Who can offer mobile money services?
Regulators want to:
- Promote access to basic transaction accounts. Cash management is a major challenge for poor people. In addition to the fact that their income is low, most poor people lack a regular salary and have to manage irregular and/or unpredictable income flows to ensure that sufficient funds are set aside for food, shelter, and other expenses (e.g., education, health). Regulators can help poor people with cash management by promoting access to basic transaction accounts that allow users to smooth consumption while safely, conveniently, and cost-effectively depositing and withdrawing small amounts.
- Use transaction account access as a stepping stone to fuller financial inclusion. Access to a basic transaction account can serve as the first step towards access to other formal financial services such as savings, insurance, and domestic and international payments. Some regulators have chosen only to allow banks to issue mobile money in the interest of promoting full financial inclusion. In practice, however, the evidence to date demonstrates that the critical first step is to achieve widespread active usage of basic mobile money accounts, regardless of whether a bank or nonbank provides the service. In countries with high mobile money usage, mobile money providers are partnering with other financial institutions to offer other formal financial services. Today, in many countries mobile money users can open an interest-based savings account, take out a small loan, or obtain insurance cover through banks or insurance companies that partner with mobile money providers. Services such as M-Shwari in Kenya, M-Pawa in Tanzania, and Family Care in Ghana have all seen rapid uptake, as traditional providers leverage mobile money infrastructure to reach and serve previously unprofitable clientele.
- Ensure that customers will receive reliable services and that their funds will be protected. Regulators want to promote access to formal financial services, but they also want to avoid exposing poor and underserved people to risky and/or unreliable services. Some regulators take a conservative approach, limiting mobile money issuance to established financial sector players such as commercial banks. Others permit mobile network operators (MNOs) and other nonbanks to issue mobile money if these non-traditional providers apply for a license as an electronic money issuer (or similar). The licensing process can include requirements aimed at ensuring that providers offer safe and reliable services, such as a description of the proposed service and the relevant risk management measures, initial and ongoing capital requirements, and measures taken to safeguard customer funds.
Mobile money providers need:
- Sufficient certainty to invest in developing the mobile money business. Mobile money requires heavy investment in operational expenses for years before becoming profitable. In some countries, however, providers are operating in the absence of a clear legal framework and are unsure if they will be permitted to continue offering mobile money services. This can discourage providers from investing, thereby limiting growth and adoption of mobile money.
- Commercial flexibility to decide whether to partner with others and if so, with whom. The vast majority of the fastest-growing deployments are operating in markets where the regulator allows both banks and nonbanks (including MNOs) to offer mobile money services. Partnerships between banks and MNOs to offer mobile money are possible but often difficult in practice. Generally speaking, regulations that promote competition while respecting individual providers’ commercial priorities achieve the best results. Conversely, regulations that (1) only permit banks and other traditional financial service providers to issue mobile money, (2) mandate bank-MNO partnerships, or (3) dictate the timing and/or technical solution for interoperability typically discourage investment and slow the rollout and adoption of mobile money.
How can regulators address these issues?
Limit mobile money issuance to banks, or allow some nonbanks to issue mobile money but exclude MNOs.
There is an open and level playing field that allows both banks and non-bank providers to offer mobile money services – particularly MNOs, which are well suited to building sustainable services and extending the reach of the formal financial sector rapidly and soundly. In order to ensure that customers receive safe and reliable services, the financial regulator can supervise the mobile money provider by (1) directly licensing the MNO or other non-bank, (2) requiring the MNO or other non-bank to apply for an electronic money (or similar) license, or (3) in the absence of an enabling legal framework, issuing a Letter of No Objection (or similar) to a partner bank to allow MNOs and other non-banks to offer mobile money services.
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- GSMA (2013), Mobile Money: Enabling Regulatory Solutions