MobileBankingBasics[1]

7/28/2019 MobileBankingBasics[1]

1/15

Last update: 2010

Bringing Smart Policies to Life

The basics: Mobile phone financial services


2/15

OverviewMobile phone penetration is soaring, withsubscriptions more than quadrupling since 2002,to more than 4 billion globally.

Well over half of these live in developing countries

Huge potential for expanding financial access at alower cost than through brick-and-mortar branches


3/15

3

Closing the gap between unbanked people with access to mobile phones

is one opportunity to scale up access to finance

Potential Market

Sources: Banked Honohan 2007; Penetracin Celular: ITU; WireIess Intelligence 4:2002, 4:2006Datos Mxico: Notes on Branchless Banking Policy and Regulation in Mexico; CGAP

97%

50%

100%

10%

% Banked people % Mobile Penetration

Finland

Kenya

The

Philippines

South Africa

Colombia

Mexico

%

mobilephonepenetration

% of banked people


4/15

Benefits

Expand financial access to the unbanked by:- Offering convenient and real-time transactions

- Dramatically reducing transaction costs

Microfinance Loans and Domestic Remittances

- Expanding points of access reaching remote areas

- Lessening the need to carry cash - security


5/15

Mobile phones can be used to deliver a range ofbanking services, including: money transfers retail purchases

bill payments welfare payments and other social services savings withdrawals remittances

Transaction data can be used to develop customers

credit histories: Can lead to a wider range and depth of inclusion

Service offering


6/15

Policy Question :AML/CFT

Traditional AML/CFT rules may need to be updatedfor virtual or outsourced relationships & transactions Pose unique risks but also opportunities, as mobile phone

transfers leave trails

FATF advocates a risk-based approach that allowsregulation to be tailored to perceived risk

In practice, many countries face challenges in achievingcompliance this way

Standard KYC procedures may hurt outreach to low-income customers Some policymakers have simplified procedures to allow the

development of products with a low-risk profile


7/15

Policy Question: interoperability? Interoperability enables customers to gain access to a

different operatorsm-bankingplatform

Question of market structure and competition policy Mandating interoperability may promote competition and

benefit consumers Early movers may resist, as they can lose competitive edge

Customers still need to convert e-money to cash, usingbank branches, ATMs or agents

Adds another level to interoperability - sharing cash in/cashout infrastructure can support outreach at lower cost


8/15

Policy Question:

Protecting Consumers Mobile phone financial services present new consumer

protection challenges Large distance between providers and customers

Agents may lack clear incentives or liability for transparency

Cash in/out function by agents may open the door to fraud Requires technology-tailored solutions to data security and

privacy, redress mechanisms and pricing transparency

Including technology issues in financial education can

help reduce information asymmetry Bringing operators under central bank supervision may

also help unfamiliar customers feel more at ease


9/15

Example: Kenya M-PESA launched in 2007

when only 23% of Kenyanshad a bank account but 80%access to a mobile phone.

The service has grown intoone of the most successfulin the world, with more

than 8.5 million customersand over 12,000 agents bythe end of 2009.


10/15

Kenya MNO-Based Model:M-PESA

10

In the M-Pesa MNO-Based model, clients cash-in/out at thousands of M-Pesa

agents. M-Pesa wallets are held by Safaricom & are not classified as deposits. E-

Money is backed 1:1 by pooled funds deposited in trust at a commercial bank.

SafaricomBank

ClientMNO Agent

Cash In/Out

With a loaded

M-Pesa Account

Clients can

Transfer &

receive funds

Pay Bills

Withdraw

Donate

M-Pesa account

funds are pooled

and depositedby Safaricom

into an account

held in trust at a

commercial

bank.


11/15

Example: The Philippines Two mobile banking operations

(Smart Communications andGlobe Telecom/G-Cash) have anestimated 71.2 millioncustomers (90.5 Population)

Mobile phone transactions areestimated to cost just 1/5 of

those executed through bankbranches (US$0.50 versus US$2.50)


12/15

Philippines Bank-Based Model:SMART Money

12

In the SMART Money Bank-Based Model, Banco Doro issues E-Money using the

SMART E-wallet platform that allows clients to transact.

SMARTMoney Banco DOroClient SMART AgentCash in/out of Smart moneywallet

With a loaded E-

money wallet

clients can

Purchase

Deposit

Withdraw

Pay Bills

Transfer Money

ATM Withdraw a

Using just their

mobile phone

The E-money issuer in this model is Banco

DOro. Individual Smart E-wallet accounts

are held on the books of the bank


13/1513

Under the Mexican model, TelCo is a banking agent because the Mexican

Banking law only allows a banking institutions to accept deposits fromgeneral population.

Mexico Mobile Banking Model

TelCo(Banking Agent)

BankClient TelCoRetailer

Face to Face with Client

Basic Banking

Services:

Deposits

Withdraws

Bill payments Remittances

Deposits are

withheld and

managed by the

bank


14/1514

Banking institution is responsible for the implementation of the

AML/CFT regulation but some specific activities are required of theTelCo.

Bank

TelCo

Open mobile banking accounts and applysimplified KYC and CDD

Back office for handling database of bankingtransactions and push a copy to the bank.

Monitoring client transactions

Report suspicious and significant transactions(over US$10,000)

Mexico Mobile Banking Model


15/15

Thank you!

Alliance for Financial Inclusion 2010

[email protected]

www.afi-global.org

Documents

MobileBankingBasics[1]