Understanding the new mobile money regulation in Colombia: An interview with María Galindo of the Colombian Financial Regulation Agency

In October 2014, following the approval of the financial inclusion law that allows Colombian non-banks (called Sociedades Especializadas en Depositos y Pagos Electronicos, or SEDPE) to issue mobile money, we published an interview with Felipe Lega, former Deputy Director of Market Integrity at the Colombian Financial Regulation Agency (URF)

The following month, GSMA and ASOMOVIL, the local Colombian telecommunication industry association, hosted a regulatory workshop to establish a conversation between the industry and the regulators on the regulatory requirements for mobile money services in Colombia. During the workshop, the participants discussed critical issues such as customer identification and agents supervision, building on the experience of the countries were mobile money has already scaled thanks to an enabling regulatory framework.

During the first half of this year, the Colombian Financial Regulation Agency set up a number of working groups to further discuss with the industry the government’s policy perspective and the details of the coming regulation. The Decree 1491 of 2015 was finally issued on July 13, 2015, implementing the financial inclusion law and detailing the regulatory regime for the mobile money market.

I recently talked with María Galindo, the new Deputy Director of Market Integrity at the Colombian Financial Regulation Agency (URF), who shared her insights on the contents of the new regulation.

GSMA: This was a much-awaited regulation. The law was approved in September 2014 and the decree was issued almost ten months later. Why did it take so long to issue the decree?

María Galindo: Well, actually it did not take so long to issue the decree. Every decree has to go through a regular process to ensure transparency. It is normal for these processes to last several months, especially in cases like this, in which there was an open discussion with different industries about a subject that is completely new to the country. In this particular case, after GSMA and ASOMOVIL hosted the workshop in November 2014, we thought that it would be very useful to organize working groups with the industry to discuss particular aspects of the draft. This allowed us to have the industry’s specific insights regarding each aspect of the regulation and also to explain to them our views and concerns. We learned a lot from this process. The final decree reflects some of this discussions. All the changes made required time to be communicated and understood by all the interested parties. We are very satisfied with the result and we secured the industry’s trust in the regulatory process.

GSMA: What is being regulated by the decree?

María Galindo: The content of the decree can be separated into four parts: 1) the client registration process for opening an electronic deposit [electronic wallet]; 2) the use of correspondents (agents); 3) the prudential regulation regarding a) on-going capital requirements and b) liquidity management rules; and 4) a fair access clause for low-value payment systems.

A fifth part which was originally included in the drafts, concerning tax rules for agents (giving SEDPE agents the same benefits that bank agents already have), had to be left out of the final version because it addresses topics involving the national tax authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) that should be included in a different decree (this is due to a recent government policy that re-codified all Colombian decrees by topic). We are working with the tax authority and we are confident those rules will soon be issued.

GSMA: What are the requirements for client registration?

María Galindo: The decree establishes two different categories of electronic deposits.

The first one has flexible KYC requirements and can be opened remotely by anyone just by entering some personal information on their mobile phone or over the internet, for example. The information is then matched with the National ID Registry database. This electronic deposit is targeting the majority of the unbanked population of the country. The amounts that these deposits can handle are limited by regulation. They can only hold up to the equivalent of three minimum wages per month (approximately USD 628 ), which is also the maximum monthly transactional limit. Also, one person can only open one account per SEDPE. This is how we are mitigating the risks of money laundering and terrorism financing. Despite these limits, according to our estimations, the amounts allowed for these deposits should cover the needs of the majority of the Colombian population.

The second category of electronic deposits is intended for businesses or other users that might have bigger transactional needs. To open this type of deposit, you have to go through a regular KYC procedure. The purpose of these deposits is to enable the creation of a payment ecosystem led by the SEDPEs. It is not enough for us that people have electronic wallets if they end up cashing out all their money in order to be able to use it. That is not real financial inclusion. The challenge is to have a regulatory framework that enables electronic payments. We want people to pay their bills using their electronic deposits, and this will only be possible when, for example, most small shops accept electronic payments. Thus, we thought SEDPEs should have the possibility of having this kind of user as well. We want to see SEDPEs offering a full range of ecosystem services for their customers.

GSMA: With regards to the use of agents, Colombia’s regulation has had a very progressive approach, allowing banks and other financial institutions, such as insurance companies and even financial investment companies, to use this low-cost distribution channel. This has allowed Colombian banks to be present in every municipality in the country. What would be the rules applicable to SEDPEs for the use of agents?

María Galindo: The general rules for the use of agents by financial institutions are applicable to all the different types of financial institutions in Colombia. SEDPEs are also financial institutions. In the decree we are making sure that the general rules for the use of agent are also applicable to SEDPEs. We believe that these rules are flexible enough to meet the SEDPEs’ needs. Any natural or legal person can be hired as an agent as long as they have the ability to assist customers. It is up to the Financial Superintendence to set applicable standards to this regulation. For us, no further legal formalities should be required.

GSMA: Tell us about the motivation behind prescribing a fair-access rule for payment systems and switches.

María Galindo: This rule recognizes that low-value payment systems are essential parts of the financial infrastructure and a fundamental tool to achieve interoperability. In an ideal world, fair access should be granted by the market itself, and any anti-competitive behavior should be investigated by the competition (antitrust) authorities.

The financial inclusion law included a clause mandating mobile operators to give fair access to their networks to financial institutions. This means that mobile operators should not deny access to their networks to any bank, and that there should not be any discriminatory pricing scheme. Again, these rules can seem redundant because that should be the lawful outcome of a market-led economy anyway. In any case, the Congress thought it would be a good idea to send a specific message to mobile operators with regards to accessing their networks.

In the decree we wanted to send the same message to the low-value payment systems. For the purposes of market development and financial inclusion expansion, it is equally important that banks be able to access the mobile channel as it is for SEDPEs to be able to access low-value the payment systems.

We understand that both the mobile networks and the low-payment systems are key for the function of an efficient payments ecosystem since they enable the interoperability among users, regardless of their products and entities. That´s why is so important to set clear principles that ensure the access of all players to these networks.

In other words, the decree sets up a series of principles that will allow users of SEDPEs to make payments and transactions using any POS, ATM or any other mechanism provided by financial sector interacting with any financial institution.

GSMA: This was a very important milestone in the regulatory process, but some rules have yet to be issued in order to be able to call Colombia a mobile money enabling market. Specifically some tax rules are expected to be issued in the coming months. In the meantime, can the interested parties start their SEDPE licensing application at the Financial Superintendence?

María Galindo: Yes. Although the application of the decree needs further instructions from the Financial Superintendence. In particular, rules related to risk management systems as well as defining the area of the Superintendence that will be in charge of supervising these new entities. This might take a few more months, but the good news is that the Superintendence will receive SEDPE’s license applications while they work on the new instructions.

GSMA: What has been the response from the industry?

María Galindo: We feel that the industry is satisfied with the regulation. We have received very positive feedback. But this doesn’t come as a surprise as we have been dialoguing with banks, MNOs, agent networks, local remittance companies, and others from the beginning. These rules have been discussed many times and we have had the chance to explain our views and to consider the industry’s concerns. We will not be surprised if we see at least five SEDPEs operating next year.