The full potential of digital financial services in India has not yet been realised. Millions of people still lack a viable alternative to the cash economy and informal financial services, and mobile money represent a great opportunity for the country. For mobile network operators (MNOs), launching and scaling services for the unbanked has proved very challenging because of several regulatory barriers. Today the Mobile Money Association of India (MMAI) [1] and the GSMA have submitted a position paper to the Reserve Bank of India (RBI) Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households [2] to provide evidence of the benefits and the business case for mobile money for MNOs. The paper also proposes a set of regulatory reforms that would clear the way for viable and sustainable mobile money deployments, driving financial inclusion, improving financial stability and integrity, protecting financial consumers, and guarding the financial system against the risks of the widespread use of cash.
The key tenets of enabling mobile money regulation are: a) allowing a business model that safeguards customer money stored in the system and preserves financial stability; b) proportional (risk-based) anti-money laundering and combating the financing of terrorism (AML/CFT) regulations and promoting tiered know-your-customer (KYC) procedures; and c) putting cost-effective regulatory solutions in place to set up and manage distribution networks and accelerate customer adoption.
In coordination with relevant authorities, the RBI can embrace the reforms outlined in this paper to enable innovation in mobile financial services and build a stable, inclusive, secure, and efficient financial sector. According to the MMAI and the GSMA, these reforms are necessary:
- permit cash-out (withdrawal) at third party agents with reasonable transaction limits;
- harmonise the KYC requirements of the RBI and the Telecom Regulatory Authority of India (TRAI);
- improve Aadhaar-based KYC procedures;
- remove the requirement that banking correspondents need to be within a 30 km radius of a bank branch;
- harmonise transaction limits between mobile money accounts opened by non-banks and accounts opened by banks so they are at par when full customer due diligence (KYC) has been implemented;
- allow market-based pricing;
- amend the restriction to place the ‘core portion’ of an escrow account in a current interest-bearing account;
- enable mobile money providers to pay interest on value stored in an e-wallet; and
- remove the pre-approval requirement for wallet-to-wallet interoperability.
The MMAI and the GSMA also point out some of the factors to consider when evaluating alternative business models, and present a set of core principles for the mobile money industry that could guide providers in adopting responsible business practices aimed at mitigating and managing the risk of external and internal frauds cost-effectively and better protecting financial consumers.
Download the Position Paper Here
[1] The MMAI enjoys the participation of the GSMA and seven MNOs: Aircel, Airtel, Idea Cellular, Reliance, Tata, Uninor, and Vodafone.
[2] The Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households (the Committee), chaired by Dr. Nachiket Mor, was appointed on 23 September 2013 by the Reserve Bank of India (RBI). The Committee’s terms of reference are:
- To frame a clear and detailed vision for financial inclusion and financial deepening in India.
- To establish a set of design principles that will guide the development of institutional frameworks and regulation for achieving financial inclusion and financial deepening.
- To review existing strategies and develop new ones that address specific barriers to progress, and which encourage participants to work quickly towards achieving full financial inclusion and financial deepening, consistent with the design principles.
- To develop a comprehensive monitoring framework to track the progress of financial inclusion and financial deepening efforts nationwide.
- Any other related issue(s) the Committee may want to consider.