Payment Innovation Team's newest member, Marcella Willis, put this great presentation together for our colleagues at USAID Mobile Solutions. It hones in on the delicate equation of striking the right balance between financial inclusion and AML/CTF regulation among other topics. Check it out!

1. Mobile Money
Cautious Optimism
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2. What is “mobile money?”
• No fixed definition exists. Some describe it
as a “service” for accessing financial services.
• Here, we talk of it as a type of “electronic
money:”
– Simplified: mMoney is money in digital form accessed through a mobile phone.
– A bit more detailed: mMoney is an electronic store of monetary value that is used and
accessed through a mobile phone that is:
• accepted as a means of payment;
• mirrored by an equivalent store of money held by a regulated bank in trust; and
• redeemable for cash.
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3. So what can you do with
mMoney?
Technically speaking, mMoney allows:
– Transfers - person-to-person, domestic and international
– Payment transactions - bill payments, merchant payments,
micro-insurance premium payments, airtime top-ups, online
payments, ticketing, loan repayments
– Disbursement transactions - bulk payments, including salary
payments, government-to-person payments, and loan
disbursements
– Conversion transactions - transactions converting money
between digital and hard forms, such as cash-in and cash-out
transactions and transfers between bank and mobile money
accounts.
– Administrative transactions - PIN resets and balance inquiries
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4. In other words, w/ mMoney
you can…
In terms of utility and value-added services, it allows you to:
– Send money to friends and family
– Pay merchants for goods
– Receive payments from customers for goods
– Make utility payments for water and electricity
– Pay taxes
– Receive salary, pension, welfare, and emergency payments
– Receive a loan disbursement and make loan payments
– Receive insurance disbursements and make premium payments
– Access fee-for-service products, such as solar power (mKopa),
clean water, and health or agriculture information
– Receive payments from and make payments to business
suppliers
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5. Why does mMoney matter to
economic development?
At a macro-level:
– mMoney ecosystems enable a means to dramatically
deepen financial inclusion;
– achieve inclusive economic growth; and
– reinforce efforts to increase the financial system’s
stability, integrity, and level of protection offered to users
of financial services.
– Notable statistics:
• Higher use of electronic payments (cards, etc.) has contributed
on average to an 0.8 percent increase in GDP (Moodys)
• Each ICT-sector job created leads to 2.42 additional jobs in other
sectors in Latin America (WEF)
• Mobile financial services in Pakistan have contributed to rise in
financial inclusion from 20% to 41% (Boston Consulting Group)
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6. At a micro-level:
– Protects Against Income Shocks:
• In Kenya, negates affect of negative income shocks
(equivalent in value to 3-4% of annual household income)
– Yields Income Growth and Time Savings:
• In Nigeria, mobile-based social transfers saved time equal in
value to grain necessary to feed five people for a day
• Income growth attributed to the use of mobile: 19% for
potato farmers in India, 29% for grain traders in Niger, and
36% for banana farmers in Uganda
– Allows Safe Money Transfers In Challenging Environments:
• In Sudan, 92% of adults w/ mMoney have no bank account.
• In Somalia, average number of transactions is higher than
global average, with P2P alone accounting for 23 per month
Why does mMoney matter to
economic development?
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7. Why USAID Supports e-Payments and
Mobile Money
Foster cost savings and improve aid efficiency
Increase transparency and reduce leakage
and waste
Reduce security risks to program staff
Improve access to financial services for the
poor and unbanked
Catalyze development of new and innovative
financial products for the poor and unbanked
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8. mMoney has
grown fast & a lot
• Esp. in East Africa
– 4 countries have more mMoney accounts than
bank accounts
• Worldwide…
– 190 mMoney deployments exist (41 new in 2012)
– In 28 countries, more mMoney agent outlets than
bank branches
– 6 have had more than 1m active users
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9. But growth
has been uneven
• GSMA’s 2-tier
landscape (14
fast-growing
deployments across 10 countries)
• Fast-growers tend to:
– Focus on 1 or 2 key services made possible by mMoney
– Invest adequately in tech platform and agent network
– Partner effectively w/ stakeholders (clear objectives, roles, etc.)
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10. What’s unique about
M-PESA’s success in Kenya?
