Vodafone’s M-PESA service continues to stir up attention, launching international remittances and stirring up questions about regulating nonbanks offering financial services.

Last Monday, Vodafone announced a tie-up with Western Union to enable customers to use mobile phones to initiate and receive international remittances between the UK and Kenya.

The service has two anchors. It uses Western Union’s existing remittance systems ($64 billion in cross-border remittances last year) to provide the connection between the UK and Kenya. Delivery will happen via the more than 4,000 merchants who already act as cash-handling agents for M-PESA. M-PESA is the successful domestic mobile payment service operated by Vodafone’s Kenyan affiliate ( Safaricom). In less than 2 years, more than 4 million Kenyans have signed up for M-PESA. Safaricom processes transactions worth approx. USD  120 million per month.

Vodafone’s partnership with Western Union could become one of the first successful mobile remittance services aimed at clients who are lower-income, unbanked or have poor access to affordable, secure, convenient financial services. GCash and Smart Money in the Philippines have offered remittances via mobile phone for several years, trying to tap into the USD 15 billion per year sent home by overseas Filipino workers. Kenya receives USD 1.3 billion per year. Orange, Zain, MTN and other mobile operators are exploring the potential to tie into the global remittance business, which the World Bank estimates will total USD 283 billion in 2008.

But just three days after the Western Union announcement, Kenya’s Minister of Finance announced plans to audit M-PESA.  Mr. Michuki said the audit will allay concerns about the safety of customer funds held in M-PESA wallets.

The genesis of the decision to audit M-PESA is still unclear. The announcement marked a complete about turn by Mr. Michuki, who two weeks ago defended M-PESA in Parliament. Safaricom says it welcomes the opportunity to satisfy regulators about safeguards in place.

This could be the latest sign of a growing backlash against new entrants – like mobile network operators – into traditional banking space. Banks have put pressure on the Central Bank of Kenya for the past year to put a heavier regulatory yoke on M-PESA. We’ve seen a similar trend in other countries where mobile operators are eager to offer mobile financial services.

Then today, Prof. Njuguna Ndung’u, the central bank Governor said the audit will be limited and mobile money transfer is valuable in spreading access to better payment services to rural areas. Further, he said the central bank will approve Zain – Safaricom’s chief competitor – to offer a mobile money transfer facility, once it receives the request. CBK has waited for parliament to pass a long-awaited payment system act which will give regulators clear authority to oversee new payment services, such as M-PESA.