Industry News

Must Read of the Week:

Recently the traditional sending of remittances has been under attack from FinTechs. Companies like TransferWise, Xoom, and WorldRemit have utilized technology, superior user experience, and lower prices to compete with more traditional players – banks and Western Union, for instance – over the $582 billion global market. However, such disruption has not gone unnoticed and some country’s regulators are wary of the new entrants. In a recent move, the Central Bank of Nigeria (CBN) – a country who received an estimated $21 billion of remittances in 2015 – issued a new directive that will require the vast majority of the country’s money transfer operators (MTO) to suspend operations.

The CBN has a reputation for being a ‘hands-on’ regulator, and their focus on the role of MTOs in the country is not new. Last year, per Quartz, CBN issued a directive that all MTOs must be:

  • Operational in 20 countries;
  • Have a net worth of $1 billion; and
  • Have at least 10 years of working experience

The above are intended to be prohibitive requirements, especially for new FinTech companies who have been in business several years.

Per Quartz, the new regulation builds on those made in 2015 and “targets money transfer companies that work through local partners and do not have their own infrastructure to remit foreign currency to banks. Effectively it means all but a handful of MTOs that fulfill the central bank’s stiff requirements will have to close.”

In our work, we often see the struggle faced by regulators with the ‘inclusion vs. integrity’ debate. While the priority of central banks will always be to secure the safety of the payments ecosystem, they should not be overbearing and unduly shape the market and products offered (within reason, of course). While CBN may argue that more traditional players can best provide security, we believe this move to be shortsighted and incorrect. TransferWise, for instance, is an established company who is operating in 38 different currencies around the world – and several other companies share their global coverage. Unfortunately, in the case of Nigeria, ultimately the population and diaspora suffers the most – we hope that CBN reverses their decision shortly.

Read the article here: http://qz.com/750156/nigerias-central-bank-wants-to-keep-remittances-expensive/

Read the directive here: https://www.cbn.gov.ng/Out/2016/TED/TED.FEM.FPC.GEN.01.004.pdf

Other News:

Credit:

India: An Indian Start for Digital Credit

Nigeria: Nigeria’s New Collateral Registry Aims to Increase Access to Finance for Small Business

Technology:

Africa: Smartphone Use Has Doubled in Africa in Two Years

FinTech:

Africa: FinTech isn’t Disrupting Africa’s Financial Industry – It’s Building It

Industry News

Written by Justin Ahmed

Must Read of the Week:

A great deal of hype has surrounded the emergence of blockchain technology and its potential to disrupt and transform financial services industries across the globe – lowering the costs and complexities of transactions, improving transparency, and supporting service delivery to the unbanked. Still, maybe not enough attention has been paid to its potential to alter enterprise management structures, networked business models, and consumer-company dynamics at their very core.

In an article for the Harvard Business Review, Don and Alex Tapscott reveal some of their key findings from a two-year research project spanning hundreds of interviews with blockchain experts. The authors expound upon blockchain’s power to shift business, government, and society in ways even more profound than the advent of the internet. Central to such power is the ability to impart productivity gains while eliminating the need trusted intermediaries. For example, smart contracts (software programs that self-execute complex instructions) and autonomous agents (bundles of smart contracts acting like rich applications) are such applications which can eliminate contracting, payment, agency, and coordination costs and facilitate structural shifts in enterprise management.

Much of the focus of blockchain technology in the context of global development has been on applications improving efficiency of financial services (e.g. remittance platforms offered by BitPesa in Kenya and by Rebit and coins.ph in the Philippines) and on increased transparency and capacity of public service providers (e.g. for land registry as provided by Factom in Honduras and Bitland in West Africa). However, start-ups have emerged across the blockchain space for ends as diverse as protection of intellectual property, crowd-sourcing project management, and expansion of “sharing economy” infrastructure. Some multinationals have themselves taken up the call to adapt to and anticipate the shift, as Visa has through the launch of an innovation laboratory in Bangalore solely dedicated to global blockchain technology development. As the article’s authors recognize, the individual control and immutability afforded by distributed ledgers holds implications for management, collaboration, exchange, and ownership across increasingly-integrated segments of the economy across the developing world.

Read the article here, or purchase their book on the same subject released this week: Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business and the World.

Other News:

Financial Inclusion

Peru: 34 Peruvian savings banks have launched a fully-interoperable national e-wallet system, “Billetera movil” (BIM)

Pakistan: Enclude partner, Karandaaz Pakistan, part of a consortium to set up USD 58 million Pakistan Microfinance Investment Company (PMIC)

Fraud

Bangladesh: $81 million Bangladesh Bank heist linked to 2014 Sony hack and additional SWIFT breaches

Global: Kount’s ‘Nine Deadly Costs of Fraud’

United States: Lending Club facing questions concerning executive leadership, stock prices, and the future of its entire lending niche

Wearables / Financial Responsibility

United States: Intelligent Environments releases Pavlov-inspired electro-shocking bracelet to support financial responsibility

Financial Regulations for Improving Financial Inclusion

 Written by Rebecca Marx, Victoria Rau, and Paul Newall

Banking Beyond Branches has published many blogs highlighting how digital financial services (DFS) can expand financial inclusion, including through refugee populations, budget smartphones, and remittances. We also called attention to government policies toward financial inclusion as a key trend in 2016 and our prediction has been complemented by the Center for Global Development’s latest release: Financial Regulations for Improving Financial Inclusion.

