Mobile Money: A Recap

I’m spending today at the Macroeconomics of Mobile Money conference at the Columbia Institute for Tele-Information (CITI).

Liveblogging. Please excuse misrepresentation, misinterpretation, typos and general stupidity.

James Alleman is giving closing comments. His takeaways:

There is a class that’s underserved by formal banking, and there are a lot of people who are ready to use mobile banking services in the developing world.

The success of existing services like M-Pesa and Menekse Gencer is impressive and lays a good foundation for future efforts. It appears as though mobile banking efforts will need a formal banking partner to be truly successful.

We still don’t have a good idea of what kinds of regulatory systems are going to be required.

Anonymity is a major question: balancing privacy with criminal threats.

Right now, security is an afterthought. This is not good.

There are too many “standards” right now.

User interface is key.

High demand for VoIP; the people who are demanding this (migrant workers, those who want to send remittances back to their families) are also good candidates for mobile banking services.

Walled gardens are a huge problem: everyone wants a piece of the action, but no one wants to cooperate.

Overall: this is a huge, growing, untapped market with many issues left to be resolved.

Mobile Money: Developing Countries

I’m spending today at the Macroeconomics of Mobile Money conference at the Columbia Institute for Tele-Information (CITI). I’ve been eagerly awaiting the final session on mobile money for developing countries, which Raul Katz is moderating.

Liveblogging. Please excuse misrepresentation, misinterpretation, typos and general stupidity.

Katz kicks things off by admitting that “we’ve been dancing around the issue of developing countries” for much of the day. He hopes this panel will give us a chance to dig in to the implications of mobile technologies for economic growth in the developing world.

Mobile Money and Economic Development

Dan Jensen of iWorld Services has been in the business since 1974. iWorld deploys Internet-based, open source platforms, products and services in the developing world, focusing largely on Voice over Internet Protocol (VOIP) and targeting small businesses and low-income/rural areas. Their goal is to foster social entrepreneurship in these countries. iWorld works largely with migrant workers and their families — people who don’t have credit cards, computers or wireless devices.

Jensen notes that much of international voice traffic is transitioning from cell phones to VoIP. They hope to begin developing “virtual callshops” and “small business incubators in a box” to support both small businesses and microfinance organizations.

The Use of Mobile Phones for the Unbanked in Saharan Africa

Judith O’Neill has experience in mobile banking on both the business and legal sides. Mobile banking in sub-Saharan Africa started around 2002, but the hype is happening now. The Kenyan government has pledged to increase the percentage of its population with access to formal finance from 27% to 65% within the decade, and all “MTN countries” are pushing for mobile banking to varying degrees.

The players on this scene include mobile operators, banks, products, human ATMs and consumers. O’Neill is particularly interested in the role of human ATMs, which range from individuals in rural villages to various grocery or department stores in larger cities.

She notes that M-Pesa offers completely anonymous SIM cards, which people like for privacy reasons, but which also open up the system to use by terrorists and other criminals. She mentions that this is something that “will be sorted out eventually.”

(Note: SIM card registration was heavily debated in Kenya after the 2007 elections, when text messages were used to incite violence. In July 2009 President Kibaki ordered the Ministry of Information and Communication to begin registering mobile subscribers within 6 months. Some argue that, in addition to possibly increasing costs, this poses a threat to opposition member and human rights activists within the country.)

MTN or Safaricom are the major mobile operators (there’s some debate over which is the largest). Safaricom rolled out M-Pesa in Kenya, where they have 80% of the mobile market. MTN is attempting to introduce mobile banking to all the countries in which it operates, but development has been slower than expected.

O’Niell believes Mobux has a great plan, but they’re not getting funding because they’re based on a private equity model. Other mobile operators (AfriCel, Zaim, SierraTel) are too fragmented and don’t support their own employees enough to be successful in the mobile banking sector at this point.

