[Dave Birch] Competition is a good thing. Competition in financial services is a good. If society wants a better payments system (which it should, for many reasons) then the way to get it is by creating a regulatory infrastructure that fosters, encourages and perhaps even demands competition in the provision of payment services. This is why the Payment Services Directive (PSD) has a chance of making life better for European consumers. Should that competitive environment embrace banks and non-banks? Yes, it should. If banks and non-banks are to make progress together, then it is not clear that simply leaving them to get on with it is good enough. For one thing, banks in many countries don’t really want to compete, so if there is no explicit regulation to create a competitive landscape then there is a temptation to fall back on the old kind of competition in banking, which means competing and the regulatory level. This is the kind of situation that we see in Africa. Nigeria is a case in point.

Indications have emerged that Nigerian banks have moved against the quest of MTN Nigeria and Zain to obtain M-Banking license operations from the Central Bank of Nigeria (CBN). The regulatory body has only issued one mobile banking operating license to MoneyBoxAfrica to deplore branchless banking services across the country… the refusal of the apex bank to grant the [m-banking] license is as a result of Nigerian banks antagonistic to the idea.

[From ftr-africa.com – Financial Technology Report, Africa]

In Kenya, where the M-PESA mobile payment scheme is massive, the regulator had wisely decided to allow Safaricom to go ahead and launch that service despite bank pressure. The result has been a fantastically successful scheme that has transformed for the better the lives of million of Kenyans. But someone told me that the Kenyan regulator has now decided to revisit the situation and perhaps “tighten up” rules, inspired no doubt by the banks’ genuine concerns for customer protection and the soundness of the in-country remittance market. Incidentally, you may not be aware that M-PESA has been launched in other countries. Afghanistan, for example.

Take Afghan GSM operator Roshan; they recently licensed Safaricom’s hugely successful M-PESA system, and one of the first applications for it is paying the Afghan army.

[From Telco 2.0: March 2009 Archives]

When the alternative is transporting tons of cash through some of the most dangerous highways and byways in the world, the mobile phone offers a millionfold improvement whatever the regulators’ concerns might be. Mobile money is unstoppable.

Some of this drive for more regulation, I’m sure, comes from a genuine desire to protect consumers. A lot more of it, however, is a simply a reflection of the asymmetry between the concentrated power of a few big banks and the diffuse economics power of millions of consumers, an age-old economic problem that is not specifically related to either banking or payments (see, for example, the history of the reform of Britain’s “Corn Laws” in the nineteenth century).

Back in 1996, the Centre for the Study of Financial Innovation (CSFI) published a pamphlet by Michael Taylor calling for the reform of financial services regulation to separate the consumer protection and the stability remits, to create what I recall was then called the “twin peaks” model. Needless to say, this was just one of long series of CSFI ideas ignored by the incoming administration, which had its own ideas about regulatory reform. But I think that central idea is a strong one and deserves to be developed further in the payments world.

As I’ve said in other contexts, this isn’t just about complaining. We should present regulators around the world with a better vision: not only the separation of consumer protection and stability, but the separation of banking and payments. Then, as part of that vision, we can reconstruct an environment for payments that delivers more to the low end, so to speak, but easing the requirements and restrictions of low-value payment services while tightening the restrictions on high-value payments and banking (to comply with FATF and the like).

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

1 comment

  1. Hi David,
    I was reading about the Kenyan banks lobbying the regulator and the phrase that came to mind was “sour grapes”. Now, that its hugely successful the other banks realise they have missed the boat, and run to the regulator.
    It was similar in South Africa after MTN partnered with Standard Bank on their mobile money JV which remains hugely successful and annoyed the hell out of many of their bank competitors. Most of whom finally realise these pioneers have a direct channel to sell the whole gamete of appropriate financial services to an enormous and largely captive audience .
    Great Blog as always,

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