electronic payments is expected to lead
to an estimated 0.532%in consumption3
and will thereforelead to an estimated
cumulative growth of 4.7%to GDP.
Taking the above into consideration,
it is suggested that the mCommerce
strategy for Saudi Arabiabe based on a
collaborative model as follows:
1
MasterCard
2
BCG1998
3
Moody’s 2013
Source: IMF, AL Jazira Capital, ICT, Gulf Basev
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2012 ( Est.)
% Population aged between 15 - 39 47%
Retail market size USD76-78Bn
Disposable Income per capita SAR 76,788
Internet penetration 47.5%
eCommerce Spend USD 800Mn
Mobile penetration 195%
Mobile subscribers 56.6 million
Smartphones 33 MILLION