Vodafone and the Nokias team up on banking

Policy makers are being called upon by leading international mobile network operator Vodafone and the world’s number one handset manufacturer Nokia, in combination with its networks sibling Nokia Siemens Network, to change regulations in order to encourage financial transactions via mobile phones.

The pressure for change outlined in a jointly produced report includes details of research by economists from Frontier Economics and Groupe d’Economie Mondiale as well as consultants to the World Bank.

The report claims a lack of access to banking services is currently forcing people to rely on a cash-based economy with little security, a more casual informal labour market and a lower tax base for governments.

Alan Harper, Director of Vodafone Group Strategy, said: “The case for mobile transactions has been well proven by recent pilots. In a country such as Kenya there are 400 bank branches, 600 ATMs and 10 million mobile phones. There is clearly the potential to bring access to finance for hundreds of thousands of individuals for the very first time. However, there is also an increasing need to ensure that current banking regulations do not undermine or limit this growing potential.”

The report concludes that financial services are critical for economic development and inclusive financial services for the unbanked are essential for poverty reduction.

Diane Coyle, author of the report, said: “A regulatory approach that tries to force m-transactions into the existing structure of retail banking regulation and financial supervision could impose high fixed costs and significant compliance problems.”

Emeka Obiodu, telecoms analyst, Global Insight said: “Despite the rational arguments laid out in the report, the call for a new regulatory framework is hardly going to materialise in the medium term. Specifically, unlike in Europe where the paraphernalia of the EU can be used to agree a new regulatory framework, much of the developing world lacks a co-ordinated financial system, making any new cross-border agreements unlikely. Regulators may be moved to legislate for national markets, albeit with great caution against money laundering and fraud. However, cross-border agreements may be more bilateral rather than multi-lateral, with stringent conditions attached to transactions. As a result, mobile payment schemes for large sums may continue to prove elusive in the mid-term, confining any mobile-payment scheme that manages to break through customer apathy limitations to small amounts.”

In the context of the GSMA’s Mobile Money Transfer initiative, an internal study of the regulatory situation in 20 countries was conducted which has shown that the main regulatory barriers for mobile operators being able to bank the unbanked are around ‘know your customer’ rules and anti-money laundering rules. These rules need indeed to be adapted in a proportionate manner if mobile operators are to reach the unbanked. Whilst regulation promoting mobile money transfer services has to be efficient in preventing money laundering it also has to become proportionate to the given risks and allow for a good customer experience. Another crucial area which needs to be reviewed are the rules around outsourcing of cash-handling to non-banks. Only when agents can act on behalf of banks outside bank branches to reach unbanked customers, mobile operators will be able to reach the unbanked via the mobile channel.