October 2015 in Telecoms.com: Why it's time for Mobile Operators to become financially compliant
Telecoms.com periodically invites expert third parties to share their views on the industry's most pressing issues. In this piece Eric Barbier, CEO of TransferTo argues operators need a clear understanding of compliance if they are to make the most of the Mobile Money opportunity.
Mobile Money is already creating a cashless revolution in developing markets where mobile phones have seen widespread adoption and banks accounts are less common. Put very simply, Mobile Money essentially turns a mobile device into a bank account for the 'unbanked' – i.e., those that do not have a bank account – allowing funds to be accessed in various forms by mobile users.
What's more, Mobile Money solutions are available on any mobile device – whether this is internet connected or a basic feature phone. This is not to be confused by mobile payments solutions proving popular in developed markets, such as Apple Pay or Samsung Pay, which are available only on certain smartphones and require having a bank account with a credit card.
According to the World Bank, there are 2 billion unbanked people in the world, and of those, the vast majority have access to a mobile phone. With over $600 billion in remittances sent each year as friends and families support each other across borders, it is inconvenient for people in rural communities in emerging economies to try and receive money through traditional, bank to bank, transfers.
In addition, traditional remittance methods using an agent are typically expensive and cumbersome, as end users must find an agent in their nearest town – which takes at least a couple of hours, and can take up to one or two days, for the most remote locations. It has proved much easier for them to receive funds through their mobile phones. Therefore, the mobile phone has already become the perfect vehicle to bring financial services to these unbanked.
The market has grown to such an extent that according to the GSMA, one billion people are set to use Mobile Money by 2020 worldwide – up from 300 million people who are using this technology today. As the total addressable market continues to grow, more organisations are becoming intertwined in the financial sector.
Mobile Operators should be striving to understand how they can provide Mobile Money services to their customers, to ensure they are part of this growing industry driving financial inclusion for the unbanked. This includes both inbound and outbound remittance services, as well as other Mobile Money account services including bill payment, mobile airtime purchase, peer to peer transfer and direct transactions with merchants at point of sale – and in the future – could extend to other products such as savings, credit and insurance. However, in doing so, they need to become financially compliant if people in developing economies are to have real access to financial services.
Operators need a clear understanding of compliance
The entry of Mobile Operators into the remittance space has been driven mainly by users in developing countries. As a result, one of the principle issues for new entrants into the remittance market is that they need to understand the finance industry's strict regulations.
Businesses entering the money transfer space must have a clear understanding of compliance issues and be able to interoperate their own services with those provided by other financial organisations, while complying with industry regulation.
Investing in compliance officers and utilising external technology infrastructure, that adds an extra layer of compliance, will assist Mobile Operators with their regulatory responsibilities and enable them to maintain industry standards. In doing so, businesses will open up their services to become more than just service providers, becoming an intrinsic part of the remittance network.
Strict Regulations are putting the brakes on the growth of Mobile Money
Following widespread changes to regulation after 9/11, banks and traditional financial institutions are now subject to much stricter compliance rules. This is especially true for money transfer companies, which have been treated like banks and subjected to full regulatory requirements. Regulatory requirements – while necessary to block money laundering and prevent terrorism financing – are often excessive for Mobile Money Operators developing the service for end users with a limited number of transactions for very small amounts.
For example, in developing countries, customers do not necessarily have the documentation or simply the snail mail address needed to meet the strict requirements of traditional compliance regulation. Often, to send sums of money internationally, senders need to show forms of identification like birth certificates or a passport. If Mobile Money Operators are forced to demand this from customers at the first dollar, it is likely they will lose the opportunity to convert a massive number of new customers.
Lighter rules for Mobile Money Operators will open the doors to financial inclusion
In order for these services to flourish, a more proportionate regulatory framework is needed that will create safeguards for the overall financial system while accounting for a sector with rapid change and fast deployment. Only then can new and disruptive entrants effectively enter and revolutionise the industry.
One key development, which has been encouraged, is regulation for Mobile Money Operators as a separate entity entirely from the banks, with a more proportionate regulatory response. For instance, a compliance exemption allows clients to be registered for a Mobile Money Account without proof of address or face-to-face ID verification as long as there is a low daily transaction limit. The full process will come later when the newly banked become engaged with the service and the operators get to know the customer better.
The Indian government is a great example of how lighter rules for Mobile Operators can work. In partnership with the Reserve Bank of India, the government recently approved the creation of 11 new payment banks to help drive financial inclusion by creating a universal payment network for the transaction of cash across the country. By allowing services to apply to become new payment banks, the Reserve Bank of India is thereby providing technology services with the financial foundations to bring new and innovative Mobile Money services to the unbanked and newly banked.
Mobile Money services reduce the cost of remittances significantly for users in developing countries. However, as the mobile revolution reaches the remittance industry, Mobile Operators should therefore ensure they are doing all they can to ensure their services are compliant with industry regulations. By understanding the rules of compliance and taking note of the regulations at play with each form of mobile remittance, Mobile Operators can open the door to fairer remittances across the globe and contribute to the reduction of unbanked people worldwide.
Before founding TransferTo in 2005, Eric co-founded Mobile 365, the global leader in mobile messaging interoperability, delivery and settlement of SMS and MMS content. Mobile 365 was then acquired by Sybase in 2006 (for 425 M USD). In his present role as Chief Executive Officer, Eric oversees the strategic direction of the company as well as manages the relationships with many of TransferTo's customers and partners. Eric currently resides in San Francisco with his wife and three children.