Telecommunications has brought unprecedented change to the way we live. This is particularly true in developing economies where mobile phone penetration and ubiquity has brought about transformation and created an economic boost. One of the important changes has been within the financial services sector. Mobile money, defined as money stored in a mobile phone using the SIM as identifier as opposed to an account number in conventional banking, is predicted to overtake other forms of payment instruments with the next few years. One of the greatest attractions of mobile money is its ability to facilitate financial inclusion for the unbanked. This is confirmed by the huge success of mobile money in various jurisdictions worldwide.
Regulators have, generally, adopted different approaches to mobile commerce regulation. Whilst some have maintained a flexible role in order to allow the market to develop, others have been more prescriptive. It seems that mobile money has flourished in jurisdictions which have adopted a flexible and cautious approach to regulation. This allowed the market to evolve and accelerate, which would have been otherwise has the regulation been more prescriptive, therefore, a proportionate and effective regulatory framework is an essential part of stable mobile commerce. Nevertheless, historic regulation, which many developing jurisdictions currently rely on, clearly, has little relevance in the payment systems virtual world, therefore some initial regulatory amendment is usually required.
Mobile commerce has led to the convergence of the financial and telecommunications, two heavily regulated, sectors. This has raised the question of who regulates mobile money. It is widely agreed that mobile money falls under financial services and should be regulated as such. Jurisdictions which allow Mobile Network Operators [MNOs] to provide payment services tend to share regulatory oversight with the telecommunications regulator who oversees the telecoms functions whilst the financial services regulator has oversight of the financial services. What is important is that regulators recognize that mobile money is not a turf war and work together to create harmonized and synchronized regulation which provides clarity for all stakeholders in the payments ecosystem and ensures efficiency, stability, innovation and growth.
One of the major issues faced by regulators is determining the eligibility for, and scope of, licensing. Many regulators generally tend to favor the bank-led model where the financial institution is the main license holder with the MNO as partner as opposed to the non-bank led model. The reasoning seems to lie, firstly, in the fact that financial institutions possess greater understanding of the stringent requirements of the sector including the various global and national industry regulations and are well placed to appreciate the inherent risks. This model seems to have worked well in countries such as Tanzania and Uganda, where license holders, Standard Bank and National Bank of Commerce have partnered with MTN and Vodacom respectively, to provide mobile money services. Similar provisions apply within the Nigerian context, however, the role of the MNO is limited to providing infrastructural support. The goodness or badness of this will become apparent over time.
Secondly, the belief that mobile money, being a financial service, is not the core business function of an MNO is a cause for concern for many financial regulators, as beneficiary deposits could, potentially, be diverted or invested, to support its core business function. Some jurisdictions, in an attempt to provide some measure of protection for consumers, place requirements on MNOs wishing to provide payment services, to create separate business entities which fall under the regulatory oversight of the financial regulator.
Arguments against the bank-led model have included the deceleration of the integration of mobile money into the mainstream financial system and restrictions on consumer offerings. Also, whether this model facilitates financial inclusion for the unbanked will depend on the level of regulatory prescriptive and investment willingness on the part of financial institutions.
Mobile money brings with it a wealth of benefits to the economy. Regulators and policy makers have a duty to ensure that regulation is technology neutral, fosters economic growth and promotes competition and innovation. There is, no doubt, a clear need for national strategy and policy as well as a relevant and effective regulatory framework, which takes account of global recommended best practices, customized to our local environment.
EFUN H. ABRAHAM
ITECH LAWYER
