Archive for: Policy

To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. The following is based on a session led by Anu Bajaj, Adviser, Financial Sector Team at DFID. You can download her presentation here.

CGAP and DFID are collaborating on work that explores how social welfare payments – government to person (G2P) transfers – could help to bring poor people into the formal financial system using branchless banking:

Until very recently, most G2P (government-to-person) payments were carried out in person and in cash. However, because such methods pose security risks and require high transaction costs for payers and beneficiaries, governments are increasingly switching to electronic delivery.

Government payment systems vary widely by country. Plan Familias in Argentina, for example, offers a debit card re-loadable only by the government. Funds must be drawn within 1 month or the beneficiary loses them, and they may not deposit additional funds into the prepaid account. In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial program that represents 25% of Brazilian families, away from an electronic benefit card, and toward the option of a simplified account. In South Africa, several million of the country’s more than 9 million grant recipients receive their funds via a debit card from the nation’s largest bank or a smartcard from payment system provider Net1 UEPS Technologies.

While there’s been some exploration of the business case for agents and providers, we wanted to look at the implications for decision makers. Key takeaways:

• Some schemes may require specific regulatory approval or exemption to actually increase access to banking services;
• Social welfare departments may require or benefit from financial advice in designing payment elements and even appointing payment agencies (e.g. banks);
• Large scale schemes may affect payment system and financial sector through choice of standards and instruments;
• The current economic climate offers opportunities for a “big push forward” for financial inclusion with multiple developmental and economic growth spin offs;
• Financial regulators can enable and support this process through constructive engagement.

In this session we asked for a show of hands – how many banking and payment officials in the room have reached across department lines to speak with their social welfare departments to see how they could collaborate? Only a few hands went up, with this comment: “Dialogue doesn’t equal agreement.”

DFID and CGAP will have a Focus Note on this topic in the next few weeks.

To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation.

The proper role of nonbanks in branchless banking bedevils regulators and industry alike. The central bank of the Philippines just released new regulations creating an e-money license. In recent months, Kenya has seen a wave of complaints from banks about the success of Safaricom’s M-PESA service and whether or not it constitutes un-regulated banking. Regulators in some countries — India, prominently — have made clear statements that banks should take the leading role (for example, see RBI’s mobile banking guidelines).

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized this week’s second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. The following is based on a session led by Dominic Peachy, Technical Specialist & Senior Policy Adviser at the UK Financial Services Authority. You can download his presentation here.

Is a non-bank more (or less) risky than a bank when it comes to delivering financial services for poor people? If a bank is involved, does that mean there is less risk? Not necessarily. Most so-called branchless banking services entail partnerships between banks and non-banks. In such a partnership it may be unclear who is doing what and therefore where the risk resides.

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To promote effective regulation of mobile banking, CGAP, DFID, and the Alliance for Financial Inclusion (AFI) have organized the second Global Leadership Seminar for high-level policymakers and regulators who set policy for branchless banking, including mobile banking. CGAP’s Technology Program and AFI are supported by the Bill & Melinda Gates Foundation. This week we’ll be blogging from the seminar. First up is this dispatch from Timothy Lyman, who leads CGAP’s current pioneering work on proportionate regulation of branchless banking. You can also download his presentation from the seminar.

Amid all the uncertainties of the financial crisis and resulting economic downturn, one might expect financial policy makers and regulators to be cautious about embracing novel-seeming approaches for delivering financial services to the world’s poor.  In joining in this event, leading bank supervisors, payment system regulators and other financial sector policy thinkers from 18 countries on the forefront of branchless banking are demonstrating their conviction that these new models can be implemented safely – even during a crisis of proportions we haven’t seen in generations.

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Today we welcome Denise Dias as a new blogger for the CGAP Technology Blog. Denise works on policy and technology issues. Before working with CGAP, she was employed by the Central Bank of Brazil most recently as a bank examiner and previously as a senior advisor for the licensing department. –Jim

A meeting at CGAP yesterday made me think about a recent blog from Mr. Hannes von Rensburg, founder and CEO of Fundamo. He believes regulation is not a barrier for mbanking projects around the world and to bank the unbanked. Does he have a point? Yes, he does. First, the “regulatory barrier” is the easiest scapegoat for nonbanks (read mobile network operators) that are not used – or willing – to negotiate with financial services providers and deal with prudential regulators. Regulation will not be an insurmountable barrier to a variety of branchless banking models in many jurisdictions. Providers (banks AND nonbanks) will probably find a workable solution with financial regulators by agreeing upon minor regulatory changes or alterations in the proposed business model. Second, there are other major obstacles for branchless banking to take off, such as finding the balance between profitability, client adoption/usage, and security.

