Vodafone’s JustTextGiving capability, which allows individuals to donate to charities through
a single text message, has opened up a new window of opportunity in the UK’s payments landscape. William Cain considers the wider implications of developments in text remittance technology.

Earlier this year, the mobile network Vodafone launched a service in the UK, allowing people to make charity donations of £10 ($16) by SMS message. Its clearest impact is the improved speed and flexibility it will provide to charities and fundraisers, especially in the field of spontaneous donation.

More interestingly for the payments industry, it has also created a format which can easily be adapted to the field of person-to-person (P2P) payments. The technology that allows individuals to text funds to charities would also enable them to send money to one another.

It is perhaps no surprise that Vodafone, the telecommunications company which has already won accolades for its payments services in other parts of the world, should be at the centre of things in the UK.

The company helped set up M-Pesa in Kenya, a system which allows individuals to transfer funds between each other through text messages. The project is widely regarded as the world’s most successful example of mobile-based payments.

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The service it announced in May and launched in September in the UK is certainly not as advanced as M-Pesa, although some in the industry feel it may only be a matter of time before the company rolls out a similar service in other countries. The service is called JustTextGiving and involved an investment of £5m into a new technology platform and marketing.

Its remit is to specifically allow individuals, and particularly those in the 18-24-year-old bracket, to donate money to charity using mobile phones through a free text message service.

Research from Vodafone shows less than half of people within that age range gave to charity – around 44% – compared to over 80% of 65-year-olds. Users of the service send a text, including their chosen charity’s reference code and the amount to donate – limited at £10.

The service is free for charities and end-users. Individuals raising funds for specific charities can also register to receive their own code, allowing them to integrate the codes into their fundraising efforts. Research conducted by think tank Respublica estimates text donations could be worth £96m annually by 2014 and the early signs from JustTextGiving have been promising.

According to the company, over 13,000 charities have signed up for the service since May and 8,000 fundraisers have signed up for their own codes.

Not just giving

This success has important ramifications for two very different parts of the UK payments system – cheque displacement and mobile payments.

Cheques and their future role in the UK payments system became a contentious issue this year when the UK Payments Council was forced into an embarrassing U-turn on its decision to phase out the payment format by 2018.

One of the key motivations for regulators to overturn the Payment Council’s plans was a warning from charities that it would considerably hinder their ability to gather donations. There was concern among charities that abolishing cheques would severely impact levels of donations.

The Payment Council’s argument was that new forms of payment, like mobile payments, should be able fill the gap left by cheques.

However, with no scalable mobile payment systems in the market and a phase-out date for cheques slated for 2018, the organisation reversed its decision and said it would not consider starting to phase out cheques until at least 2016.

But Libby Pritchard, head of corporate responsibility and reputation at Vodafone, questions whether mobile payments are really a substitute to cheque-based payments. She says Vodafone’s service is more of a complement to the existing options available to charities.

"We see mobile donations as one of many fundraising tools that charities can use and see mobile as complementing, rather than replacing any fundraising methods," Pritchard adds.

"However, we know that mobile giving is popular with younger users who are unlikely to use cheques or direct debits to make donations. JustTextGiving members can also use this fundraising tool for free, with no set-up or running costs."

Mobile payments are most likely to be used by younger consumers, and it is hard to see how that type of solution would address the needs of the typically much older demographic that still relies largely on cheque usage, not just for charitable donations but also for the payment of bills, personal expenses and gifts.

In the charity sector, there have been other attempts made at reducing the reliance on cheques. Bacs, which provides direct debit and direct credit services, has had some success in converting charitable donations from cheques into electronic payment formats.

In a case study, Bacs shows how its work with the Dog’s Trust, which receives around £2.3m annually in donations through direct debits, helped streamline the organisation’s processes, reduce time spent collecting and reconciling funds and improve cash flow.

As the charity now receives a sizeable proportion of its funds through direct debit on a monthly basis, it is able to plan and allocate funds in advance – and also let its supporters know where it plans to invest their money.

A Dog’s Trust spokesperson said direct debit was "by far and away the most cost-effective payment method" for its supporters to use.

Rival platform

Payment methods like direct debits or internet banking transfers look much more likely to be a long term replacement for cheques than mobile payments, particularly in the field of charitable donations.

