Panel - Facilitating Payment Systems for Intraregional Trade

INCREASED EFFICIENCY OF REGIONAL PAYMENTS AND SERVICES

Judson Welsh African Investors Management Systems Accra, Ghana

History 2008 -2010

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 enabling environment: 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.

Types of Financial Delivery Models

MNO (Mobile Network Operator) Model:

A pure cell phone company (MNO) service extends the wireless network messaging 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 not require the service user to have a bank account.

Types of Financial Delivery Models

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 with the bank. The service provides mobile access to normal banking services, such as balance inquiry, transfers between accounts, and payments

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 that combine 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.

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 to formal 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.

Types of Financial Delivery Models Government Provider/Bank Model: A government sponsored interbank clearing system includes consumer access functionality, either using smart cards or smart cell phone SIMS that 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 and between accounts within banks.

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 events 3. Reputation: A risk that damages the image of one of the stakeholders, the mobile system, the financial system, or of a specific product

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.

MFS Stakeholders & Indicative issues 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. 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.

MFS Stakeholders & Indicative issues 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 Providers Account providers to hold agents responsible for their individual contractual agreements, whether exclusive or not.

MFS Stakeholders & Indicative issues Trust Account Holdings Finance Institutions Trustee banks limit the size of trust accounts they manage to what is reasonably manageable for that institution

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.

MFS Stakeholders & Indicative issues

International Regulatory Environment

Enable use of mobile financial services in cross border trade transactions without unreasonable foreign exchange restrictions; ECOWAS, UMEOA, WAMI, WABA, Central Banks, etc Regional harmonization of the legal and regulatory framework for mobile financial services.

Example of the Matrix on Responsibilities of stakeholders

Mobile Financial Services Consumers Mobile Financial Services Risk Matrix It e m
Bizclim 2010
Risk Type Type Model

Risk

Description

Objectives

Policy Options

Policy Implications

Potential customers cannot access mobile payment services due to inability to prove his/her identity.

When initially Know Your Customer 1.National ID system: registering for (KYC)/Customer Due mobile financial Diligence services (MFS), (CDD) guidelines to the inability of the be set commensurate account provider or with the risk of the its agents to service. adequately verify the Subject to regulatory identity and approval and personal information verification of of applicants implementation. may block approval or access to mobile payment services.

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 political capacity to enforce.

International systemic Operational Regulation Liquidity Legal MNO Model Bank Model Hybird Model x x x x x x

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!

2011 AITEC Mobile Banking Conference, Accra

RESULT

Focused Planning on a community level is required: Private sector involvement to enhance the communication, cooperation and coordination by the Stakeholders.
Community Level ~ Borderless Alliance

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

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? One of the major contributions of interoperability of the switches and payment 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 needs to be done? 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: Awareness and Understanding : Effective External Communications

What can be done? - 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?

Increased Knowledge Cooperation amongst the Stakeholders: Banks need to be more active in virtual banking channels GHIBBS, NHIBBS, GIM OEMOA 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;

Regional Associations must express their needs to the banks

Challenges

Fleet 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 Youth Rural Capable Innovative Mobile Banking Under Capitalized They are time driven by seasonality They are young and energetic They are dealing in rural environments. They are comfortable with cell phones They find ways to manage They know how to make payments They need credit and equity to grow

The Challenge: The Borderless Alliance should commit to become a leading advocate for an efficient regional payment system in the furtherance of a more efficient regional transport system

The Check List*

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
*

Understand the impact of the fair distribution of financial services; Translate client insights into better product offerings & service delivery; Start better understanding traditionally un- and underserved segments; Continue pushing for technology-enabled business model innovation; Create success stories for local-market provider eco-systems; Support governments to catalyze domestic financial inclusion Correct balance between an enabling & a protective regulatory environment; Help forge a balance financial inclusion and other policy objectives; Ensure smart subsidies towards sustainable market development; Work towards an ambitious aspiration.
*From the CEO of CGAP. You can follow him titter @TilmanEhrbeck. Financial eco-system in this instance refers to a regional eco-system of providers with many points of service in the community

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.

Thank You
Judson B. Welsh CEO AIMS Ltd Ghana
Contact Information: Phone - +233-23-376-7063 Email j.welsh@aimslimited.com