Over the past few weeks we have been looking into different countries’ regulatory practices for e-money issuers. E-money is what is stored in customer and agent wallets in mobile money services around the world. Given the lower risk that e-money entails, regulators are creating a license class for e-money that imposes a less costly regulatory burden compared to that of a full-blown banking license.

We found in our research that regulators are facing the same issues again and again when MNOs apply to get an e-money license. We thought we would share some of the hints which were summarised by a West African regulator who reviews e-money applications in her country.

“Communicate largely on service fees”

Many regulators feel that mobile money applicants do not have a plan to explain to customers how the fee structure works. They want this to be simple and transparent. If for business reasons the fee structure is complex, explain why.

“Allow merchants to accept other providers”

To expand the reach of financial services and enhance competition, some regulators have voiced concern about exclusivity agreements between the provider and the retail distribution points. It is interesting to note that some regulators have actually asked for the opposite – fearing it would be too difficult to supervise/monitor agent retailers if they are working for multiple providers. Engaging your regulator in a dialogue can reveal if they have a preference.

“Allow interoperability”

Similar to the above, many regulators do not see the value in closed systems. They want a user from one network to be able to send money to a user of another in real time. If the technical requirements for this are prohibitive, explain them. MNOs in many countries have overcome this by allowing non-customers to receive funds by collecting them at a retailer after receiving an SMS with a special code.

“Process KYC procedures systematically”

Regulators have complained that many MNOs apply for e-money licenses without doing their homework on anti-money laundering obligations. Anti-money laundering requires some level of KYC, or “Know-Your-Customer” procedures at account opening. These usually mean recording the customer’s name and, possibly, verifying it with identity documents. The level of KYC needed should vary with the risk of the service. The GSMA has released a risk assessment tool that can be used to devise an appropriate KYC policy.  In preparing for initial discussions with the regulator, MNOs should be well prepared to justify each aspect of their KYC policy – how much identity documentation is necessary – so a risk assessment helps operators explain this.

“Perform daily reconciliations”

Because e-money is managed on the computer system of the provider and the cash received is deposited in a mass bank account under the name of the provider, it is important that all the funds recorded in the provider’s system exactly match the funds actually in the pooled bank account. Regulators have found that some mobile money applicants do not have a clear plan on how often they will reconcile these two. To protect customer funds, providers are advised to reconcile them on a daily basis ensuring that the ratio remains 1:1.

“Provide sufficient information on business plan”

Applicants to e-money licenses are often seen by regulators as rushing their application through without giving it sufficient thought. Applications often do not go to the detail of how the money will be managed in the system, what safety controls are in place, what monitoring systems will be used, who will be responsible for what, and so on. Financial regulators want to see this information so they are comfortable that the business will be responsible, sustainable and safe.

Please be on the look-out in the coming month for our guide to MNOs on e-money regulation.