Mobile money feels right for mobile network operators: it is an extension of the basic prepaid platform and the distribution networks they already operate. Mobile money does require greater surveillance against fraud and money laundering measures, but it’s all fundamentally about ensuring policies and practices are properly enforced and information and data security is enacted at every channel.
From a telecoms regulation point of view, mobile money is another instance of a value added service and those tend to receive a light regulatory treatment from government telecom bodies due to the nature of investment brought in by these mobile network operators (MNOs). All the specific regulations that pertain to the safety and soundness of mobile money including creation of accounts, conditions of service, data privacy standards, and consumer protection should be the domain of the banking regulator.
In Pakistan, MNOs are both component suppliers to and direct competitors to banks that offer mobile financial services. The future of technology trends leads us to believe that most financial services will have a mobile component, enabling mobile operators to directly compete with banks, resulting in serious implications for competition in the financial inclusion space.
While financial inclusion is a requirement and need to move into the digital age, putting in the required policies and practices ensures responsible control over large transactions. This brings the spotlight onto the issue of cash-only payments, a tax-avoidance practice that all social classes insist is necessary for different reasons. Companies and entrepreneurs insist it is to remain competitive while an individual may need the same to make a payment to the local milk shop or tip a waiter. Small-business owners including retail outlets insist that they had to work in cash to avoid what they call double taxation: official taxes and bribes. Most speak out only on condition of anonymity.
The term ‘shadow banking’ sounds worrying and could encompass a variety of practices. Some are positive innovations, and some threaten the very existence of banks. Mostly ‘shadow banking’ involves ways of taking deposits, extending credit and making payments that do not use conventional and traditional banking methods. Very often, these ways of taking deposits, extending credit and making payments, are not regulated or, at least, not regulated very much as is the case with “Agent-based” exchange of money being carried on in Pakistan by the telecom companies.
This is through use of mobile phones to carry out the business of recovering and paying in a world where there are either no banks in a locality or social norms or security limit and individual from accessing one. Incidentally, agents in this case are used to carrying out banking where there are no banks or branches.
Mostly “shadow banking” involves ways of taking deposits, extending credit and making payments, which do not use conventional and traditional banking methods. Very often, these ways of taking deposits, extendings credit and making payments, are not regulated
The fact that agents are typically used in the provision of mobile financial services, and are often the first point of contact with consumers, is another source of risk. There are no regulations nor standards set upon these agents including their selection, management and training. Most MNOs use the same agents with whom contracts for providing mobile top-ups and subscriber services are setup, as well as outsourced agent networks in some cases.
These should be reviewed to ensure that standards are in place, including holding the mobile operators accountable for provision of adequate oversight to SBP to observe a minimum set of requirements to select an agent, provide a clear identification with customer hotline numbers in place, maintenance of customer confidentiality by having effective data and privacy control standards and mechanisms and lastly, ensure that consumers are provided with accurate and full disclosure of all product services, features and rates at all agent locations.
The size and distribution of the MNO’s agent network is another factor affecting the quality and convenience of the service. MNO’s should have sufficient standards in place to ensure liquidity for all agents. This plan should be established prior to initiating services and should be reviewed from time to time to ensure that adequate liquidity levels are in place similar to those provided by the banking industry.
Having a disparate array of agents through which individuals can transfer funds also leads to evasion of taxes levied by the government on cash withdrawals and tracking of source and eventual beneficiaries of these transactions may be a cumbersome exercise if made through using agents of different providers.
Currently in Pakistan, MNOs run these agent networks with very limited intervention from the Pakistan Telecom Authority and almost no intervention from the State Bank of Pakistan (SBP).
The above paras give a good account of the current state of cash exchange in Pakistan. These are conditions which make corruption, money laundering and terror financing easy. In light of recent sanctions from the FATF, the SBP has had to employ certain precautionary measures. It is essential that the SBP ensure that all mobile providers follow the same ground rules followed by financial service providers.
The writer can be contacted at [email protected]
Published in Daily Times, July 18th 2018.