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11. M-PESA: “the moon and
stars align”
• MNO led – Safaricom, Vodafone affiliate
• Highest market share of 4 MNOs
• Loyal customer base
• DFID incentivizes with matching grant
Initiators
• Rural/Urban Spread 78%/22%
• High mobile penetration 74%
• Low bank access 19%
• Cultural norm of sending money to family
• Payment channel most used: bus on 8%
paved roads
Market
Context
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12. Traditional money transfer
channel in Kenya!
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13. Initial Keys to Success
Trustworthy
Brand
Proper
Pricing
Robust Agent
Channel
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14. How it Works in a Nutshell
http://youtu.be/nEZ30K5dBWU
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15. M-PESA Key Statistics
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
50,000,000
Total Population Adult population <15 M-PESA customers 30 day active
customers
Population compared to M-PESA customers
Total Population
Adult population <15
M-PESA customers
30 day active customers
2012 Population data, IndexMundi
2013 M-PESA data, Safaricom
69% of the
adult
population
are M-PESA
customers
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16. More M-PESA Products
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17. Kenyan Journey to Digital
Financial Inclusion, 2013
• 23 mn+ mobile money
users or 74% adult pop
• 31% Kenyan GDP
transacted through MM
• US$ 29.3 average value
per transaction
• US$1.6b (142b Kshs in
MM transactions in
April
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18. Highlights: Kenya’s Regulatory
Transition
2006: Safaricom approaches CBK
2007: CBK issues "letter of No Objection” (not a bank product)
2009: CBK permits 3rd party agents
2010: M-Kesho bank products permitted with Equity Bank
2011: Ntl bill grants CBK power of oversight over payment systems
2013: CBK consults public on E-money regulations
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19. M-KESHO vs. M-SHWARI
• Launched May 2010
• Offers interest bearing savings and
micro-loans
• Associated bank: Equity Bank
Key Differences:
• Equity, retail bank w/strong brand
ambitions (rivaling Safaricom)
• Full fledged bank account without
limits on balance
• Higher fees on transfers between M-
PESA and M-KESHO accounts
• Launched Nov 2012
• Offers interest bearing savings
and micro-loans
• Associated bank: Commercial
Bank of Africa (CBA)
Key Differences:
• CBA, corporate bank w/no low
end retail market and no branding
ambitions
• Without retail presence CBA relies
on Safaricom KYC thus not a full-
fledged bank account –
transactions are thus limited –
only doubling M-PESA balance
• No fees on transfers between M-
PESA and M-SHWARI accounts
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20. Increasing Financial Inclusion
with Effective mMoney
Regulatory Framework
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21. Key Players: Financial Action
Task Force (FATF), 1989
Revised in 2013, presents
“FATF Standards that are
relevant when promoting
financial inclusion and
explicit the flexibility that
the Standards offer, in
particular the risk-based
approach (RBA), enabling
jurisdictions to craft
effective and appropriate
controls.”
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22. Key Players: G20, 1999
G20 Toronto Summit June
2010, issues Principles for
Innovative Financial Inclusion:
• Principle 8: Emphasizes
proportional framework.
• Principle 9: Emphasizes
support for
appropriate, flexible, risk-
based framework; agents;
e-money; interoperability.
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23. Key Players, Alliance for
Financial Inclusions (AFI), 2008
Signed in 2011 by 80+
institutions agreeing to
make commitments in 4
broad areas to increase
financial inclusion including
“implementation of a
proportional framework” of
regulations .
“Balancing Integrity and Inclusion”
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24. Bank vs. Non-Bank Models
of MM
Bank based
Clients have claim to value indicated in
mobile money system
Value is linked to individual retail accounts in
core banking system (may or may not be
“real time”)
Bank utilizes funds in accordance with
regulations, i.e. they intermediate
Funds are “as safe” as the bank is sound
provided the two systems are adequately
integrated
Non-bank based
Clients have claim to electronic value
Electronic value is issued by non-bank, and is
usually backed 100% by one or more bank
accounts
Funds must be clearly delineated as property
of customers and not of issuer
Funds may not be used by non-bank, but
Funds may be used by banks in accordance
with regulations and terms
Funds are “as safe” as the bank is sound
provided the 100% backing is controlled and
maintained
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25. Broad Regulatory Issues:
Prudential & Systemic Issues
Safety of funds
Transaction speed and security
Settlement procedures
Anti Money Laundering (AML)/Combatting the Financing of Terrorism (CFT)
Customer Due Diligence/Know Your Customer
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26. Key Regulatory Issue:
Anti Money Laundering
(AML)/Combatting the Financing of
Terrorism (CFT)
Consensus proposes a risk-based approach proportionate
to perceived risk
Contrary to cash, mobile transactions provide electronic
records
Monitoring continues to put limits on transactions
regarding suspicious activity, volume, frequency, number
of accounts
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27. Key Regulatory Issue:
AML/CFT
“Little evidence thus far of money laundering or terrorist
financing using mobile money: There have been no cases of
money laundering through mobile money services in
countries where these services have thrived, and there have
been no reports of terrorist financing. World Bank research
indicates that, so far, mobile money has been of little interest
to criminals or terrorists compared to other payment
channels such as cash or the Internet. Although no payment
system can be 100% free of abuse, it is important to gather
data that measures the attractiveness of a particular system
to criminal activity.”
Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile
Money for the Unbanked, February 2013 27

28. Key Regulatory Issue: Customer Due
Diligence (CDD)/Know Your Customer
(KYC)
Consensus proposes a risk-based approach proportionate
to perceived risk
Where customer data cannot be reliably verified, apply
alternative risk mitigation measures
Example: in Fiji, people lack national identity cards, MNOs
and agents allowed to use a “referee letter” to verify
customer identity
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29. Key Regulatory Issue: CDD/KYC
“Specifically, if mobile money is to contribute to financial
inclusion, regulators have to consider that the average
mobile money customer, particularly the
unbanked, maintains a low account balance, conducts
relatively small transactions, and, in many countries, lacks a
permanent address and/or government-issued
identification. The average value of peer-to-peer (P2P)
transfers is US$35 per transaction.”
Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile
Money for the Unbanked, February 2013 29

30. Key Regulatory Issue:
New Challenges to Consumer Protection
Distance btwn
Providers &
Customers
Third Party/Agent
Roles
Tech Solutions for
data security &
privacy
Transparency on
redress mechanisms
& pricing
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31. Key Regulatory Issue:
Consumer Protection Mechanisms
Agent role to be clearly defined and agents monitored and
liable to maintain funds and customer privacy
Dispute resolution policies and procedures robust for call
center support, claims of loss or fraud
Transparent pricing and real time confirmation of
transactions
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32. Key Regulatory Issue:
Third Parties & Agent Networks
To achieve financial inclusion banks & non-banks need to
outsource to lower costs (KYC, collection & disbursement)
Most regulators allow provider & third parties to negotiate
freely, but require roles & responsibilities to be clearly and
contractually defined based on set standards
Provider is liable for selecting, training, and monitoring
agents with mitigating procedures proportionate to risk
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33. What people are saying…
On creating a level playing field to leave the choice to users:
“From the regulator’s perspective, the concerns
involved in allowing mobile operators to offer
payment services can be easily addressed. In
fact, there is not a trade-off between the
participation of financial intermediaries and
mobile operators. [...] In the end, by allowing all
types of participants, the financial regulator
leaves the market to figure out what works
best, and the customers will benefit from the
result.”
Narda Sotomayor
Head of the Microfinance Analysis Department
Superintendencia de Banca, Seguros y AFP, Peru
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34. What people are saying…
On mobile money and monetary policy:
“Although electronic money has become more important in
some countries, the impact of these developments on the
composition of the monetary base is considered negligible
thus far. Moreover, even if the usage of electronic money
were to expand massively, there would still be various ways
in which central banks could preserve a tight link between
electronic money and central bank money and to keep
control over short-term rates. Most central banks therefore
judge that the influence of innovations in retail payments
on monetary policy is neutral or of low importance.”
