Archive for: Policy

In our first post in this series on interoperability, we introduced a three-level interoperability framework focusing on (i) platform interconnection, (ii) agent exclusivity, and (iii) customer-level interoperability. You can see the full framework in this presentation. In today’s post, we delve deeper into the first level–interconnection of mobile money platforms.

Platform-level interconnection is what most people have in mind when they think of interoperability in branchless banking. When we speak of interoperable platforms, we are referring to platforms that permit the transfer of funds from one mobile account to the mobile account of another service provider. This is similar to being able to send money from your bank account to your sister’s account at another bank. Or it is similar to being able to send a text message from your phone with your mobile network operator to your friend’s phone on the network of a different mobile network operator.

These “cross network” transactions should not be confused with “off-network” transactions which many mobile network operators claim to be platform interoperability. Off-network transactions make it possible for account holders to send money to anyone, whether they hold an account or not. For example, you send money from your mobile account to your friend, who doesn’t have an account, and your friend cashes out at your service provider’s agent. While off-network transactions can be beneficial for low-income users, we believe they are not as financially inclusive as cross network transactions. Off-network transactions require recipients to cash out, whereas cross network transactions make it possible for recipients to store received funds, on-send them or use them to make payments.

We identify different ways platforms can interconnect. In basic terms, platforms can interconnect: (1) directly (as the two ATM networks, 1Link and MNet, did in Pakistan) or (2) indirectly where a third-party entity which is either owned by providers, owned independently, or owned by the government interconnects platforms (as POS networks are currently doing in Brazil). The way in which platforms interconnect impacts pricing and efficiency of the payment system and potentially the ultimate value to customers.

Read the rest of this page »

Mention the word interoperability in branchless banking and mobile money circles and watch people react in very different ways. For some, the word means something positive – efficient services and lower prices for consumers. For others, it means something negative – more costs, threats to competitive advantage and less profitability. For still others, the word means a reality that is inevitable but far in the distant future. Some don’t want you to say the word at all.

At the end of the day, we suspect interoperable systems will accelerate financial inclusion by allowing customers to use the infrastructure of multiple service providers to access their accounts. The question is how best do we get there?

A discussion on interoperating branchless banking and mobile money services that have yet to reach critical mass appears premature. But businesses and policy makers are already grappling with these issues in a number of markets where CGAP is heavily involved. In Ghana, the government is trying to understand its role in promoting interoperable branchless banking. In Pakistan, where Central Bank regulations permit a “many-to-many” model, there are questions about how the market will evolve into interoperable systems. In India, interoperability at the agent level is part of the financial inclusion vision painted by the Unique Identification Authority of India.

In general, governments are struggling to understand a regulatory approach that will balance the interest of customers with those of market players. They do not always adequately consider the state of the market or fully understand the implications of their approaches.

Read the rest of this page »

A mobile money user in Afghanistan

As everyone who reads this blog knows, there’s been a great deal of excitement over the last few years regarding the potential for mobile money to solve a host of development problems. And as we’ve all learned over that same period of time, it’s not as easy as it looks, or at least as easy as Kenya made it look. Countries like Afghanistan, Iraq, Haiti, the Democratic Republic of the Congo, even the newly minted South Sudan are all experimenting with or thinking about mobile money implementations. In addition to the normal issues and challenges facing policymakers and service providers, post-conflict and post-disaster countries face additional problems that merely serve to exacerbate the overall challenges with mobile money.

1. Skilled resources are scarce commodities in a post-conflict region. Finding experienced staff that can implement and/or regulate mobile money services is hard enough in most places, but finding those people and convincing them to go live and work in high-risk locations is proving almost impossible for service providers, governments and donors alike. Recruitment and hiring can take many months, and even when good people are found, at high cost, many leave early, deeming the stress, danger and distance from family not worth the price. What usually results is a procession of short-term consultants (like me) coming in to dispense advice but not sticking around to help get it implemented, meaning things take twice as long to do and often achieve half as much.
2. Introducing innovative mobile financial services in a country that is struggling to form a stable government can embroil a new market in larger coordination problems, especially when private enterprise and government services are both involved. Mobile money is a new area of regulation and may require coordination between different parts of government, which can be hard in markets where governments are newly formed or struggling to manage disaster recovery. In the absence of clear direction, you could end up with situations where regulators act hastily and unilaterally, which may lead to turf battles with other ministries. For example, in a couple of markets, the telecommunications ministry has demanded – and charged a fee for – a “letter of no objection” for a mobile operator to offer mobile money services. In others, the regulator will ask for a specific identification document for account opening when another part of the government is still struggling to even implement such identification. Haiti is a good example of this where many people either never had particular identification documents or they lost them in last year’s earthquake. Read the rest of this page »

As we look globally for innovative business models and technologies, it’s a shame how little we (as two Americans) focus on our backyard in the U.S. Despite our comfort drawing similarities and lessons across markets as different as Brazil, India, and Kenya, we seem to assume that the U.S., with its technology and banking infrastructure, relative wealth, and uniquely complex regulatory context, is truly different. To test this and see what we might uncover “locally,” we attended the 6th Annual Underbanked Financial Services Forum in June to learn more about the state of the art in the domestic financial inclusion world and look for ways where global and local conversations overlap and can be integrated.

