I think I got invited along because of Consult Hyperion’s work for Vodafone on the M-PESA project, which was discussed (in the report and in the seminar) as an example of a successful scheme. We talked about the customer numbers before, but just bear in mind that in Kenya M-PESA has 477 agents online already: for comparison purposes note that there are only 600 ATMs, 450 bank branches and 350 Western Union agents in the entire country.
There were a couple of points raised during the presentations and the discussions that followed that I thought were worth remarking on. First of all, Diane made the point that for the countries under discussion remittances are greater than foreign direct investment, which points to the potential economic impact of more efficient and more cost-effective remittance systems based on mobile phones. Secondly, Howard said that regulation should not restrict the operation of these new schemes to too small a scale to have an impact, a point that I strongly agree with.
The report calls existing banking regulation inappropriate for the growth of m-transaction schemes. Vodafone, Nokia and Nokia Siemens Networks (who commissioned the report) are calling for the report’s recommendations to be implemented in developing countries. There are:
- Review of deposit taking. Current regulation of deposit taking is shaped around the needs of banks and at present mobile systems are limited in the size of transaction they can undertake. Deposit taking regulation needs to allow new entry on a larger scale by m-transactions operators. I think that in practice this means taking regulatory constructs such as the ELMI/PI into developing countries.
- Access to the clearing system. As new entrants, m-transactions operators must be able to access the clearing system. I’m not so sure about this one. If I run a clearing system, giving direct access to people other than banks is a big step. Perhaps calling for transparent cost-based access to clearing services might be a first step.
- Adaptation of ‘know your customer’ and anti-money laundering, ‘Know your customer’ and anti-money laundering rules need to be adapted to conditions in developing markets where formal documentation and access to photocopiers is limited. The customer data held by mobile operators could, with appropriate safeguards, offer an alternative to existing forms of regulation. Howard talked this through yesterday and I thought it wasa very interesting suggestion and a potential very practical way of moving forward. Definitely something for more consideration in my opinion.
- Interoperability of m-transaction schemes. Interoperability of m-transactions schemes must be carefully considered to enable operators to benefit from network effects but ensure that the intensity of competition in new markets and need for innovation is not stifled. As always, I’d like to leave this to the market but I accept the obvious complication that in some developing countries there is no market-supporting structure (eg, property rights). In the future it may become necessary to regulate to force dominant operators to open up, but I think that that’s a long way away.
All things considered, the development of m-transaction services is also expected to introduce significant improvements in financial services, such as easier and cheaper international payments especially for remittances home, or reduced risk in domestic payments by near real-time transfers. Whichever way you look at it, that’s a good thing. An excellent report, and an excellent breakfast seminar as well.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]