Working Group on Innovations in Retail Payments
Committee on Payment and Settlement Systems
Bank for International Settlements (BIS)
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35. mMoney ≠ Bitcoin
• mMoney
– Regulated by
gov’t/central bank
– Tied to gov’t-backed
currency
– Use requires
registration, due
diligence, and systems
for monitoring
suspicious activity
– Use produces multiple
transaction records
• BitCoin
– Unregulated
– Decentralized, P2P
network virtual currency
– Exists in parallel to gov’t-
backed currency
– Anonymity possible
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36. Sources
Sources Referenced:
1. Safaricom Ltd, FY 2013
Presentation, http://www.safaricom.co.ke/images/Downloads/Resources_Downloads/FY_2013_Results_Presentation.pdf
2. Ignacio Mas and Amolo Ng’weno, Bill & Melinda Gates Foundation, 2009, “Three keys to M-PESA’s success: Branding, channel
management and pricing”, http://www.gsma.com/mobilefordevelopment/wp-
content/uploads/2012/03/keystompesassuccess4jan69.pdf
3. The Kenyan Journey to Digital Financial Inclusion and infographic, GSMA, 2013, http://www.gsma.com/mobilefordevelopment/mmu-
releases-infographic-on-the-kenyan-experience-with-mobile-money
4. FATF, “Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion, 2013, http://www.fatf-
gafi.org/topics/financialinclusion/documents/revisedguidanceonamlcftandfinancialinclusion.html
5. Alliance for Financial Inclusion, “Bringing Smart Policies to Life, The basics: Mobile phone financial services”, 2010 http://www.afi-
global.org/policy-areas/balancing-integrity-and-inclusion
6. Simone di Castri, “Mobile Money: Enabling Regulatory Solutions,” GSMA: Mobile Money for the Unbanked, February 2013, available at
http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/02/MMU-Enabling-Regulatory-Solutions-di-Castri-2013.pdf
7. PFIP/UNCDF, “Some thoughts on mobile money regulation” internal presentation prepared for Bank of Papua New Guinea, 2011.
8. G20, Toronto Summit, 2010, “Principle of Financial Inclusion” http://www.g20.utoronto.ca/2010/to-principles.html
9. Maya Declaration signed in 2011: http://www.afi-global.org/maya-declaration
10. Ignacio Mas and Tonny Omwansa, NexThought Monday - A Close Look at Safaricom’s M-Shwari: Mobile, yes, but how ‘cool’ is it for
customers?, December 10, 2012, http://www.nextbillion.net/blogpost.aspx?blogid=3050
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37. Sources
Additional Sources Available:
10. USAID, “Mobile Financial Services Risk Matrix,” 2010, http://www.gsma.com/mobilefordevelopment/wp-
content/uploads/2012/06/mobilefinancialservicesriskmatrix100723.pdf.
11. CGAP, “AML/CFT: Strengthening Financial Inclusion and Integrity,” August 2009, available at
http://www.cgap.org/publications/amlcft-strengthening-financial-inclusion-and-integrity.
12. CGAP, “Protecting Branchless Banking Consumers: Policy Objectives and Regulatory Options,”
http://www.cgap.org/publications/protecting-branchless-banking-consumers.
13. United Nations Conference on Trade and Development (UNCTAD), “Mobile Money for Business Development in the East Africa
Community: A Comparative Study of Existing Platforms and Regulations,” UNCTAD, 2012, available at
http://unctad.org/en/PublicationsLibrary/dtlstict2012d2_en.pdf.
14. Marina Solin and Andrew Zernan, “Mobile Money: Methodology for Assessing Money Laundering and Terrorist Financing
Risks,” GSMA: Discussion Paper, January 2010, available at
http://www.mymms.nfcmobilemoneysummit.com/mobilefordevelopment/wp-content/uploads/2012/06/amlfinal58.pdf.
15. Beth Jenkins, “Developing Mobile Money Ecosystems,” IFC, 2008, available at http://www.hks.harvard.edu/m-
rcbg/papers/jenkins_mobile_money_summer_008.pdf.
16. (Great chart on page 8 on stakeholders and their assets/capabilities, incentives, roles, and constraints.)
17. BFA (for Better Than Cash Alliance), “The Journey Toward ‘Cash Lite’: Addressing Poverty, Saving Money and Increasing
Transparency by Accelerating the Shift to Electronic Payments,” Better Than Cash Alliance, 2012, available at
http://betterthancash.org/wp-content/uploads/2012/09/BetterThanCashAlliance-JourneyTowardCashLite.pdf.
18. Tim Hatt, Martin Harris, and Adam Wills, “Scaling Mobile for Development: A Developing World Opportunity,” GSMA: Mobile
for Development Intelligence, Interim Report, April
2013, https://mobiledevelopmentintelligence.com/insight/Scaling_Mobile_for_Development:_A_developing_world_opportun
ity.
19. Claire Pénicaud, “State of the Industry: Results from the 2012 Global Mobile Money Adoption Survey,” GSMA: Mobile Money
for the Unbanked, available at http://www.gsma.com/mobilefordevelopment/wp-
content/uploads/2013/02/MMU_State_of_industry.pdf.
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