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Mobile banking *
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 products.”

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.

Bank-based model

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 population.

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 deposits.

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 Safaricom subscriber.

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).


Regulatory aspects

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.

Telecommunication regulators

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 of e-money?

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.

International remittances

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.


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