A key focus for the report is examining the complexities in the ex-ante vs. ex-post debate on regulations – akin to tightrope walking for regulators. As we see in markets such as Nigeria and India, ex-ante policies may often inhibit the industry with too many regulations from the get-go. Ex-post regulation, on the other hand, may be too late to respond to issues. The key to this debate, some argue, is to allow the market to get out ahead, but keep it “within shouting distance”, as phrased by Marisa Lago, US Department of Treasury. In particular, the question of interoperability is of central concern – should the market evolve to interoperability naturally (presuming it does), or should it be mandated? Regulators want to ensure that the market will advance through competitive market mechanisms, but “maintain the capacity to be interoperable”.

Balancing proactive ex-ante regulation with reactive ex-post regulation and maintaining a level competitive landscape feature strongly in the report. The recommendations are intentionally agnostic to the technologies and players involved in providing financial services. They state that banks introducing additional mobile channels should still be scrutinized as banks, while digital services providers entering the market should be scrutinized more or less depending on the types of services they intend to provide, i.e. adopting a ‘service’ risk-based approach to regulation.

If it is anticipated that greater financial inclusion will be achieved by “disruptive” technologies in payments and financial services, as we would argue on this blog, then trying to regulate the payments industry as it advances is going to be a key question moving forward. A technology or innovation that truly disrupts does not announce its arrival with enough lead-time for regulators to anticipate the potential consequences or develop the appropriate regulatory framework. Innovative ways of paying for goods and services and storing or transferring money can just show up and are often out of “shouting distance” quite quickly. They disrupt the status quo and challenge existing rules, but who knows if they will gain enough traction to stay.

To analyze the role of ex-ante vs. ex-post regulations, and how central banks respond to disruptive technology, we need not look further than Kenya (whose former Central Bank Governor was a key contributor to this report). While lauded as the predominant mobile money case study, Kenya has had its own regulatory questions to answer. In 2014, the Communication Authority of Kenya (CAK) required Safaricom to allow its mobile money agent to host services from other operators but market competitor Airtel pushed regulators to go even further.  Airtel, asserting that mobile cash transfers from M-Pesa to Airtel Money are twice as expensive as transactions between Safaricom customers, wants to see regulators monitoring interoperability costs in order to reduce barriers to entering the market for other operators.

In July 2015, the government introduced new regulations that, if passed, would lead to the break-up of Safaricom in an effort to protect against monopolies. Fred Matiang’I, the cabinet secretary at the Ministry of Information said, “Telecommunications firms need to be regulated to ensure some players are not strangled”. If the regulation is passed it could force Safaricom to separate M-Pesa from its mobile phone services and infrastructure business, to the glee of Airtel.  In September 2015, Airtel chief executive Mr. Youssefi said, “Airtel is likely to exit Kenya if the market structure is not addressed in terms of dominance”.

While the discussion of M-Pesa’s dominance of the Kenyan market has certainly been elevated, reaction from Kenya’s authorities has been slow. The CAK said it would need at least one-and-a-half years to conduct a study to determine the thresholds of abuse and dominance in the telecommunications industry, and only after that study can anti-competitive practices in the market be addressed. Time will tell if regulatory action will be taken while providers are still “within shouting distance”.

From the above example, we are able to see some of the pros and cons of ex-post regulation. While Safaricom was able to develop themselves into the leading mobile payments players, rivals have felt that the playing field was not level – something ex-ante regulations might have mandated. The report attempts to provide regulators, such as Kenya’s, a framework to address these challenges and chart their path.

How might we best assist refugees? The mobile phone

Written by Paul Newall

The world is facing one of the greatest humanitarian crises since World War II. The United Nation’s Syria Regional Refugee Response estimates there are 4.39 million registered Syrian refugees globally – with the total number being much higher[1] – and that is not even including the refugees from other countries, such as Iraq, Afghanistan, Libya, and Eritrea. While there have been many instances of mass migration in human history, there is one key difference to today’s crisis, and it’s a trend that may provide an avenue to reaching, connecting, and serving those in-need: the mobile phone.

