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Mobile Money

Cautious Optimism

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What is “mobile money?”

• No fixed definition exists. Some describe it as a “service” for accessing financial services.

• Here, we talk of it as a type of “electronic money:” – Simplified: mMoney is money in digital form accessed through a mobile phone.– A bit more detailed: mMoney is an electronic store of monetary value that is used and

accessed through a mobile phone that is:• accepted as a means of payment;• mirrored by an equivalent store of money held by a regulated bank in trust; and • redeemable for cash.

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So what can you do with mMoney?Technically speaking, mMoney allows:

– Transfers - person-to-person, domestic and international– Payment transactions - bill payments, merchant payments, micro-

insurance premium payments, airtime top-ups, online payments, ticketing, loan repayments

– Disbursement transactions - bulk payments, including salary payments, government-to-person payments, and loan disbursements

– Conversion transactions - transactions converting money between digital and hard forms, such as cash-in and cash-out transactions and transfers between bank and mobile money accounts.

– Administrative transactions - PIN resets and balance inquiries

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In other words, w/ mMoneyyou can…In terms of utility and value-added services, it allows you to:

– Send money to friends and family– Pay merchants for goods– Receive payments from customers for goods– Make utility payments for water and electricity– Pay taxes– Receive salary, pension, welfare, and emergency payments– Receive a loan disbursement and make loan payments– Receive insurance disbursements and make premium payments– Access fee-for-service products, such as solar power (mKopa),

clean water, and health or agriculture information– Receive payments from and make payments to business suppliers

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Why does mMoney matter to economic development?At a macro-level: – mMoney ecosystems enable a means to dramatically deepen

financial inclusion; – achieve inclusive economic growth; and – reinforce efforts to increase the financial system’s stability,

integrity, and level of protection offered to users of financial services.

– Notable statistics:• Higher use of electronic payments (cards, etc.) has contributed on

average to an 0.8 percent increase in GDP (Moodys)• Each ICT-sector job created leads to 2.42 additional jobs in other sectors

in Latin America (WEF) • Mobile financial services in Pakistan have contributed to rise in financial

inclusion from 20% to 41% (Boston Consulting Group)

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At a micro-level:– Protects Against Income Shocks:

• In Kenya, negates affect of negative income shocks (equivalent in value to 3-4% of annual household income)

– Yields Income Growth and Time Savings: • In Nigeria, mobile-based social transfers saved time equal in

value to grain necessary to feed five people for a day• Income growth attributed to the use of mobile: 19% for

potato farmers in India, 29% for grain traders in Niger, and 36% for banana farmers in Uganda

– Allows Safe Money Transfers In Challenging Environments: • In Sudan, 92% of adults w/ mMoney have no bank account. • In Somalia, average number of transactions is higher than

global average, with P2P alone accounting for 23 per month

Why does mMoney matter to economic development?

Why USAID Supports e-Payments and Mobile Money

Foster cost savings and improve aid efficiency

Increase transparency and reduce leakage and waste

Reduce security risks to program staff

Improve access to financial services for the poor and unbanked

Catalyze development of new and innovative financial products for the poor and unbanked

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mMoney has grown fast & a lot

• Esp. in East Africa– 4 countries have more mMoney accounts than

bank accounts• Worldwide…– 190 mMoney deployments exist (41 new in 2012)– In 28 countries, more mMoney agent outlets than

bank branches– 6 have had more than 1m active users

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But growth has been uneven

• GSMA’s 2-tier landscape (14 fast-growing deployments across 10 countries)• Fast-growers tend to:

– Focus on 1 or 2 key services made possible by mMoney– Invest adequately in tech platform and agent network– Partner effectively w/ stakeholders (clear objectives, roles, etc.)

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What’s unique about M-PESA’s success in Kenya?

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M-PESA: “the moon and stars align”

• MNO led – Safaricom, Vodafone affiliate• Highest market share of 4 MNOs• Loyal customer base• DFID incentivizes with matching grant

Initiators

• Rural/Urban Spread 78%/22%• High mobile penetration 74%• Low bank access 19%• Cultural norm of sending money to family• Payment channel most used: bus on 8%

paved roads

Market Context

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Traditional money transfer channel in Kenya!

