Page 95 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Interest payments for e-money balances
Working Group Consumer Experience and Protection

Theme Payment and use of interest on customer funds
Audience for recommendation Regulators and policymakers

Policymakers should consider allowing the payment of interest or returns on e-money balances to consumers,
especially when they are required to be placed in an interest-earning trust or custodial account at a financial
institution. Policymakers should assess the pros and cons of this decision, taking into account specific legal,
market, and operational aspects, and monitor the impact on the market following the authorization of payment
of returns.

The payment of interest or returns on e-money balances to consumers may create further incentives for
customers to: open, use, and store value in such products; make it more appealing to unserved or underserved
customers ; create additional competition among DFS providers; and allow for distribution of interest accrued
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on a trust or custodial account to the ultimate beneficiaries of the funds being held for the customers. On the
other hand, payment of interest may create further confusion for consumers where e-money is not considered
a deposit, as consumers may not understand the difference between interest-bearing e-money accounts and
deposits (and why the former are but the latter are not covered by deposit insurance); also DFS providers may
engage in aggressive price competition or deceptive advertising regarding higher returns, and the transmission
of interest to beneficiaries may be operationally challenging.
The importance of the arguments in favor or against the payment of interest or returns will differ among
countries depending on their specific legal and regulatory framework (e.g., whether e-money is considered a
deposit or not), market structures (e.g., competition and financial inclusion levels), operational aspects (e.g.,
existence of trust or custodial accounts or fiduciary arrangements). In the past two years, Tanzania and Ghana
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have allowed the payment of returns (or rather the sharing of profits in Tanzania), whereas Peru and the
Philippines have clearly stated that no such payment is allowed. Policymakers and regulators should carefully
assess the advantages and disadvantages of this decision, make an informed decision, and monitor the market
to see either the effects of a positive decision or the challenges or opportunities of a negative decision.

54 World Economic Forum, The Mobile Financial Services Development Report (2011) http:// www3. weforum. org/ docs/ WEF_
MFSD_ Report_ 2011. pdf
55 McKay, C. CGAP, Interest Payments on Mobile Wallets: Bank of Tanzania’s Approach (2016) http:// www. cgap. org/ blog/ interest-
payments- mobile- wallets- bank- tanzania%E2%80 %99s- approach

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