We were not disappointed. The event, terrifically organized by the Center for Financial Services Innovation (CFSI) and sponsored by the American Banker, played host to hundreds of participants representing banks, nonbank financial service providers, retailers, regulators, and other policymakers and researchers. Some of our takeaways:

• Prepaid is the talk of the town. Prepaid instruments, particularly the general purpose reloadable (GPR) card, seemed to be one of the most talked-about innovations in the domestic market. The general feeling (particularly among the various prepaid vendors in the crowd) was that prepaid has a number of characteristics that make it better for the underserved – lower cost structure, more accessible reload points, less intimidating, easier to open, and lower/more transparent fees. Certainly the recent IPOs of prepaid giants NetSpend and GreenDot help fuel excitement around these business models.
• “Mobile” may not be as exciting in the U.S. Given the strong build-out of various types of channels and infrastructure in the U.S., many were skeptical that mobile phones hold the kind of transformative potential we’ve seen realized in markets like Kenya – at least when it comes to banking the underbanked. The biggest topic within mobile is near field communications, but NFC’s potential value seems to lie more in convenience and marketing tie-ins (particularly for data collection and in connection with location-based and loyalty services) and has limited potential to deliver significant access benefits for the financially underserved. Read the rest of this page »

On June 20, 2011 the State Bank of Pakistan (SBP) introduced a new circular that significantly modifies the regulation for branchless banking in Pakistan. We talked to Mr. Mansoor Hassan Siddiqui, the Director for Banking Policy and Regulations Department at SBP about why they made these changes and the impact that they expect to see as a result.

Photo courtesy of Craig Kilfoil, ExactConsult

In March 2008, the State Bank of Pakistan introduced some of the first regulations anywhere in the world designed specifically to encourage branchless banking. The regulations allowed a number of different business models and permitted agents to deliver financial services on behalf of banks. Three years later the State Bank has significantly amended the regulations. Among the changes are:

• Rationalization of account opening process and requirements by removing the need to capture biometric fingerprint information at the time of account opening for the lowest value accounts. The requirement to capture a digital image of the account holder (which can be done at far cheaper cost with a low cost camera-phone) remains to ensure the physical presence of the customer at the time of account opening.
• Substantial increases in the transaction limits and elimination of the maximum balance, which remedies the situation that previously existed where a customer could perform more transactions “Over-the-Counter” than they could through their own account. Bill payments are no longer included in the transaction limits.
• Introduction of a new “Level 0″ account with the lowest transaction limits which can be opened electronically with no physical paperwork required.

We asked Mr. Mansoor Siddiqui, the recently appointed Director for Banking Policy & Regulations Department at SBP, about the reasons for introducing these modifications and their expectations for what this will mean in terms of the take-up of branchless banking in Pakistan.

1. Why did the State Bank of Pakistan think that the branchless banking regulations that were only introduced in 2008 needed to be updated?

Well, as we are all aware, branchless banking is rapidly evolving as a major arena for financial inclusion and the regulators around the world have to keep abreast of the fast paced changes in this area. After issuance of initial branchless banking regulations in 2008, we have been constantly encouraging the banks to enter into this business field. At the same time, we have also been monitoring the progress of branchless banking service providers by getting regular market feedback. This two pronged approach helped us in developing an insight of the problems that the customers faced while opening and running the branchless banking accounts. These obstacles to some extent were limiting the quick take-up of branchless banking in the country. Despite a couple of successful branchless banking deployments with significant agent/merchant networks, we were witnessing very slow take-up of financial services. The total number of branchless banking accounts was only about half a million. Given the widespread financial exclusion and very low visible success of branchless banking deployments, SBP considered it necessary to review of the branchless banking regulations in line with the industry’s feedback and international best practices. Therefore the updated branchless banking regulations have been issued to tackle the bottle necks in the take-up of branchless banking through accelerated account opening and ease of operations of these accounts.

Read the rest of this page »

This blog is written by Xavier Faz, CGAP & Denise Dias, independent consultant; with contributions from Carlos Lopez-Moctezuma & Brenda Samaniego, both from CNBV.

Regulators around the world today are beginning to realize that the chances of expanding access through branchless banking can be very limited without reducing the account-opening requirements through agents and mobile phones. The challenge is to strike the right balance between reducing account-opening requirements while maintaining basic controls for AML/CFT.

Enforcing full account-opening procedures often excludes important segments of the population from formal financial services, keeping them “operating” in the informal economy.  There are countries where many people (particularly among lower income segments) lack formal identity mechanisms, and other cases where people do have identity documents, but the requirements to fulfill KYC procedures make it too cumbersome and/or expensive to effectively carry out. In either case, the risk is to inadvertently push these services beyond the reach of the poor (even if geographical reach exists). Therefore, maintaining the same level of KYC requirements as for bank branches supports the prevalence of informal financial systems which in turn acts against the AML objective that was sought in the first place.