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Initial Keys to Success

Trustworthy Brand

Proper Pricing

Robust Agent Channel

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How it Works in a Nutshell

http://youtu.be/nEZ30K5dBWU

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M-PESA Key Statistics

Total Population Adult population <15 M-PESA customers 30 day active customers -

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

Population compared to M-PESA customers

Total PopulationAdult population <15M-PESA customers30 day active customers

2012 Population data, IndexMundi 2013 M-PESA data, Safaricom

69% of the adult

population are M-PESA customers

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More M-PESA Products

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Kenyan Journey to Digital Financial Inclusion, 2013

• 23 mn+ mobile money users or 74% adult pop

• 31% Kenyan GDP transacted through MM

• US$ 29.3 average value per transaction

• US$1.6b (142b Kshs in MM transactions in April

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Highlights: Kenya’s RegulatoryTransition

2006: Safaricom approaches CBK 2007: CBK issues "letter of No Objection” (not a bank product)2009: CBK permits 3rd party agents 2010: M-Kesho bank products permitted with Equity Bank 2011: Ntl bill grants CBK power of oversight over payment systems 2013: CBK consults public on E-money regulations

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M-KESHO vs. M-SHWARI

• Launched May 2010• Offers interest bearing savings

and micro-loans• Associated bank: Equity BankKey Differences: • Equity, retail bank w/strong

brand ambitions (rivaling Safaricom)

• Full fledged bank account without limits on balance

• Higher fees on transfers between M-PESA and M-KESHO accounts

• Launched Nov 2012• Offers interest bearing savings and

micro-loans• Associated bank: Commercial Bank of

Africa (CBA)Key Differences: • CBA, corporate bank w/no low end

retail market and no branding ambitions

• Without retail presence CBA relies on Safaricom KYC thus not a full-fledged bank account – transactions are thus limited – only doubling M-PESA balance

• No fees on transfers between M-PESA and M-SHWARI accounts

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Increasing Financial Inclusion with Effective mMoney Regulatory Framework

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Key Players: Financial Action Task Force (FATF), 1989

Revised in 2013, presents “FATF Standards that are relevant when promoting financial inclusion and explicit the flexibility that the Standards offer, in particular the risk-based approach (RBA), enabling jurisdictions to craft effective and appropriate controls.”

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Key Players: G20, 1999

G20 Toronto Summit June 2010, issues Principles for Innovative Financial Inclusion: • Principle 8: Emphasizes

proportional framework.

• Principle 9: Emphasizes support for appropriate, flexible, risk-based framework; agents; e-money; interoperability.

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Key Players, Alliance for Financial Inclusions (AFI), 2008

Signed in 2011 by 80+ institutions agreeing to make commitments in 4 broad areas to increase financial inclusion including “implementation of a proportional framework” of regulations .

“Balancing Integrity and Inclusion”

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Bank vs. Non-Bank Models of MM

Bank based

Clients have claim to value indicated in mobile money system

Value is linked to individual retail accounts in core banking system (may or may not be “real time”)

Bank utilizes funds in accordance with regulations, i.e. they intermediate

Funds are “as safe” as the bank is sound provided the two systems are adequately integrated

Non-bank based

Clients have claim to electronic value

Electronic value is issued by non-bank, and is usually backed 100% by one or more bank accounts

Funds must be clearly delineated as property of customers and not of issuer

Funds may not be used by non-bank, but Funds may be used by banks in accordance with regulations and terms

Funds are “as safe” as the bank is sound provided the 100% backing is controlled and maintained

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Broad Regulatory Issues: Prudential & Systemic Issues

Safety of funds

Transaction speed and security

Settlement procedures

Anti Money Laundering (AML)/Combatting the Financing of Terrorism (CFT)

Customer Due Diligence/Know Your Customer

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Key Regulatory Issue: Anti Money Laundering (AML)/Combatting the Financing of Terrorism (CFT)