Formal banks often have requirements (minimum account balances, etc.) that the very poor can’t meet. South African banks require a minimum account balance of 20-30 rand ($2.70-$4) per month, while mobile banks only require 5 rand ($0.69). Many available channels for remittances are also expensive, taking 3 to 55 percent (55 percent!) of the transaction amount.

Based on historical data about “major change adoption,” O’Neill believes mobile banking should reach a 50% market adoption by 2015.

Development Implications of Mobile Money

Richard Field, who has consulted for the World Bank, the UN and ASEAN, is filling in for a speaker from the World Bank who couldn’t make it.

Field starts by asking what problem, exactly, needs to be solved? Is it extreme poverty? Can we solve this through mobile cash? Is the problem that money is available but too costly to move? Is it the problem of how to expand markets? Is it more government control? Less government control?

Field’s presentation is largely a serious of questions, but he raises some incredibly important issues. A sample:

  • New availability of credit poses some potential risks: the overextension of loans might lead to inflation or erode the strength of the national bank. Most mobile banking products don’t have reserve requirements in the way formal financial institutions do.
  • Another consideration: who issues these loans? Some people believe only banks should have this power, while others believe these services can be provided by microfinance institutions and even organizations like PayPal as well.
  • What kind of safety net is in place?
  • Are payment systems controlled locally or internationally?
  • What about fraud, identity theft, corruption?
  • What’s the effect on society if banking is happening so much more quickly?
  • What kind of additional resources do funders need to support?
  • What about the need for public education?

Lots of things to think about.

Mobile Money: Legal and Regulatory Issues

I’m spending today at the Macroeconomics of Mobile Money conference at the Columbia Institute for Tele-Information (CITI). I wasn’t able to come to the first session on the macroeconomic impacts of mobile money, but the 11:30 session is on the legal and regulatory issues surrounding the rise of mobile banking and mobile payments.

Liveblogging. Please excuse misrepresentation, misinterpretation, typos and general stupidity.

Overview of Regulatory Issue of M-payments

The lawyers are going to say there’s nothing new, and the regulators are going to say, “yes there is.”
Richard Field, moderator

Benjamin Geva opens the panel by explaining the difference between access devices (which aid in the transfer of funds from one bank accounts to another) and stored-value products (where you load the value onto a prepaid card or something similar). The problem with mobile banking is that mobile phones act as both kinds of devices.

There are three types of mobile payments: SMS, web-based payments using wireless application protocol (WAP), and near field communication (NFC). NFC can only be used when two mobile phones are close to one another (“proximity payments”), while SMS and WAP can be used remotely.

The problem is that different regulatory articles apply in different situations, and mobile phones combine multiple situations in a single device and a single transaction. Neither lawyers nor regulators are sure which regulations to apply. Some of the key questions:

  • Does a mobile transaction actually involve money?
  • Does prepayment constitute a “deposit” in a “bank” of sorts?
  • If mobile money can be issued by a non-bank (like a mobile phone company that sells airtime), then should it be regulated?
  • Should it be protected in the same way that money in a bank is protected?

Geva thinks the best approach is to try to create a new, broader regulation system that would eliminate this confusion by covering all of these situations.

Regulatory Challenges in the Developing World

Leon Perlman, founding chair of the South African Wireless Application Service Provider’s Association, is up next to talk about legal issues in the developing world. He starts with some stats:

  • Over 1 billion people don’t have a bank account but do have a mobile phone.
  • By 2010, 1.7 billion people who won’t have a bank account will have a mobile phone.

Perlman argues that though we’re talking about mobile banking, what’s really happening on the ground is mobile payments. Microfinance institutions focus far more on payments than on a full suite of banking services, though “human ATMs” are becoming more popular.

He notes the “paucity” of existing laws related to mobile money — research currently refers to practices rather than regulatory guidelines. Lots of loopholes — both good and bad — exist for emerging technologies. In Kenya, the minister of finance decided to audit M-Pesa to see if it was legal; in Pakistan, a similar service was shut down by the government.