Most regulators would agree that some middle ground would be needed, but striking the right balance is not an easy thing. Early examples of this are regulations in South Africa and Colombia, which established exemptions to enable opening of deposit accounts at agents or by the individual themselves through their mobile, relying on broadly adopted national ID mechanisms and population registries that could be checked online at the time of account opening. The BCEAO in West Africa allows the use of anonymous electronic money accounts with caps in the balances.  The actual implementation of these schemes have varied in practice.

Financial sector authorities in Mexico have gone a step further in adopting an approach that addresses the challenges above.  Authorities followed a ‘tiered’ approach that implements flexible account opening requirements for low-value, low-risk accounts that are subject to increasing caps and restrictions on permitted transactions. Opening requirements increase progressively as such restrictions on transactions are eased.  This incorporates several innovative aspects:

• Five different types of deposit accounts, targeting different market segments and income brackets, with varying KYC requirements
• At the “lowest” tier (Level 1), an anonymous account enabling e-wallets as a substitute for small amounts of cash
• Non face-to-face account opening
• Paperless record keeping for the four lower levels
• Outsourcing of KYC to third parties

Read the rest of this page »

1. PlaNet Finance and Oliver Wyman published a joint report called Beyond payments – Next generation Mobile Banking for the Masses. Sponsored by the Bill & Melinda Gates Foundation, the report looks at distribution strategies and second generation mobile microfinance products via pilots in West Africa and Southeast Asia. Two distinct innovative models were explored through the pilots: 1) the distribution of microfinance through mobile money via existing microfinance banks; and 2) the distribution of microfinance through a virtual microfinance bank operating as a pure mobile player. You can download the full report here or here.
2. Colleagues at the World Bank recently published the book Protecting Mobile Money against Financial Crimes: Global Policy Challenges and Solutions. Given the boom in the mobile money industry, the authors are responding to the fact that regulators often struggle to craft a regulatory regime that expands access to financial services to the poor through the development of mobile phone financial services, while at the same time being compliant with AML/CFT standards. The paper 1) takes stock of new AML/CFT regulations relevant to mobile money; 2) designs guidelines for drafting AML/CFT regulations that cover mobile money; and 3) proposes examples of best practices for the industry to include AML/CFT in their own business model. The book is available for sale at http://publications.worldbank.org. Read the rest of this page »

This is a guest blog by Ignacio Mas from the Bill & Melinda Gates Foundation.

It’s always hard for competitors to decide to work together on some key aspects of their business. It usually comes down to whether the players involved opt to maximize the total size of the pie or just their slice of the pie. In networked businesses, in general, the more the players work together to grow the pie, the larger the slice each one will get. That’s why mobile operators have a tradition –of which they are rightly proud— of interconnecting their voice and data bearer services. They long since discovered that their customers are best served by making sure they can send and receive messages to/from anyone, even if they are on a different network.

But we haven’t yet seen this logic extend to mobile money. In most countries, mobile money providers working together is probably less a matter of if and more about when, just like it has been for banks with sharing ATMs and mobile operators with sharing towers. And it’s probably not even about when but about how.

Read the rest of this page »

CGAP recently surveyed 11 mobile operators to help them better understand how they can ensure that their mobile banking services are not used for money laundering or terrorism financing as well as preventing incidents of fraud against the company. The operators we surveyed had between one and 15 full time staff dedicated to monitoring and investigating suspicious or unusual transactions on their platform.

CGAP has long argued for a “proportionate” approach to regulation in branchless banking. When the requirements that are placed on a customer for opening an account or making transactions are too cumbersome, customers will continue to use informal, unregulated services to meet their needs. Reducing the barriers to having an account can therefore contribute to both financial inclusion and financial integrity objectives.

An example of this is seen in an increasing number of countries that allow a new class of account where account opening requirements are relaxed, but limits are applied to the balance and the number and size of transactions permitted. Many mobile operators make use of these regulations to offer mobile wallets. Mobile financial service providers are required to report any transaction that they think might be related to money laundering or the financing of terrorism to the authorities in their country.

But what do these “suspicious” transactions look like and how can they be spotted? While the risks of money laundering might be correlated with transaction size, this might not be the case for terrorism financing.

Read the rest of this page »

The success of mobile money services such as M-PESA has raised the question of how to regulate nonbanks—most notably mobile network operators, which are often well-placed to reach customers with affordable financial services due to their existing customer base, marketing capabilities, network of agents, physical distribution infrastructure, and experience with high-volume, low-value transactions. Yet regulators are often reluctant to permit operators to directly contract with customers for the provision of financial services. Chief among regulator concerns is how to protect customer funds.

These issues are examined in a new Focus Note by Michael Tarazi and Paul Breloff: Regulatory Approaches to Protecting Customer Funds for Nonbank E-Money Issuers.

-Jim Rosenberg