Consensus proposes a risk-based approach proportionate to perceived risk

Contrary to cash, mobile transactions provide electronic records

Monitoring continues to put limits on transactions regarding suspicious activity, volume, frequency, number of accounts

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Key Regulatory Issue: AML/CFT

“Little evidence thus far of money laundering or terrorist financing using mobile money: There have been no cases of money laundering through mobile money services in countries where these services have thrived, and there have been no reports of terrorist financing. World Bank research indicates that, so far, mobile money has been of little interest to criminals or terrorists compared to other payment channels such as cash or the Internet. Although no payment system can be 100% free of abuse, it is important to gather data that measures the attractiveness of a particular system to criminal activity.”

Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile Money for the Unbanked, February 2013

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Key Regulatory Issue: Customer Due Diligence (CDD)/Know Your Customer (KYC)

Consensus proposes a risk-based approach proportionate to perceived risk

Where customer data cannot be reliably verified, apply alternative risk mitigation measures

Example: in Fiji, people lack national identity cards, MNOs and agents allowed to use a “referee letter” to verify customer identity

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Key Regulatory Issue: CDD/KYC

“Specifically, if mobile money is to contribute to financial inclusion, regulators have to consider that the average mobile money customer, particularly the unbanked, maintains a low account balance, conducts relatively small transactions, and, in many countries, lacks a permanent address and/or government-issued identification. The average value of peer-to-peer (P2P) transfers is US$35 per transaction.”

Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile Money for the Unbanked, February 2013

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Key Regulatory Issue: New Challenges to Consumer Protection

Distance btwn Providers & Customers

Third Party/Agent Roles

Tech Solutions for data security &

privacy

Transparency on redress mechanisms

& pricing

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Key Regulatory Issue: Consumer Protection Mechanisms

Agent role to be clearly defined and agents monitored and liable to maintain funds and customer privacy

Dispute resolution policies and procedures robust for call center support, claims of loss or fraud

Transparent pricing and real time confirmation of transactions

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Key Regulatory Issue: Third Parties & Agent Networks

To achieve financial inclusion banks & non-banks need to outsource to lower costs (KYC, collection & disbursement)

Most regulators allow provider & third parties to negotiate freely, but require roles & responsibilities to be clearly and contractually defined based on set standards

Provider is liable for selecting, training, and monitoring agents with mitigating procedures proportionate to risk

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What people are saying…On creating a level playing field to leave the choice to users:

“From the regulator’s perspective, the concerns involved in allowing mobile operators to offer payment services can be easily addressed. In fact, there is not a trade-off between the participation of financial intermediaries and mobile operators. [...] In the end, by allowing all types of participants, the financial regulator leaves the market to figure out what works best, and the customers will benefit from the result.”

Narda SotomayorHead of the Microfinance Analysis DepartmentSuperintendencia de Banca, Seguros y AFP, Peru

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What people are saying…On mobile money and monetary policy:

“Although electronic money has become more important in some countries, the impact of these developments on the composition of the monetary base is considered negligible thus far. Moreover, even if the usage of electronic money were to expand massively, there would still be various ways in which central banks could preserve a tight link between electronic money and central bank money and to keep control over short-term rates. Most central banks therefore judge that the influence of innovations in retail payments on monetary policy is neutral or of low importance.”

Working Group on Innovations in Retail PaymentsCommittee on Payment and Settlement SystemsBank for International Settlements (BIS)

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mMoney ≠ Bitcoin

• mMoney– Regulated by

gov’t/central bank– Tied to gov’t-backed

currency– Use requires registration,

due diligence, and systems for monitoring suspicious activity

– Use produces multiple transaction records

• BitCoin– Unregulated– Decentralized, P2P

network virtual currency– Exists in parallel to gov’t-

backed currency– Anonymity possible

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SourcesSources Referenced:1. Safaricom Ltd, FY 2013 Presentation,

http://www.safaricom.co.ke/images/Downloads/Resources_Downloads/FY_2013_Results_Presentation.pdf2. Ignacio Mas and Amolo Ng’weno, Bill & Melinda Gates Foundation, 2009, “Three keys to M-PESA’s success: Branding, channel

management and pricing”, http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/03/keystompesassuccess4jan69.pdf