Many developing countries, including Kenya, Zambia, Pakistan and India, are currently developing laws on mobile banking and mobile payments. These laws vary in terms of how much regulation they’re applying and how much freedom mobile banking operators have to develop new services.

Perlman points out that some sort of coordination is needed with existing telecoms regulations, not just existing banking regulations. Who has jurisdiction? Who will bear the costs involved in accessing banking services? Mobile banking regulations must also be consistent with existing laws on e-commerce, consumer protection and privacy.

Another issue of concern is conflicts with common law views on banking and payments. What is money? What is the status of prepaid airtime? Is it part of your estate? These questions will only become more important as mobile banking becomes more popular.

Perlman argues that regulation should be proportional to the risk involved. Do we really need expensive regulation, or is more simple supervision enough for now? He strongly believes that policymakers should not be allowed to regulate the types of technology or transactions involved.

Perlman believes that branchless banking is a good thing, a way to increase competition against bank monopolies without completely disrupting the existing system.

Perlman concludes that there are no readily available supra-national answers to mobile banking regulation — we need to do this at the country level. We need necessary and sufficient regulation, but no more.

Opportunities and Dangers with E-payments

Carol Van Cleef is up next. She starts with a warning:

The criminals are the first adopters.

Criminals are motivated, Van Cleef argues. They want to know how the system works so they know how to make the most of it. So what does this mean from a public policy standpoint? How can we reduce the risk of misuse?

This networked climate forces us to rethink how best to protect our values and our security in a world where the tools for creating violence and chaos are as easy to find as the tools for buying music online or re-stocking an inventory.
Homeland Security Secretary Janet Napolitano

E-payments are attractive to consumers because they are convenient, fast, secure, cross-border and often anonymous. These same “features” mean that mobile money entrepreneurs worry about criminal (or even terrorist) money coming through their systems. This isn’t an abstract worry: we’ve already seen this happen with drug traffickers and other types of criminals.

Side note about the difficulties of compliance with existing regulations: the US has a law saying that if you put a payment system into place without having a license from the state in which you operate, you’ve committed a federal crime, which can then become the basis for a complete seizure of your assets. On top of this, all of your customers may sue you for losing their money.

Van Cleef argues that there will be criminal activity in a system — there’s no way to stop it — so organizations must focus on risk assessment. They must decide how to identify and verify customers, how to monitor their system, and how to allocate responsibility.

the cost of climate change

Economists estimate the impact of climate change at 5 to 20 percent of global GDP. Five percent. Doesn’t sound too bad, right?

This map, courtesy of FiveThirtyEight via Strange Maps, shows what the world would look like without the countries that make up the bottom 5% of global GDP. For the record, that’s sixty-four countries:

  • Afghanistan
  • Bangladesh
  • Benin
  • Bhutan
  • Bolivia
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Central African Republic
  • Chad
  • Comoros
  • Côte d’Ivoire
  • Democratic Republic of the Congo
  • Djibouti
  • Egypt
  • Eritrea
  • Ethiopia
  • Gambia
  • Ghana
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • India
  • Kenya
  • Kiribati
  • Kyrgyzstan
  • Laos
  • Lesotho
  • Liberia
  • Madagascar
  • Malawi
  • Mali
  • Mauritania
  • Moldova
  • Mongolia
  • Mozambique
  • Myanmar
  • Nepal
  • Nicaragua
  • Niger
  • Nigeria
  • Pakistan
  • Papua New Guinea
  • Philippines
  • Rwanda
  • São Tomé and Príncipe
  • Senegal
  • Sierra Leone
  • Solomon Islands
  • Sri Lanka
  • Sudan
  • Tajikistan
  • Tanzania
  • Timor-Leste
  • Togo
  • Uganda
  • Uzbekistan
  • Vietnam
  • Yemen
  • Zambia
  • Zimbabwe