Mobile money in emerging markets – an opportunity for banks?
Mobile money is a topic of current press interest, with a mobile money "e-wallet" on Apple's new iPhone 6. In fact, Apple Pay merely addresses convenience and security factors in U.S. payments, providing an alternative method for using existing payment channels (such as cards).
Mobile-money products in emerging markets could bring financial inclusion to the world's unbanked and under-banked population. More than 2.5 billion people in developing countries lack a viable alternative to the cash economy, and 1.7 billion of these potential consumers already have a mobile phone.
Mobile-money services enable individuals to store value electronically on their mobile phones, and use that value to buy goods and services from third parties, to transfer to another user of the service, or alternatively to cash out. Depending on local regulatory conditions, both banks and non-banks can issue mobile money. In the EU, this is usually treated as e-money. Given the potential systemic significance of mobile money to some national economies, regulators are understandably concerned that customer funds have adequate prudential protection, and in some cases have required non-bank providers to put in place structures which extend prudential protection available from bank providers. This is both an opportunity and a threat for banks – an opportunity to partner with mobile operators where they cannot meet regulatory requirements on their own, and a threat that their own consumer and small-business banking operations may be overtaken by a convenient and ubiquitous alternative.
Key issues for banks and (potential) mobile-money issuers include the local regulatory infrastructure (is the regulator well-disposed to innovation?), learning from existing models and their applicability to the local market, collaborating with third parties (in particular, establishing the right agent network), data privacy legislation (and the "big data" opportunity), and competition risks (including interoperability of schemes). As mobile money is about the simplicity and ubiquity of payments, taking a pragmatic approach to customer diligence (which can be a challenge where national ID and address information is basic) is a key success factor.
Partnership between mobile and financial services providers take different forms (joint ventures, white-labelling arrangements etc) − one of our telecoms clients even bought a licensed bank. As companies start to work together to form a more complex ecosystem of mobile-money operators, it is going to be increasingly important to clearly delineate responsibilities in the contracts. Regulators are likely to be interested in the structure of the service to see which regulations apply and which party is responsible for such compliance.