Mobile money business- Regulation the missing link

Terence Zimwara

Zimbabwe has joined the latest innovation of mobile money services as mobile phone companies and others try to cash in on the so called unbanked part of the population.

Econet Wireless the country’s largest telecommunications company has taken the lead with its Ecocash platform. 

According to Econet Wireless Services chief executive officer Darlington Mandivenga at least US$100 million is transferred from the country’s urban centres to rural areas every month highlighting one very important aspect of this business- financial inclusion.

Other telecoms companies do offer mobile money services but their services remain limited due to their smaller number of subscribers. Concerns though remain about the apparent unregulated nature of this mobile money business.

On the plus side mobile money transacting actually helps meet the central objective of financial inclusion as well as ensuring financial transactions are conducted in the formal system.

Previously, estimates had variously placed the amount of money circulating outside the banking system at over US$3 billion and banks could not attract this money because confidence in the banking system as we know it is still low.

Mobile phone companies on the other hand are not associated with the poor reputation banks built for themselves during the 2000s. Their hands are clean so to speak hence the apparent embrace of this service by the general population as well as businesses.

However the question still stands: Who exactly regulates the mobile money business? Is it the Reserve Bank of Zimbabwe (RBZ) or perhaps the Posts and Telecommunication Regulatory Authority of Zimbabwe (POTRAZ).

POTRAZ is well placed since it is the regulatory body of all telecoms operators yet it does have the skill, expertise or legal mandate to conduct financial regulation.

RBZ is on the other hand is the only recognised financial services regulator but unfortunately mobile phone companies are not exactly governed by the Banking Act. Which is why many experts are concerned that if these companies remain unregulated a number of problems may lie ahead.

To illustrate, in Uganda the mobile money business has been successful with MTN Uganda leading the charge. However, this company recently suffered major losses when some its employees stole nine billion shillings (US$340000) after taking advantage of a hitch in the money transfer system.

If a bank were to suffer a similar fate then a central bank of that country would have to get involved in cleaning up the this company. The central bank may place the affected institutions under supervision or even force managerial changes to ensure customers’ funds are not further hit.

However, in this case the central bank of that country, Bank of Uganda (BoJ), could not intervene and MTN had to conduct its own internal investigation. After that the company said it had punished the offenders and that it had added new features to enhance safety of the platform.

However the public does know just how far the internal inquiry went or how much did the company actually tell about its losses.

In the absence of a well mandated regulator it is very difficult to believe that a profit seeking companies will always act with the interest of public at heart.

Such cases of fraud will still happen including in Zimbabwe  if the regulation of mobile money operators is not dealt with now.

In addition to a possibility of fraud, Zimbabwe has its peculiar issues that may yet play out again in this mobile money business.

The central bank and the ministry of finance have repeatedly clashed with banks over the fees they charge clients. The high service charges levied on clients as well as the low interest on deposits partly contributed to the loss of confidence in the financial system.

In fact most low income earners are still reluctant to embrace the banking once again because of these high banking charges and the nearly zero interest.

Already the government has declared that starting this year banks cannot charge fees for deposits of US$800 or less. However mobile money operators seem to be exempt from this yet there has been a clamour already by some that the transaction charges for transferring money seem quite exorbitant.

And the question that begs for an answer is how Econet and others, for instance, arrive at what they levy customers for using their mobile money service platforms?

This is very important because this is one issue that contributed to the erosion of trust in banks by the general populace most of whom survive on meagre incomes.

If the perception that the charges levied by mobile money operators, are exorbitant grows, then growth of this business will be curtailed in the long term.

The other question concerns the use of customers’ funds. Banks are allowed by law to invest deposits mobilised in approved assets like treasury bills, certificates of deposits, bonds etc.

Where does the mobile money operator invest or keep customers’ funds? If at all the funds are invested, how will the mobile operator share the interest earned?

Financial institutions now feeling the heat from government, are asking for mobile money operators to be regulated vigorously as well so as to ‘level the playing field’.

Their argument is that, mobile money operators are essentially conducting a banking business by another name, yet they are never asked to meet certain conditions like minimum capital requirements as do normal banks.

 Of course banks may not be pleased with the competition from the new players but their argument does have some merit.

Mobile money business is quite an innovation for Africa and the traditional western economies may not provide answers on how to get around this. Local financial experts will have to try and find a long lasting solution to this, otherwise this novel business might just get trapped in this straitjacket and not grow further.