increased efficiency of regional payments and services

7/29/2019 INCREASED EFFICIENCY OF REGIONAL PAYMENTS AND SERVICES

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Panel - Facilitating Payment Systems for Intraregional Trade

INCREASED EFFICIENCY OF REGIONAL PAYMENTS

AND SERVICES

Judson Welsh

African Investors Management SystemsAccra, Ghana


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G-20 Leaders

o Committed to improving access to financial services for the poor;

o Established the G-20 Financial Inclusion Experts Group (FIEG) for safe

and sound spread of new modes of financial service delivery.

Mobile World Congress in Barcelona.

o Recognized regulators had no common standard for the enablingenvironment:

Caused proliferation of inconsistent operating environments;

Created limitations on the range of services provided;

Based regulations on factors other than the underlying risks.

CGAP World Bank sponsored (Consultative Group to Assist the Poor)o Recognized the impact lack of an inconsistent regulatory and policy

structure had on inclusion;

o Elaborated standards on financial access, financial literacy, and

consumer protection.

History 2008 -2010


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Types of Financial Delivery Models

MNO (Mobile Network Operator) Model:

A pure cell phone company (MNO) service extends the wireless networkmessaging functionality to provide payment services that enable customers

to remit funds to each other that can be settled through the MNO's

established agent network.

Individual payment transactions occur entirely within the MNO and do notrequire the service user to have a bank account.


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Bank Model:

In a pure bank model the bank (or other formal deposit-taking institution)

holds the license. Each client is required to have an established account withthe bank. The service provides mobile access to normal banking services,

such as balance inquiry, transfers between accounts, and payments


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CGAP Risks: Financial Delivery Models

Hybrid Models:

A combination of a bank, Mobile Network Operators (MNO) or other third

party that offers communications and financial transaction services thatcombine characteristics of both the pure bank and pure MNO models. Such

combination hybrid models include but are not limited to:

Mobile Network Operators / Bank Model

Government Provider/Bank Model

Today most mobile financial services are hybrid, drawing on the relative strengths of

the partners involved.


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CGAP Types: Financial Delivery Models

MNO/Bank Model:

Cell phone company based payment services that handle payments

internally with cash in/out through the MNO's agent network, yet link toformal banking services such as savings, loans and insurance in partnership

with a regulated financial institution by enabling communications with the

bank and transfers between the user's cell phone payment account and

accounts at the bank.


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Government Provider/Bank Model:

A government sponsored interbank clearing system includes consumer

access functionality, either using smart cards or smart cell phone SIMSthat temporarily act as a store of value and synchronize with a formal

bank account.

The cell phone company, if involved, provides communications services

while the government operates the payment switch between banks andbetween accounts within banks.


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Risks involved with Mobile Financial Services (MFS)1. Systemic:

A risk that could cause collapse of, or significant damage to, the financial

system or a risk which results in adverse public perception, possibly

leading to lack of confidence and worse case scenario, a "run" on the

system

2. Operational:

A risk which damages the ability of one of the stakeholders to effectively

operate their business or a risk which results in a direct or indirect loss

from failed internal processes, people, systems or external events3. Reputation:

A risk that damages the image of one of the stakeholders, the mobile

system, the financial system, or of a specific product


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Risks involved with Mobile Financial Services (MFS)

4. Legal:

A risk which could result in unforeseeable lawsuits, judgment or contracts

that could disrupt or affect MFS business practices

5. Liquidity:

A risk that lessens the ability of a bank or MFS provider/agent to

meet cash obligations upon demand

6. International:

A systemic risk that could have cross-border contagion effect

7. Virtual Money (new 2012):

A risk related to the creation of virtual currencies encompassing all the

above.


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Agents:

Liquidity needs of account providers should be balanced with consumer

protection for agents so that extension of credit does not become a

vicious cycle.

Consumers:

Prevent co-mingling of consumer funds with Account Provider Funds

Assure sufficient funds in account provider to fully cover Consumer Funds

Overbearing regulatory supervision.

Merchants:

Merchants ability to cash out as needed for liquidity management.

MFS Stakeholders & Indicative issues


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Payment Services

Limit government involvement in payment systems to:

a) interbank settlements, and

b) establishing an enabling environment for retail payments that

encourages competition and innovation within accepted security

standards.

Account ProvidersAccount providers to hold agents responsible for their individual

contractual agreements, whether exclusive or not.



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National or Regional Regulators

a. Flag and limit opening multiple accounts based on similar KYC Know

Your Customer and CDD data (Customer Due Diligence program.

b. Account Providers are subject to regulatory oversight.

Incompatible regulation can prevent, or make more complicated,

identifying suspicious transactions, investigating the transactions, as well

as prosecuting and convicting those involved in illicit transactions.

Trust Account Holdings Finance Institutions

Trustee banks limit the size of trust accounts they manage to what is

reasonably manageable for that institution



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International Regulatory Environment

Enable use of mobile financial services in cross border trade transactionswithout unreasonable foreign exchange restrictions;

ECOWAS, UMEOA, WAMI, WABA, Central Banks, etc

Regional harmonization of the legal and regulatory framework for

mobile financial services.


