Key message 3 – A flexible regulatory framework that is appropriate to the risk posed by mobile money services works best

A conducive regulatory environment is absolutely critical for sector growth as it affects the design and viability of mobile money services (Aron, 2015). Overly stringent regulation of emerging mobile money sectors drives up compliance costs and hampers sector growth and innovation.

Authorities need to balance adequate risk management against a light-touch approach that encourages innovation and greater access to financial services. This is likely to require unbundling of the component systems of mobile money, separating customer registration from e-money storage, and cross-border transfers from agent management, for example, and then developing appropriate regulation for each component (Aron, 2015). In this way, regulators can regulate each component in proportion to its level of risk (GEG, 2016). The regulatory framework should develop in line with the mobile money sector, becoming more sophisticated as the sector becomes larger and more robust. To achieve this requires ongoing dialogue between regulators and industry actors (GEG, 2016).

It is vital that the roles and responsibilities of the various regulatory authorities involved in the sector are clearly delineated and aligned in order to ensure regulation is coordinated and sufficiently comprehensive. Common aspects of enabling regulatory frameworks include appropriate policies to govern competition policy concerns, reporting requirements, financial protection, and customer protection.

Competition policy concerns. Interoperability and agent non-exclusivity are key competition issues with mobile money. Interoperability allows customers to transact using mobile money across different mobile network operator (MNO) platforms, and agent non-exclusivity allows agents to serve more than one MNO. Where first movers have established sector infrastructure and agent networks, interoperability and agent non-exclusivity would require them to open their infrastructure and agents for use by competitors. Requiring interoperability and agent non-exclusivity arguably promotes competition and yields advantages for customers and new market entrants. However, this impacts MNOs’ ability to recoup their investment costs, making the sector unattractive for investors, and reduced investment would stifle sector growth. A balance, therefore, needs to be achieved by regulators, bearing in mind the market context in question. In this vein, some argue that, as the market matures, regulators should shift from facilitating investment to ensuring adequate competition (GEG, 2016).

Reporting requirements. Mobile money reporting requirements are focused primarily on guarding against platforms being used for illegal activities. Know Your Customer (KYC) due diligence procedures, and anti-money laundering and combating the financing of terrorism (AML/CFT) regulations are required. Tiered registration requirements for customers are recommended to ensure financial inclusion can be realised without undermining financial integrity where usage is higher (Aron, 2015). There are generally limits on both transaction size and the amount that can be held in a mobile money account, and MNOs and banks are required to report regularly on aggregate transaction data, as well as any suspicious activity. Given that mobile money is a very narrow form of banking, these regulations tend to be less stringent for MNOs than regulations applicable to financial institutions (GEG, 2016).

Financial protection. The bank accounts that hold aggregate funds are generally also directly regulated, with mobile money deposits being held in trust or escrow and ring-fenced from the MNO’s other funds to protect against both bank and MNO insolvency. MNOs may choose, or be required, to divide users’ deposits between different banks to mitigate the risk of bank insolvency. Deposit insurance for these pooled accounts may also be an option in some countries, and regulation should provide protection for each customer up to the insurance limit (rather than just protection on the aggregate account) to further protect customers from the risk of bank failure.

There are frequently also rules on whether interest can be earned on the aggregate funds (allowed in Kenya, Afghanistan, and Malawi) or if funds must be kept in 100% cash reserve (as in the Philippines). If interest is earned, the rules should clearly state what is to be done with the interest, such as disbursement to customers (as in Tanzania) or donation to charity (as in Kenya) (Suri, 2017).

Customer protection. Consumer protection concerns include matters of privacy and data protection. MNOs must provide simple and easily understood contracts outlining users’ rights and obligations and be transparent with the fee rates that they charge, both at the time of account opening and at the time of transacting. This is particularly important where the market is new, where customers have low financial literacy, for new products being built over mobile money platforms, and where fee rates change regularly.