A recent article stated “we can call the huge numbers of refugees arriving in Europe in 2015 the first digitally-driven mass-migration.”[2] To highlight this point, Wael, a Syrian migrant, told Agence France Presse “our phones and power banks are more important for our journey than anything, even more important than food.”[3] According to one study, 86% of Syrian youth in refugee camps have access to a smartphone, and agencies have made it relatively easy to get SIM cards once inside.[4] In Jordan’s Za’atri Syrian Refugee Camp, for example, researchers found that 89% of respondents owned a mobile handset and 85% owned at least one SIM card.[5]

an_aerial_view_of_the_zaatri_refugee_camp

An aerial view of Za’atri refugee camp in Jordan (Photo credit)

At a time when ignorance and fear about the refugees is at an all-time high (Hello, Mr. Trump and Mr. Cruz), the mobile phone can prove the tool to reach these populations and provide a useful lens through which we can better understand them. Through mobile phones, governments/donors can connect to those in-need, allocate cash-transfers, provide health and re-settlement information, and break down any language barrier. We can understand their social circles, their needs, their concerns, and their journey to where they are now.

The above use cases are possible if we find solutions to current questions or concerns (including Anti-Money Laundering /Combating the Financing to Terrorism, fraud, etc.). Using industry best practices, as well as leveraging recent technological innovations, we can move towards the financial inclusion of refugees while maintaining the integrity of the financial ecosystem.

There have been reports of border crossing agents removing mobile phones from refugees upon arrival to their country – it’s hard to imagine a more shortsighted action. We are in a moment when the immediate needs and concerns are so pressing – donors and governments must prioritize utilizing the one common connector between us all: the mobile phone. Responses can be better targeted using the data from the refugees’ mobile phone. Such a targeted, data-driven approach was not available in mass migrations of the past; we must make sure we make the most of this opportunity.

Following this article, we will explore elements such as security, efficiency, technology and inclusion with a series of articles that highlight solutions that could yield big results in assisting refugees.

[1] http://data.unhcr.org/syrianrefugees/regional.php

[2] http://www.zeit.de/gesellschaft/zeitgeschehen/2015-09/smartphones-mobil-phones-refugees-help

[3] http://qz.com/500062/the-most-crucial-item-that-migrants-and-refugees-carry-is-a-smartphone/

[4] http://news.psu.edu/story/350156/2015/03/26/research/ist-researchers-explore-technology-use-syrian-refugee-camp

[5] Maitland, Carleen and Ying, Zu, A Social Informatics Analysis of Refugee Mobile Phone Use: A Case Study of Za’atari Syrian Refugee Camp

Industry News

Written by Justin Ahmed

Must Read of the Week:

GSMA’s State of the Industry Report for Mobile Money 2015 provides a detailed look into the mobile financial services (MFS) industry. The report is an industry bellwether, pointing industry leaders and observers alike to the pressing challenges and opportunities posed to MFS providers in expanding and scaling their offerings.

In 2015, the number of registered mobile money accounts grew by 31% to 411 million accounts, 134 million of which are active. One third of newly registered accounts were opened in South Asia, and 63% of Sub-Saharan account openings came from outside the MFS-pioneering East Africa region. International remittances proved the fastest-growing product in the industry with 52% annual growth, highlighted by 29 cross-border mobile money remittance corridors that connect 19 countries as of December 2015. MFS continues to expand its reach to country’s populations with 37 markets have at least 10 times more registered mobile money agents than bank branches. 

While there was expansion in volume and scope of MFS in 2015, the report draws attention to key challenges inhibiting the industry’s continued growth:

  • Usage patterns remain undiversified, dominated by peer-to-peer (P2P) transfers and airtime top-ups. The value of bill payment / bulk disbursement / merchant payment transactions altogether is the same as last year’s at 24%. While government-to-person (G2P) channels have driven bulk disbursement volumes to new heights, the MFS ecosystems surrounding them continues to `encourage cash-out.
  • The proportion of agents classified as active fell in 2015, to 51% of the total. New tactics are being tested to improve activity rates – with demonstrated success in Mali and Chad – including the broadening of product portfolios, strategic utilization of master agents, and provider collaboration.
  • Adoption amongst women and rural segments remains disproportionately low, unchanged from 2014 at 47% and 37%, respectively. Tiered KYC requirements is just one of many solutions being tested for effectiveness in supporting adoption by women and disadvantaged groups.

We look forward to GSMA’s analysis of adoption of other mobile financial services – mobile insurance, mobile savings, and mobile cred – to be released (and showcased here on the Beyond Branchless Banking blog) in late spring 2016.

Read the report here: http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf

Other News:

Cash

Nigeria: Boost to Country’s Move to Cashless Economy

Global: Why we should fear a cashless world

Security

Global: Fed ‘Lapse’ Details Emerge in Bangladesh Bank Heist Case

Remittances

West Africa: Over 16 million Ecobank and Orange customers can now transfer money using their mobile phones

Uptake

Ghana: Only 14% of Ghanaians happy with mobile money service