From a regulatory perspective, a basic requirement for mobile money to succeed is to create an open and level playing field for diverse providers. However, openness and inclusiveness in the mobile money ecosystem have been interpreted in different ways by regulators in four different benchmark markets – Kenya, India, Bangladesh and Ghana – which we will explore.
A major part of the success of mobile money in Kenya is that the country ’s regulatory environment is truly open to all comers. The Central Bank of Kenya permitted the participation of non-banks, including telecommunication companies (telcos) in the provision of mobile money right from the onset. In fact, a telco, Safaricom kicked off the mobile money phenomenon with the launch of M-Pesa in 2007.
It was not until August 2014 that a formal legal framework to address the operation of mobile money in Kenya, the National Payment Systems Regulations, was introduced. It is clear that regulation followed innovation and consumer adoption while learning and evolving.
India’s regulatory environment permits banks and non-banks, including telcos to offer mobile money services, but the journey to this success has several chapters.
Post-2010, India’s e-commerce sector witnessed rapid growth, which led to an influx of digital financial services businesses. This prompted regulatory intervention by the Reserve Bank of India (RBI), India’s governing bank.
Eventually, RBI’s recognition of the role of mobile money in onboarding the financially excluded, led to the conceptualisation of Payment Banks in February 2015 when the regulator invited applications for licenses.
Today, the Indian mobile money market includes telcos as well as deposit money banks (21 public-sector and 26 private-sector). In 2016, the infamous demonetisation exercise went live and triggered an uptake in the number of mobile money users in the following months.
Since the introduction of mobile money in 2011 till date, Bangladesh has operated a bank-led regulatory model that forbids the direct participation of non-banks (independent companies and telcos); hence, only banks provide mobile money in the region, with other players having to partner with them. In all, Bangladesh has a total of 18 providers (like Safaricom in Kenya, Bangladesh has a dominant mobile money operator, bKash, responsible for over 80 percent of the country’s mobile money transactions).
The situation in Bangladesh is an interesting one to observe. While the regulatory environment has been able to drive mobile money penetration (Bangladesh is a global leader in its number of mobile money accounts), it hasn’t resulted in innovative use.
Ghana presents a textbook case of a regulatory environment that has evolved over time, with positive results.
Initially, only banks and deposit-taking financial institutions were permitted to lead mobile money operations while telcos acted as agents and provided infrastructure. This was a problematic arrangement for the telcos as the business case was not strong enough for them. Eventually, the banks managed the mobile money service and also owned the agent networks and customers.
This stalemate continued until 2015 when the Bank of Ghana (BoG) changed the regulatory framework guiding the delivery of mobile money. The new guidelines explicitly stipulate that non-bank entities can be licensed as dedicated mobile money providers, including telcos.
This modification to the regulatory environment produced positive results.
In our journey across these four mobile money markets, you will notice several key trends:
1. Timing: Where innovation precedes regulation, it is easier for the innovation to evolve and achieve sustainable equilibrium as can be observed in the Kenya situation. Where regulators desire to replicate Kenya’s success with mobile money, they must take this into consideration by compensating with relaxed policies and avoiding policing providers to death.
2. Regulatory model: Mobile money usually struggles in markets where mobile network operators are prohibited from participating. In such markets, to see any measure of significant traction, a considerable amount of resources has to be invested in a dominant player.
In Nigeria, the Central Bank has created a “window” for telcos to participate in the mobile money market, which is a critical first step; but this is still just a first step. With the 2020 deadline fast approaching, there is more to be done.