|Photo credit: AFP
This article focuses primarily on m-banking services as
they apply to developing countries. But it is important to
note that there are also m-banking and m-payment systems
deployed in developed countries. In general, these
services tend to be bank-based, offering customers
mobile access to the accounts they hold in traditional
banks. Such systems are seeing rapid adoption, particularly
as smartphones, tablets and other hand-held devices
become the primary means for people to get online.
For example, a study released in May 2011 showed that
20 million mobile users across five European markets
(United Kingdom, France, Spain, Germany and Italy),
representing 8.5 per cent of mobile subscribers in these
markets, accessed their bank account via a mobile handset
in March 2011.
More than 2.5 billion adults in the developing world are said
to be “financially excluded” or “unbanked”, according to a study
from the Telenor Group. This means that they have no access to
basic financial services such as bank accounts.
The good news is that with more than 4 billion mobile phone
subscriptions in the developing world today, access to a variety
of financial services is possible through mobile devices (“mobile
banking” or “m-banking”). This accessibility changes the landscape
for the unbanked, as well as offering an alternative means
of accessing services to those who already have a bank account.
As Jon Fredrik Baksaas, President and CEO of Telenor Group
explains, “The mobile phone is emerging as a key tool for
bringing financial services to unbanked populations. It allows users
to complete basic payments and remittances via the mobile
phone, and have easier access to savings, credit and insurance
There are a variety of m-banking models, and these fall into
two main categories: a bank-based model and a non-bank-based
model. The approach or model that a company implements to
roll out m-banking services is often dependent on a country’s
financial laws and regulations and the degree of flexibility the
financial regulator wishes to allow.
A number of countries permit individuals and legal entities to
be agents for banks. In India, for example, post offices and mobile
network operators can act as agents. In Kenya, any for-profit
organization (such as a grocery store or other local retail establishment)
can act as an agent. This article looks at the different
types of m-banking services, and considers the roles of regulators
in regard to m-banking.
In the bank-based model of m-banking, banks make some
of their services available through the use of a mobile device.
A bank enters into an arrangement with a mobile operator to
offer financial services either through text messaging or more
elaborate smart phone applications. Customers can carry out a
range of financial transactions without having to go to a physical
bank facility. The customer establishes a direct contractual
relationship with a licensed and supervised financial institution,
although an agent may provide customer service, keep records,
handle cash and manage liquidity.
Bank-based models generally target existing bank customers,
offering a convenient way (in addition to credit cards, automated
teller machines and the Internet) to manage money without having
to handle cash. But, where there are regulatory constraints in
the provision of financial services, some bank-based m-banking
services target the unbanked. This is the case in Pakistan, where
regulations specify that the banking institution is fully liable for
providing the service. As m-banking services develop, and more
companies want to get involved, we are seeing varied arrangements
of the bank-based model (see table).
“easypaisa” and “Omni” in Pakistan
Telenor Pakistan and Tameer Microfinance Bank launched
easypaisa, an m-banking service, in Pakistan in 2009 in a one-to-one arrangement. Services include bill payment, and local and
international remittance. More than 1.5 million transactions are
conducted every month through easypaisa, which targets the unbanked
Customers can register for a mobile account from any of the
Telenor franchises, Tameer Bank branches, or Telenor or Tameer
Bank sales and service centres. The customer representative captures
the customer information in the system, takes a photograph
and copies the thumbprints of the customer, and prints out a
receipt for the fee for opening the account. The customer receives
a verification call from the bank within three hours and, after
successful verification, an account is opened for the customer.
Some banks allow their m-banking services to be used by
customers of any mobile operator, in a one-to-many arrangement.
For example UBL, one of Pakistan’s largest commercial
banks, which began offering services (also in 2009), has built its
own agent network under the brand “Omni” and can serve the
customers of any mobile operator with an account that can be
accessed via phone or card.
Non-exclusivity in Ghana and Bangladesh
The Bank of Ghana’s guidelines of 2008 support a bankbased
model of m-banking using non-bank retail agents (such as
merchants, gas stations, or the post office),and prohibit exclusive
partnerships to deliver services. In the resulting many-to-many
arrangements, banks and mobile operators are able to “entertain
each other’s customers.” Customer accounts reside with
the bank. Now three m-banking services are provided by mobile
operators in partnership with banks: MTN Mobile Money; Airtel
Money; and Tigo Cash.
