In late October 2012, Vusi Vuma, legal counsel at the Deposit Protection Corporation (DPC) called on the government to formulate legislation to govern mobile banking activities.
He noted that in the absence of tailor-made legislation, mobile banking activities were being regulated by the Banking Act. Since the DPC is seen as neutral and motivated by championing the cause of the banking and transacting public, there were no public protestations in response to his call.
However, the Bankers’ Association of Zimbabwe (BAZ) subsequently made similar calls proposing that government’s current banking sector reforms should include mobile money service providers.
Econet Wireless Zimbabwe (EWZ), which owns the country’s fastest growing mobile banking service, came out with guns blazing and accused certain minority interests within the banking sector of seeking to protect unbridled selfish interests without offering meaningful alternative solutions in return to the challenge of financial exclusion, something they argue EcoCash has begun to address resolutely.
While Econet is absolutely justified to question the real motives of these alleged banking lobbyists and their vested interests, the fact remains that regulation of mobile banking services is a strategic and operational imperative.
The banks’ contention that proposed regulatory reforms should include mobile money services must, however, be seen for what it is — a clear admission that mobile money services are a formidable threat to banks’ competitive position.
But banks must be warned against invoking regulatory enforcement only when it suits them; as such selective submission to regulation gives credence to the allegations of insincerity leveled against them by Econet.
For instance, it would be insincere and selfish for banks to push for increased regulation of mobile banking only because it threatens their competitive position when the real motive should be to craft risk-based regulation aimed at strengthening financial markets.
The regulatory reform agenda for mobile money must, therefore, be rescued from the current realm of bilateral self-interest and elevated to a multilateral plane where the resultant reforms stand a chance of serving the greater good instead of narrow sectional interests.
And if it is true that some bankers are lobbying for mobile money services to be administered by financial institutions, then they must be reminded that if EcoCash was owned by a bank, it would not be half as big and aggressive as it is now.
In order to understand why mobile banking now features prominently on the radars of both mobile network operators (MNOs) and banks, one has to appreciate the competitive dynamics in both sectors.
On the one hand, the high level of competition in mobile voice telephony is forcing MNOs to actively seek diversification of revenue streams into other areas such as mobile money services.
In late October 2012, EWZ chief executive officer Douglas Mboweni publicly acknowledged that the country’s mobile phone penetration rate would soon reach saturation point as competition in the telecommunications sector intensified.
On the other hand, under pressure from regulatory authorities to reduce lending rates and bank charges for conventional banking products, banks are also vigorously pursuing opportunities in mobile money in order to reach out to the unbanked market where they can drive transaction volumes.
Realising that they cannot compete head-to-head with, for instance EcoCash due to its unparalleled market infrastructure and immense financial backing, banks would now want to enlist the services of the regulators in order to “level the playing field”, never mind that EcoCash and its peer products are playing in a space where some banks have not done anything to serve anyway.
Resultantly — and regrettably — mobile money services may evolve into a regulatory bone of contention instead of fulfilling its immense potential as a platform for bank-telecoms co-operation as it was meant to be.
Outside these turf wars, what’s the rationale for mobile money regulation? The African Development Bank (AfDB) argues that operating in a banking-beyond-branch (BBB) environment — as has become the case for most mobile banking products — would require appropriate regulatory frameworks which presently do not exist in many African countries, including Zimbabwe as publicly acknowledged by the DPC.
The AfDB — which acknowledges that innovation not only fosters competition, but also challenges regulation — contends that the legal acts on regulation of banking and payment systems already available in most African countries are insufficient in that they don’t:
Define the conditions under which non-bank third-party agents can conduct cash transactions on behalf of mobile financial service (MFS) providers
Define reduced know your customer (KYC) requirements to avoid burdensome procedures for low value accounts and small transactions, given the low level of money-laundering-related risk; and don’t
Define e-money, protect the funds deposited in e-money accounts and adapt legal account features such as KYC ceiling for account balances and nature of transactions.
Another imperative is that without proper regulation, it is feared that mobile money could have adverse inflationary implications.
In Kenya for instance, M-PESA was identified as a contributing factor to the country’s high inflation outlook. In a report, the AfDB said there was “evidence that the transactional velocity of M-PESA may be three to four times higher than the transactional velocity of other components of money”.
The bank argues that equipped with an easier way to transfer and spend money, Kenyans are indeed spending more. This, the bank contends, has increased demand for goods and services across the board in Kenya, which in turn inflates price levels.
Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory, research and training company with interests in banking, technology and agriculture as well as the convergence area among them.