Recommendations for Mobile Payment Systems
Solutions for Financial Inclusion
TO: World Bank
FROM: Bank Representative
SUBJECT: The Case for Bank-led Mobile Payment Scheme
The World Bank should support a mobile payments solution in our country. While there are numerous societal benefits, this memo seeks to outline how the banking sector is uniquely positioned to deliver these benefits while uplifting the banking sector at the same time. With only 40% of the country owning a financial account, increasing this number is beneficial to both banks and the public at large.
Of the various mobile payment solutions, the best solution for our country is one that involves a bank-led approach. The banks’ interest in this approach is clear: increasing bank account ownership which will in turn increase banks’ profitability but also consumer’s access to several financial services. The sector often believes that it is important for banks to lead the mobile payment effort instead of mobile network operators due to banks’ expertise in managing consumer’s finances. Banks are uniquely structured (and regulated) to protect consumer’s money and information from misuse or disruption. As banks have such a long history in the financial sector, consumers will trust banks with their funds for mobile payments which will ease user adoption of the proposed solution. Finally, given the smaller number of competitors in the telecommunications industry, recommending that MNOs lead the mobile payment solution could lead to a monopolistic consolidation of power in the marketplace that leads to non-consumer friendly or non-merchant friendly practices.
The banks recognize that are a few challenges with the bank-led approach, namely the ability to reach and understand the needs of large swaths of the population in rural communities. Those telecommunication companies interested in mobile payments will point to this as the primary reason that MNOs should not lead the effort and not banks. However, banks also see this as a primary challenge to overcome as scale is a key profitability driver, and we believe that there are solutions outside of MNOs. Therefore, we write to the World Bank for your support. With the World Banks’ endorsement, banks will have an easier time partnering with the government which we believe is key for distribution. Banks can leverage their existing retail footprint in urban areas, but in rural areas, we will need to partner with the national postal service. While they do not have the retail coverage we would hope in the long term, they will have enough coverage to enable initial user growth. This will give banks time to develop relationships with national and local retailers to collect and distribute cash payments to those that do not yet have a bank account. Lastly, your support will help facilitate partnerships with foundations and non-governmental organizations that operate in rural communities to enable us to better understand the problems communities face in their financial endeavors.
For these reasons, the banking sector urges the World Bank to recommend a bank-led mobile payment scheme as countries seek to increase financial inclusion.
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TO: World Bank
FROM: Consumer Advocacy Group Representative
SUBJECT: Case for an MNO-led Mobile Payment Scheme
To promote consumer interest, this memo recommends that the World Bank should use mobile network operators (MNOs) to promote financial inclusion in our country. 86% of the population has a mobile phone as opposed to just 40% that have a bank account. Working with MNOs allows mobile payments to reach the largest number of people. However, the World Bank should also propose oversight into MNOs as they become mobile money providers.
We propose MNOs over other entities because we believe that they are less likely than other entities to perpetuate the existing inequality in the financial sector. As it stands today, the players in the financial sector have not sought to include those who are the base of the pyramid in rural communities. Seeking high margin businesses, banks and associated entities continue to pursue business in the urban centers, and (whether purposefully or not) chosen not to develop resources or processes that would enable them to serve best serve rural communities. However, with the scale required to operate a mobile network, MNOs have developed the resources and processes that enable them to meet these user needs. From India’s UPI example, we see that mobile payments will be no different. Once forced by the government to open accounts for all customers, banks struggled. We worry that should the same happen here, it may not be long before they stop trying. Finally, given MNOs will likely use telephone numbers to identify accounts and enables users to send money, there will be greater higher interoperability than if bank accounts were to lead the mobile payment scheme. Interoperability is desirable because it fosters more inclusion as people will be able to send money across the various MNOs and banks that consumers use.
However, MNOs should not be able to operate unrestrained, and bank account ownership should still be a goal of the system. Without significant regulation, an MNO like Safaricom in Kenya could gain a monopolistic hold on the mobile payment market. This could be detrimental to the overall economy because they could charge users higher transactions fees or squeeze profits from agents that facilitate or merchants that use their services. Government regulation can work to decrease the chance of a monopolistic product like M-Pesa. Using regulation to slow the quasi-exponential growth of services (fueled by network effects) hinders the ability of quick monopolistic growth with the added benefit of encouraging MNOs to work with banks and putting in place customer protections. For example, licensing and Know Your Customer requirements will make sure the MNOs have the right structures in place to avoid system misuse or compromises. Additionally, account balance limits can help encourage users to create bank accounts as their needs and account balances expand. While these regulations will hinder growth in the short term, they will make sure that the service grows safely in a way that helps society.
As consumer advocacy groups charged with giving a voice to individuals in society, we ask for the World Bank’s support in advocating for an MNO-led mobile payment schema.