In Bangladesh, three banks currently offer m-banking services.
Dutch-Bangla Bank Limited introduced m-banking services
through mobile operators Banglalink and Citycell, primarily
using these operators’ retail outlets and agents. Islami Bank
Bangladesh Limited entered into an agreement with Software
Shop Limited Wireless to provide m-banking services to its existing
customers. And on 22 July 2011, BRAC Bank launched what
it describes as Bangladesh’s “first complete mobile financial service”,
offering mobile subscribers a range of banking and other
financial services via their mobile phones, regardless of whether
they have a bank account or not. The service is being offered
through bKash Ltd, a subsidiary of BRAC, in partnership with mobile
operator Robi (Axiata Bangladesh).
Robi customers are provided with a bKash mobile wallet account,
developed on a VISA technology platform and fully encrypted
to enable secure transactions. Customer accounts can
be credited with electronic money, as salary, loan or local remittance.
The cash can then be moved out as electronic money to
any of the cash-out agents assigned by bKash.
Non-bank based model
In the non-bank based model, a formal bank typically serves
only as a holder of deposits, while the customer relationship is
managed by a non-banking entity — usually a mobile operator.
Customers have no direct contractual relationship with the regulated
financial institution, and conduct transactions at a retail
establishment that serves as an agent for the service. The customer’s
“money” is recorded in a virtual account on the server of
the non-bank entity.
Non-bank based models typically target the unbanked.
Customers can order payment of funds to anyone participating in
the system and can receive payments from them. Customers can
also transfer money between accounts and pay bills.
Two mechanisms are typically used to conduct transactions:
a point of sale network and a phone-based system. In a point of
sale network, customers must visit a participating retail agent
every time they want to conduct a transaction. In a phone-based
system, customers have to visit a retail agent in order to deposit
cash or convert stored value back into cash.
“GCASH” in the Philippines
Mobile provider Globe Telecom in the Philippines offers the
GCASH m-banking service. GCASH allows a mobile phone to be
used as a mobile wallet to send money to — and receive money
from — other GCASH users. Retail agents conducting cash-in
and cash-out functions are required to register with the Central
Bank of the Philippines and to send personnel for training on
anti-money laundering practices. While the bank handles the mobile
banking and supervises the telecommunication companies,
these companies are solely responsible for their agents.
“M-PESA” in Kenya
Perhaps the most successful non-bank m-banking service is
M-PESA, a mobile money transfer service launched in Kenya on
a pilot basis in October 2005 by Safaricom and Vodafone, and
commercially launched in March 2007. The M-PESA stored value
accounts are carefully structured so as not to constitute a “banking
activity” under the Kenyan Banking Act. To address liability
concerns, Safaricom — in consultation with the Central Bank of
Kenya (CBK) — invests an amount equal to M-PESA’s net deposits
in commercial banks in order to ensure the safety of customer
M-PESA targets unbanked pre-paid mobile phone subscribers.
Following a simple registration process to establish an
M-PESA account, a customer can deposit, transfer and withdraw
cash at any of Safaricom’s many distribution agents. Only
Safaricom customers can register for M-PESA, but recipients
of transfers do not need to have an M-PESA account or be a
CBK saw the number of formal bank accounts in the country
increase by nearly 150 per cent between the end of 2005 and
the end of 2008. CBK attributes much of this increase to formerly
unbanked consumers gaining familiarity with banking concepts
through Safaricom’s M-PESA service. In terms of revenues, for the
year ending March 2010, commissions from M-PESA accounted
for 9 per cent of revenues or some USD 94.26 million (around
KSH 7.56 billion).
M-PESA is exceptional in terms of not requiring a licence to
provide its services. Since M-PESA was an early entrant into the
m-banking business, it was able (arguably) to take advantage
of more openness and flexibility from the regulatory framework.
In many other jurisdictions, m-banking services are subject to
licensing requirements. In the Philippines and Bangladesh, nonbank
companies offering m-banking services must be licensed by
the central banks of those countries.
