When we write about ID requirements, we cover financial regulator’s often overly burdensome Know-Your-Customer (KYC – regulations that force financial institutions to verify a person’s identity with a passport or ID card). A new trend is emerging in telecom regulations that could pose a similar threat to mobile money businesses reaching the bottom of the economic pyramid. This trend is the requirement that mobile operators ID all users of their network. Called mandatory SIM registration, it is intended to assist law enforcement in identifying users of a particular phone line. SIM registration may be relatively easier in advanced markets where many users are already registered because they pay their bill with a credit card or via bank transfer. In developing countries it can block the poor from having a phone line.
The requirements for SIM registration typically come from a country’s communication authority while KYC is determined by financial regulators. In most countries, these two government agencies do not coordinate so requirements may be different, forcing customers to effectively register twice. It increases the paperwork, costs and compliance processes. In some countries SIM registration and KYC have been harmonized. Fiji, for instance, recently announced that the KYC requirements can be reduced in light of the fact that mobile operators already have information on customers from the SIM registration process.
In other countries this is not the case. South Africa, which has been praised for its tiered-KYC regulations, is introducing a mandatory SIM registration regime. All existing mobile customers will have to be registered by January 2011. What effect will this have on mobile money in the country? How similar are the requirements with existing KYC rules? In a recently published paper by the Finmark Trust’s Louis de Koker, these questions are answered. De Koker’s paper is a powerful comparison of South Africa’s two different ID verification regimes and the reasons behind each of them. It presents a story that is still unfolding. The millions undocumented persons (think Zimbabwean refugees) in the country will undoubtedly face trouble when their phones are cut in two months but what about financial services?
Under the famous South African Exemption 17, financial institutions can use non-documentary means to verify a person’s ID. For instance, instead of requiring a person to present themselves in person to an authorized agent with an ID card, providers can simply check if the information provided (by phone call, SMS, etc.) matches that on a reliable third-party database. The potential for such a system is incredible because it removes the heavy burden of checking ID cards and requiring that customers show up in person when they open a mobile money account. However, the new rules for SIM registration require the customer to be face-to-face with a trained MNO agent. This seems like to be particularly hard on those geographically isolated or undocumented, which are both characteristics of the rural poor.
Does it have to be this way? The simple answer is no. SIM registration, even if required, does not have to be an additional burden to KYC processes. They could easily be designed to be part of or equivalent to the existing KYC procedures. It takes coordination within the government and strong industry communication to regulators on what makes sense from a business point of view. De Koker’s brings deep insight into what is happening in South Africa but also lessons to take to other markets.