Allowing both banks and nonbanks to issue mobile money is fostering financial inclusion. Like all financial services, however, mobile money presents risks that must be effectively mitigated. One of these is the risk of loss of customer funds. The GSMA’s new publication, ‘Safeguarding Mobile Money: How providers and regulators can ensure that customer funds are protected’, addresses three risk areas associated with safeguarding customer funds.
Customer funds can be lost due to imprudent investment or due to the insolvency of the mobile money issuer, the trustee or fiduciary managing the customer funds (if applicable), or the bank holding the customer funds. While this paper looks specifically at the risks when a nonbank issues mobile money directly to customers, many of these risks are also relevant when the provider is a bank.
This paper helps regulators and mobile money issuers better understand how to effectively safeguard customer funds against risk of loss due to (1) imprudent investment of customer funds, (2) insolvency of the mobile money issuer or trustee/fiduciary, or (3) insolvency of the bank holding the customer funds. It includes a discussion of the pertinent risks and the various operational and regulatory responses to these risks.
The paper also includes an analysis of the impact of different legal traditions (common law vs. civil law) on protection of customer funds in the event of insolvency. Where relevant, results from a 2015 survey of safeguarding practices adopted by GSMA members offering mobile money services have been included as well.
A sample workflow is provided to help guide regulators and mobile money issuers through all the key risks and potential solutions. The paper concludes by presenting some solutions that regulators and issuers may adopt to address the identified risks and identifying areas for future research.