Under Bangladeshi regulations, payment service agents are
licensed to operate settlements between participants, the principal
participant being a bank that maintains adequate cash reserves
in an account with Bangladesh Bank. The payment service
provider must also have an account with Bangladesh Bank that
meets cash reserve requirements. The Bank undertakes corrective
and remedial measures to protect against any violation of the
licensing terms and conditions. It has the power to suspend or
revoke the licence, impose fines and order compensation.
Responsibility for anti-fraud measures may fall under the jurisdiction
of law enforcement agencies, the financial sector regulator
or the telecommunications regulator, or some combination
of those agencies. Ultimately, fraud prevention is the responsibility
of the m-banking service provider, regardless of the m-banking
model employed. An example of a telecommunications regulator
with significant responsibility for preventing electronic forgery
and fraud is the Communications Commission of Kenya.
According to the GSM Association (GSMA), as of July 2011,
there were 122 live deployments of m-banking systems. As
m-banking grows, telecommunication regulators will need to
determine what changes — if any — are needed to existing
regulations. Because of the involvement of mobile service providers
in the transmission and storage of funds, m-banking services
increase the responsibility of telecommunication regulators to
ensure the security of the communications infrastructure.
Telecommunication regulators may be responsible for overseeing
or facilitating emerging m-banking services. Other areas
of responsibility may include customer protection, interoperability,
accounting requirements, universal service obligations, tariff
regulation, and SIM registration. But does the telecommunication
regulator bear responsibility for ensuring the safety and accessibility
Telecommunications, financial, and competition regulators
have sometimes overlapping issues to address, while m-banking
providers must navigate the regulatory requirements from all
three regulators to ensure that their services comply with all relevant
laws and regulations.
Telecommunication regulators need to work with financial
regulators to understand which types of m-banking systems are
permitted under current telecommunications and financial regulations.
For example, the Pakistan Telecommunications Authority
is working with the State Bank of Pakistan to develop revised
guidelines on how the bank-based model operates in Pakistan.
Competition regulators are also likely to be involved in two
key areas of m-banking: the acceptable boundaries of cooperation
in payment infrastructure; and the risks of anti-competitive
“lock in” of a particular service.
|Photo credit: CharlesSturge/GSMA
The lack of interoperability agreements between providers of
m-banking services leads to the unfortunate practice, as found
for example in Kenya, where consumers transfer money between
m-banking services by visiting an agent to cash out the desired
amount of money from the first service, then carrying cash to an
agent of the second service to cash in. As m-banking services
continue to expand, the issue of interoperability — or the ability
to transfer e-money from one m-banking service to another — will become important.
Financial and telecommunication sector regulators could
encourage interoperability of m-banking systems, but need to
weigh the benefits of that approach against the risk of stifling
innovation and investment.
Meanwhile, the mobile telecommunications industry and financial service providers have taken steps to facilitate interoperability
without a regulatory mandate. The GSMA, for example,
has established a global mobile money transfer (MMT) initiative
to address interoperability, messaging and financial transfers
through an international, multilateral “hub”. In this networked
approach, each operator connected to a multilateral hub is able
to send a remittance to any mobile phone user in the world on
any other participating network.
Remittances sent via m-banking services can reach recipients
who may have limited or no access to the formal channels for
money transfer. However, in the absence of greater interoperability,
there are relatively few options for sending international
remittances to a user’s m-banking account. Some m-banking operators,
such as Globe and SMART in the Philippines and M-PESA
in Kenya, have entered into arrangements with Western Union to
provide a channel for remittances. The service allows senders in
selected countries to use Western Union’s agents to send money
directly to the m-banking accounts of mobile subscribers.
* The GSR discussion paper, “Mobile banking”, on which this
article is based, was written by Janet Hernandez, President,
Telecommunications Management Group, Inc. (TMG). The
paper examines some of the ways in which m-banking has
been introduced around the world. It also addresses the
key regulatory issues that have emerged with respect to
m-banking and analyses the ways in which governments,
particularly telecommunications and financial service
regulators, can help to promote m-banking in their countries.