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Example of the Matrix on Responsibilities of stakeholdersMobile Financial Services Consumers

Mobile Financial Services Risk MatrixBizclim 2010

Risk Type Type Model

It

e

m

Risk Description Objectives Policy Options Policy Implications

Internationa

systemic

Operational

Regulation

Liquidity

Legal

MNOModel

BankModel

H

ybirdMode

1

Potential

customers cannot

access mobile

payment

services due to

inability to

prove his/her

identity.

When initially

registering for

mobile financial

services (MFS),

the inability of the

account provider or

its agents to

adequately verify the

identity andpersonal information

of applicants

may block approval or

access to mobile

payment services.

Know Your Customer

(KYC)/Customer Due

Diligence

(CDD) guidelines to

be set commensurate

with the risk of the

service.

Subject to regulatory

approval andverification of

implementation.

1.National ID system: Universality removes

potential for exclusion of

those desiring service.

Burden on national

authorities to institute

universal ID program may

be unaffordable or beyond

the existing infrastructure's

legal, technical or politicalcapacity to enforce.

x x x x x x


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More History 2011

AITEC Mobile Banking Conference, Accra

West African Switching and Interoperability Forum

This conference focused attention on the development of financial

integration and interoperability of the payments systems in West Africa.

A Quorum in the form of Technical Competency, Market Demand and Energy

which has turned into rapid exponential growth Inertia is working in favor of

creating a viable regional banking system.

But only the technical partners were present!


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2011AITEC Mobile Banking Conference, Accra

RESULT

Focused Planning on a community level is required: Private sectorinvolvement to enhance the communication, cooperation and

coordination by the Stakeholders.

Community Level ~ Borderless Alliance


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All stakeholders must work in tandem by cooperating, communicating

and coordinating efforts in the interest of regional interoperability of

switches and payment systems to enhance the capacity to keep up

with technologies in an ethical manner.

What has been done?

- Access to internet and communications;

- Capacity by rural populations to utilize the mobile phone and POS;

- Attempts to create regulatory environments to protect consumers

- Development of systems that enhance security

- Routine Payments can be affected easily on the mobile phone

- Banks aware of the potential deposit taking thru mobile phones

- Increased bandwidth throughout Africa


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One of the major contributions of interoperability of the switches andpayment systems in West Africa is the increase in banked clients

through deposit taking and the subsequent opportunity to know your

customer to such an extent the credit extension becomes possible.

As a result the banks are in the process of fulfilling their role in

supporting economic development BUT still have a long ways to go!

What has been done?


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Awareness and Understanding : Effective External Communications

Interoperability of switches and payment systems in West Africa must

meet client demand for technical competency in the following:

Scalability:

Security:Cost:

Coverage:

Definitions:

Sharing:Standards:

Cooperation:

What needs to be done?


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- Education and awareness campaigns between the Switches, Banks

cards, equipment manufacturers and clients;

- Clear understanding of customer needs and capacity;

- Regulators create efficient & enforceable consumer protection;

- Plan for scalability challenge of exponential growth must be met;

- Awareness on interaction between Internet and SMS;

- Alternative sources of electrical energy to meet needs;

- Improved security in operations and consumer protection

What can be done?


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- Increased Knowledge Cooperation amongst the Stakeholders:

- Banks need to be more active in virtual banking channels- GHIBBS, NHIBBS, GIMOEMOA must work together to create a

Regional Switch to serve the demand regional payments.

- Private Switches work with National Switches -

- Broadband needs improved and distributed regionally;

What can be done?

Regional Associations must express their needs to the banks


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ChallengesFleet Owners and Driver/Owners are entrepreneurs.

Can the MFS meet their demands?

The private sector operates on the basis of entrepreneurship.

They are profit driven. The profile of these entrepreneurs is:

Time Driven They are time driven by seasonality

Youth They are young and energetic

Rural They are dealing in rural environments.

Capable They are comfortable with cell phones

Innovative They find ways to manageMobile Banking They know how to make payments

Under Capitalized They need credit and equity to grow


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The Challenge:

The Borderless Alliance should commit

to become a leading advocate for an

efficient regional payment system in

the furtherance of a more efficientregional transport system


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* Financial eco-system in this instance refers to a regional eco-system of providers with

many points of service in the community

*From the CEO of CGAP. You can follow him titter @TilmanEhrbeck.

The Check List*

1. Understand the impact of the fair distribution of financial services;2. Translate client insights into better product offerings & service delivery;

3. Start better understanding traditionally un- and underserved segments;

4. Continue pushing for technology-enabled business model innovation;

5. Create success stories for local-market provider eco-systems;

6. Support governments to catalyze domestic financial inclusion

7. Correct balance between an enabling & a protective regulatory environment;

8. Help forge a balance financial inclusion and other policy objectives;

9. Ensure smart subsidies towards sustainable market development;

10. Work towards an ambitious aspiration.


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2013

You still have support!

G20 leaders have begun addressing these linkages and will continue to work towards a

better understanding under Russias 2013 G20 leadership.

Financial inclusion is not a standalone objective for global and national policy makers.They have to understand and optimize the linkages between inclusion, financial

stability, integrity, and consumer protection.

This is an opportunity for Borderless Alliance and the entrepreneurs that

run it to inform and educate the mobile services financial community of

the opportunities associated with improving the efficiency of the

regional payments system.


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Thank You

Judson B. WelshCEO

AIMS Ltd Ghana

Contact Information:

Phone - +233-23-376-7063Email [email protected]

increased efficiency of regional payments and services

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