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Mobile Money for the Unbanked

By Guest Blogger

A closer look at the risk of fraud in mobile financial services

A closer look at the risk of fraud in mobile financial services

Risk management in mobile money continues to be a much discussed and debated topic.  Managing fraud in mobile money is challenging and requires dedicated time and resources from operators to ensure they are developing not only a commercially successful business, but also a sustainable business.  Last autumn MMU published a framework that operators can use to develop risk management strategy for mobile money.  Recently, in conjunction with MicroSave, Joseck Mudiri published Fraud in Mobile Financial Services which is an in-depth look at the types of fraud and risk that can impact mobile money. 

The following is a guest post from Joseck, an expert in mobile financial services.  He was also one of the founding team at M-PESA and left as the Head of M-PESA Sales. He has over 17 years of experience in banking, capital markets, ecommerce and telecommunications.

The growing popularity of Mobile Financial Services has created different challenges but exciting opportunities. One of the key challenges in MFS is how to manage the inherent risks particularly, the risk of fraud. Mobile Financial Services face similar risks to those seen in the payments and other financial services sectors. The risks become more complex because, mobile financial services target the retail market. With millions of users accessing services, it is important for stakeholders to understand the risks that they face and therefore to better prepare for such risks. After all, the risks and fraud result in the loss of money to someone. In my experience, it is easier for a business to manage one individual losing US$1 Million, than for it to manage 1 Million individuals losing one dollar each.

It is with this in mind that I embarked on writing this paper with Microsave, “Fraud in Mobile Financial Services”. This paper documents the types of risk and fraud that are likely to be faced in this sector following the product lifecycle. By using the product lifecycle as a framework to examine risks, we are able to illustrate how risks will change according to a deployment’s stage of development. The risks faced by any deployment will typically vary with the following stages: Customer acquisition stage, transaction activation stage and value addition stage. Moreover, operators need to recognize that risks will affect or involve a multiplicity of players including customers, agents, aggregators, the organization, clients and other players. As such, managers need to consider risks alongside their commercial strategy and regularly review their risk management approach to ensure it is relevant to the current market context and to the deployment’s stage of development.

It is important for an organization to have a clear understanding of risks and fraud in order to establish measures that mitigate against these risks otherwise the credibility of services will be affected. As such, this document was published to be a tool to both help younger deployments begin the process of developing an effective risk management strategy as well as guide advanced deployments as they review their current risk management practices.

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