Before launching a mobile money service, it behoves operators to think carefully about how to prevent abuse that would harm customers. Such foresight helps assure regulators that the service will be safe and in turn safeguards the operator from reputational risk that would arise from its failure or widespread fraudulent use.
But customers and agents aren’t the only ones who need to be protected. Increasingly, operators have begun to recognize that they too require protection from abuse – otherwise, they face the prospect of watching their revenues erode as customers avoid fees and their costs rise as agents maximize commissions.
The GSMA recently convened a group of operators to share their experiences with abuse. From our session, it became evident that operators at highest risk are those offering domestic money transfer services using tiered pricing or commission models. Still, it was clear that every operator – whether they’re offering bill payments or p2p transfers using a simple tariff model – needs to think carefully about how a customer or agent could game the system and affect their business model. Below we describe three of the most common ways in which customers and/or agents have attempted to abuse mobile money services.
Splitting Transactions
A cash-in/cash-out or bill payment transaction has been ‘split’ when it’s divided into two or more smaller ones. This can be triggered by a customer attempting to minimize their fees (i.e. “If I withdraw my $50 in two $25 tranches, I only pay $1 instead of $2 in cash-out fees”), or by an agent seeking to maximize their commissions (i.e. “If I tell this customer to make two simultaneous withdrawals, I’ll earn $2 instead of $1 in commissions”). Generally speaking, this behaviour is prompted by a pricing or commission structure that varies based on the size of the transaction.
Whether a transaction is split on the instruction of a customer or an agent, the outcome is equally troublesome: the operator’s margin shrinks. The simplest solution to this form of abuse would be to abolish pricing or commission tiers altogether, but this option has largely been ignored since neither alternative to such tiers is particularly appealing: a percentage-based commission is confusing and can result in agents being under-paid for low value transactions and over-paid for high value ones, while a flat commission per transaction has the reverse effect. Instead, mobile operators have carefully scrutinized their pricing and commission tiers to identify opportunities for customers or agents to game the system and put in place processes and/or technology to identify and deter it. For instance, one African operator generates a daily report identifying customers who have made two withdrawals from the same agent within 5 minutes, a clear indication of splitting. And in Asia, an operator has implemented a rule that precludes its agents from making multiple payments toward one account number in one day.
‘Direct Deposits’
A ‘direct deposit’ occurs when the customer initiating a P2P transfer hands an agent cash, but provides them with the mobile number of the recipient rather than their own in an effort to avoid paying a transfer fee. While agents are ultimately the enablers of this form of abuse, they may be complicit (i.e. “hey, I can help you avoid the $0.50 transfer fee – just pay me half of the P2P transfer fee you would have paid in cash”) or equally they may not be aware it’s even taking place (i.e. the customer might say “the mobile number you should credit is…”).
Operators have quickly recognized the importance of protecting themselves against this form of abuse and implemented a number of prevention and detection measures. First, they have attempted to educate customers: on tariff posters, operators often note that customers are only allowed to deposit funds into their own account. Second, they have again relied on technology. In this case, operators look for instances of a customer depositing and then withdrawing funds from the same MSISDN number within 5 minutes – this has proven to be a reliable proxy for direct deposit abuse. And finally, operators have adjusted their pricing models to minimize their exposure to this form of abuse. For instance, one African mobile operator recently changed their tariffs to become less reliant on transfer fees as a source of revenue and instead to earn the bulk of their revenue from cash-out fees.
Unfulfilled Transactions
An unfulfilled transaction occurs when the customer provides an agent with cash, whether it’s to pay a bill or load their e-wallet, but the agent does not credit that value to the customer’s account. The risk of this occurring goes up when a busy agent collects cash from customers throughout the day and then, when their store is less busy, performs all of their transactions in bulk. While this might seem to an enterprising agent to be an optimal way to schedule his workflow, it exposes customers to the risk that an agent might make a mistake, or, worse, deliberately fail to record the transaction, pocketing the value of the cash-in. This can ultimately lead to lost revenue and unsatisfied customers for the operator.
Education has proven to be the most effective way of preventing instances of unfulfilled transactions. Prudent operators have helped agents appreciate the importance of performing transactions in real time, and equally ensured that customers understand the importance of waiting until they have received a confirmation SMS before they assume that the transaction has been completed.