3. The Kenyan Journey to Digital Financial Inclusion and infographic, GSMA, 2013, http://www.gsma.com/mobilefordevelopment/mmu-releases-infographic-on-the-kenyan-experience-with-mobile-money

4. FATF, “Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion, 2013, http://www.fatf-gafi.org/topics/financialinclusion/documents/revisedguidanceonamlcftandfinancialinclusion.html

5. Alliance for Financial Inclusion, “Bringing Smart Policies to Life, The basics: Mobile phone financial services”, 2010 http://www.afi-global.org/policy-areas/balancing-integrity-and-inclusion

6. Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile Money for the Unbanked, February 2013, available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU-Enabling-Regulatory-Solutions-di-Castri-2013.pdf

7. PFIP/UNCDF, “Some thoughts on mobile money regulation” internal presentation prepared for Bank of Papua New Guinea, 2011. 8. G20, Toronto Summit, 2010, “Principle of Financial Inclusion” http://www.g20.utoronto.ca/2010/to-principles.html9. Maya Declaration signed in 2011: http://www.afi-global.org/maya-declaration10. Ignacio Mas and Tonny Omwansa, NexThought Monday - A Close Look at Safaricom’s M-Shwari: Mobile, yes, but how ‘cool’ is it for customers?, December 10, 2012, http://www.nextbillion.net/blogpost.aspx?blogid=3050

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SourcesAdditional Sources Available:10. USAID, “Mobile Financial Services Risk Matrix,” 2010,

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/06/mobilefinancialservicesriskmatrix100723.pdf .11. CGAP, “AML/CFT: Strengthening Financial Inclusion and Integrity,” August 2009, available at

http://www.cgap.org/publications/amlcft-strengthening-financial-inclusion-and-integrity. 12. CGAP, “Protecting Branchless Banking Consumers: Policy Objectives and Regulatory Options,”

http://www.cgap.org/publications/protecting-branchless-banking-consumers.13. United Nations Conference on Trade and Development (UNCTAD), “Mobile Money for Business Development in the East Africa

Community: A Comparative Study of Existing Platforms and Regulations,” UNCTAD, 2012, available at http://unctad.org/en/PublicationsLibrary/dtlstict2012d2_en.pdf.

14. Marina Solin and Andrew Zernan, “Mobile Money: Methodology for Assessing Money Laundering and Terrorist Financing Risks,” GSMA: Discussion Paper, January 2010, available at http://www.mymms.nfcmobilemoneysummit.com/mobilefordevelopment/wp-content/uploads/2012/06/amlfinal58.pdf.

15. Beth Jenkins, “Developing Mobile Money Ecosystems,” IFC, 2008, available at http://www.hks.harvard.edu/m-rcbg/papers/jenkins_mobile_money_summer_008.pdf.

16. (Great chart on page 8 on stakeholders and their assets/capabilities, incentives, roles, and constraints.)17. BFA (for Better Than Cash Alliance), “The Journey Toward ‘Cash Lite’: Addressing Poverty, Saving Money and Increasing

Transparency by Accelerating the Shift to Electronic Payments,” Better Than Cash Alliance, 2012, available at http://betterthancash.org/wp-content/uploads/2012/09/BetterThanCashAlliance-JourneyTowardCashLite.pdf .

18. Tim Hatt, Martin Harris, and Adam Wills, “Scaling Mobile for Development: A Developing World Opportunity,” GSMA: Mobile for Development Intelligence, Interim Report, April 2013, https://mobiledevelopmentintelligence.com/insight/Scaling_Mobile_for_Development:_A_developing_world_opportunity .

19. Claire Pénicaud, “State of the Industry: Results from the 2012 Global Mobile Money Adoption Survey,” GSMA: Mobile Money for the Unbanked, available at http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU_State_of_industry.pdf .