Page 116 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

6 Stores of value and billing systems

As noted above, DFS builds on the innovations developed in the mid-1990s for micropayments for VAS.
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Payments for VAS began using the prepaid-type mobile airtime-based SoV accounts acting as a virtual
40
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currency created and provided by an MNO for semi-closed loop digital transactions.
42
The unit of account in the airtime-based SoV may be that of the national fiat currency, or some other unit,
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such as airtime minutes. The airtime value is usually bought at a retail outlet, on the Internet, via WAP, or via
a bank automated teller machine (ATM) linked directly to the MNO airtime billing system.
Use of this MNO airtime-based stored value account has evolved into the venerated DFS stored value account,
such that MNOs – and other non-banks, where allowed by regulation ‒ can provide redeemable and non-
redeemable wallets to users. Stored value accounts with redeemable value, the core of the DFS concept, are
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based on the unit of account, SoV, and means of payment (money) of the local national currency and said to
be fiat-backed. The value is usually stored by entities licensed or authorized by central banks. MNOs can offer
both the airtime-based and fiat-backed SoVs simultaneously, in separate accounts.

If the DFS system is operated by a non-bank DFS SP such as an MNO, regulations from the central bank will
usually provide that any fiat money received from users must be placed by these entities in special bank
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accounts. Through normative regulations usually issued by a central bank, the fiat money then becomes an
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electronic SoV for use in DFS stored value accounts hosted by the SP and which is often termed electronic
money (eMoney) or mobile money (m-money). The e/m-money is backed by the fiat money stored in the
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bank account(s) on a 1:1 basis.
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Comparatively then, use of a fiat unit of account for the airtime-based value does not make it e/m-Money
per se , as the former is usually characterized by a different regulatory regime to e/m-Money used in DFS.
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Regulation of this SoV is usually the domain of the telecommunications regulator rather than the central
bank. For most jurisdictions, the value received by the MNO for airtime wallet purposes is not ring-fenced
50
nor regulated by the same regulations as e/m-Money. Value bought for airtime purposes, once placed in the
airtime based stored value account housed at the MNO is (with a few exceptions) non-redeemable to cash.
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The inability to cash-out of the airtime-based stored value reduces somewhat the risk profile in terms of anti-
money laundering (AML) of the airtime-based store of value compared to use of fiat-backed eMoney used
in DFS. Cash-in and cash-out (CICO) by users for fiat-backed DFS stored value accounts is allowed, but within
regulated limits.

39 See for example, WASPA, at waspa.org.za. It is an industry association representing vendors of these digital goods and services.
40 The airtime SoV is limited to digital goods and services. See below.
41 A MNO usually has two methods of charging for access to its network and for the use of basic and VAS prepaid and post-paid.
Prepaid is by far the most prevalent means of access around the world across all mobile technologies, and dominates in devel-
oping countries. Users will only be able to access services and do transfers if they have sufficient value in their mobile airtime
accounts.
42 The ecosystem is a semi-closed loop since some external purchase and value transfers may be possible.
43 For example, Indian Rupees or Malawian Kwacha.
44 Other SPs – where allowed by regulation ‒ may provide other types of ‘virtual currency’ wallets, for example the blockchain-pow-
ered Bitcoin or Ethers.
45 Or initially provided by these entities themselves.
46 The cumulative value received by the entity from users is stored in one or more special bank accounts, and the accounts are
ring-fenced in so far as the bank cannot use these funds for intermediation. The entity cannot use the funds for any operational
expenses or riskier activities. The special bank accounts may be called trust accounts where the jurisdiction has a trust regime.
47 The terms eMoney ‘creation’ and eMoney ‘issuance’ are often used in this context – and often interchangeably in the literature
‒ to describe e-money creation or distribution. Depending on the regulatory regime, the entity may be allowed to ‘issue’ (distrib-
ute) e-Money ‘created’ by the central bank, or create and also issue the eMoney itself. The effect is the same though: eMoney is
made available to users as a usable SoV.
48 That is, every e/m-Money is backed at par with the value stored by the entity in banks.
49 This airtime-based virtual currency is in most cases not the same as eMoney, the latter usually coming into being through laws,
directives, or regulations issued by central banks or parliaments.
50 In some jurisdictions, such as South Africa, both the telecommunications regulator and the central bank have oversight over the
use of the airtime wallet.
51 An exception to the cash-out restriction for airtime wallets appears to be in Russia where cash-out from the airtime wallet is
reportedly allowed.

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