This is a view which is shared by Steve Adams, strategy director at processor VocaLink, who is currently involved in developing a rival SMS payments platform. Adams says mobile payments in the wider sense may have some role in reducing cheque usage, but that the key motivator for mobile text donations is convenience.

"Part of the motivation and the momentum created in the UK around mobile payments is that it was seen as a potential cheque replacement," he says.

"I am not sure it will have a massive impact on cheque replacement per se but it is certainly going to offer another level of convenience for anyone that’s donating."

VocaLink’s SMS donation system is still a work in progress and subject to an agreement from the LINK ATM scheme to create a new transaction type on debit cards which would allow mobile-SMS initiated payments.

It is also working with charity aggregator Everyday Hero – an organisation which aggregates information on people who make donations – to pre-register individuals for the new service on an ‘opt-in, opt-out’ basis.

However, if the scheme gets up and running, it has some potential advantages over the Vodafone solution, according to Adams.

First, there would be no limit on the amount individuals can donate using the VocaLink scheme, meaning potentially large sums of money could be transferred to charities via SMS.

Second, according Adams, the VocaLink system will be "less clunky" than the Vodafone solution, which requires donations to be made through an individual’s monthly mobile phone bill. Adams says the VocaLink SMS solution would be able to clear in real-time.

"In terms of operation, one system is going to fairly similar to the other," he says. "The clunky element for Vodafone would be the post-event clunkiness.

"The donation is collected by the phone bill, it doesn’t go directly to the charity aggregator whereas we are settling with the charity aggregator in real time.

"There is all of this after-the-fact settling with the aggregator which isn’t required with us. That’s because the transaction is taking place ‘as-is’."

The VocaLink system uses a ‘proxy’, for example the mobile phone number, to replace the need to enter bank details. The proxy is tagged against consumers’ actual bank details in a database and when a payment is executed the system is able to use the proxy to locate the payment details it needs to complete the transaction.

VocaLink also checks a system called the home locator register to ensure the mobile phone is in the hands of the right person – important for potentially unlimited transaction values.

"The key advantage from the charities’ point of view is that the limit associated with these donations is only restricted by the restrictions the bank places on transactions for that account," says Adams.

"From a charity point of view this has significant attraction because unlike the text giving service from Vodafone and Just Giving [a fundraising website linked with the Vodafone programme] which is fixed at a £10 and has a downward effect on the average donation value, this doesn’t.

"It leaves it up to the individual to decide how much they want to give to the charity to help the fundraising causes."

Next steps

Adams says charities are now investigating how they can use the spontaneous nature of mobile-SMS donations to help with disaster relief work.

He says text messages could be used by charities in TV advertising campaigns, a fundraising method that could be particularly effective in instances of natural disasters, where funds need to be raised quickly. He says the charity aggregator VocaLink works with is currently in talks with the Red Cross about this possibility.

These developments all mark an important step forward in innovation in charitable giving in the UK and provide a new and convenient option for charities and individual fundraisers to collect funds. They also may help open up charitable giving to a new demographic of consumers, those in the 18-24 age bracket.

However, the rationale put forward for mobile phone-based payments replacing cheques seems much weaker because SMS payments by their nature appeal to a demographic much less likely to use cheques.

Perhaps the most important outcome from the move into mobile text donations is the broader availability of the technology to execute mobile P2P payments closer. These would work in largely the same way the VocaLink system describes, and Adams says the recent emphasis on charitable donations is a definite move towards the widespread availability of mobile P2P payments.

He says the capability to implement this kind of system already exists in the UK. Roll-out is restricted only by the UK Payments Council which is currently running a tender process to decide which suppliers it will involve in building an interoperable UK mobile payments system.

"We are in there and pitching, but we won’t know the outcome of the process until the turn of the year," Adams says

"Within what we are doing here, with charity giving, we still need to go through a governance process with the LINK scheme and I stress that we don’t yet have sign-off from the LINK scheme to take these types of charity payments – although the LINK scheme has agreed to carry charity donations via ATM.

"It is a variation on the theme. The two elements that will allow us to go live in the Spring is nailing the integration process with the aggregator – which we think will be relatively straightforward.

"The second is that the membership of the LINK scheme signs off on this so that we can complete the governance process with the LINK scheme.

"From a technology point of view, we are good to go, pretty much."