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Around the globe, mobile banking can bring low-cost financial services to millions of people, especially in developing countries where banking services are not readily available. It also has enormous potential to open new markets and business opportunities for organizations that can facilitate and advance it. The GSMA Mobile Money Summit 2009 will provide the insights, solutions and connections to make the most of this global phenomenon.

The second annual GSMA Mobile Money Summit will be held at Fira Montjuïc in Barcelona, Spain on 22-25 June 2009. The event will bring together senior executives from financial services institutions, mobile network operators, development organizations and solutions vendors, as well as regulatory and policy makers. The program will provide a comprehensive demonstration of the addressable markets, a showcase for new solutions, and a forum for sharing key success factors and lessons learned from around the world. The GSMA Mobile Money Summit 2009 will stimulate greater understanding and collaboration between all mobile money stakeholders globally, regionally and locally.

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.

CGAP estimates the 140 million poor people receiving regular payments from their governments exceeds the global number of people with an active microloan. Yet probably less than a quarter of all G2P payments to poor people land in a bank account.

That number looks poised to rise dramatically, however, as more governments adopt electronic payment programs in an effort to cut costs, reduce fraud, and promote inclusion in the banking system.

In Brazil, the Ministry of Social Development is in the process of migrating 12 million recipients of Bolsa Familia, the financial aid program that represents a quarter of Brazilian families, away from an electronic benefit card and towards the option of a simplified account. In Russia, Argentina and South Africa, benefits recipients can use debit cards to collect and spend government payments, and, in some cases, to access banking services.

These are all welcome developments for proponents of financial inclusion, as access to bank accounts helps poor people to save, build assets, and cover emergency expenses. Nonetheless, providers of electronic benefit payment programs still face challenges that, left unaddressed, could stymie efforts to expand access to financial services. One issue is that banks and governments have not yet determined the full expenses associated with operating electronic payment programs. Another lingering question is whether benefits recipients will continue to access financial services if they are no longer receiving government payments.

This is an excerpt from a recent CGAP paper, Banking on Mobiles: Why, How, for Whom? In it, Kabir Kumar and Ignacio Mas examine the business case and deployment options around mobile banking for smaller banks and microfinance institutions. With effective partnerships and technical choices (which affect customer uptake), we believe there is a strong market opportunity to reach poor people with a broad range of financial services.
There are significant regulatory factors that define the competitive field for mobile banking, and providers would do well to consider them carefully. Key regulatory factors that need to be considered include the following:

Cash-in/cash-out: Regulatory restrictions on banks to outsource cash-in/cash-out functions to third party retail establishments. These restrictions or lack of clear regulation on use of agents play a role in determining how banks can use existing retail networks—including the operators’ distribution—for cash-in/cash-out points. Restrictions may relate to who can become a banking agent (e.g. in India it has to be a not-for-profit organization), agents’ licensing requirements (e.g. in Brazil agents engaging in deposits and withdrwals must be individually approved by the Central Bank), and the nature of the contract between the bank and the agent.

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I attended SWIFT’s SIBOS conference last week. This event couldn’t have been scheduled for a more exciting time – it opened with the fresh news of the turmoil on Wall Street. There was much talk about that.

As for the issues we are focused on, there was a panel discussion on mobile banking. A Western Union representative said that their average remittance size is $350. But in mobile trials (from Hawaii and UAE to the Philippines, using both Philippine telecom services Smart and G-Cash) the average remittance size was less than $100. So that’s evidence that there is demand to send lower amounts, if only the commission structure permits it. A Wells Fargo speaker said their average remittance size is closer to $500.

From India, ICICI explained their mobile remittance product. Essentially, the recipient gets notified by SMS, and then punches the code he gets on his SMS into a specially-enabled ATM to withdraw the cash. So the mobile is used purely for notification purposes, not for fulfillment.

As for some of the more cutting edge technologies, estimates on NFC-capable phones by 2011 or so ranged from 10% to 30% of installed base. So either way, it is not likely to reach poor people in developing markets in sufficient volumes any time soon.

SWIFT is creating a new messaging type especially for international remittances. Their main messaging business is related to inter-bank transactions, whereas they want to support person-to-person transfers. This was deemed by all banks to be essential to make it easier for each bank to set up bilateral relationships with other banks along remittance corridors, without having to agree a separate set of messaging syntax, rules and contracts. SWIFT would standardize all that and carry the messages too, in return for a commission. A dozen or so banks are now piloting this new product.