Rising cases of fraud and regulatory bottlenecks are blocking banks from going full-throttle on mobile banking platforms across the East African region. In a Mobile Banking Survey released last week by the Kenya Bankers Association (KBA), lenders have cited security concerns, reliability of the system and possible breach of privacy as the biggest concerns in running mobile banking products. The bankers also cited tight regulations and high set-up costs as the other emerging challenges to mobile banking. Seven years after the rollout of Kenya's revolutionary mobile transfer service, M-Pesa, by Safaricom , regional banks are finally starting to treat mobile phones as an important distribution channel. KCB, Diamond Trust Bank , Equity, NIC, Standard Chartered and Barclays banks are among the lenders with a regional presence that use mobile banking services. This is reshaping the future of national payment systems in the region by marrying financial services and technology more closely than it was thought possible. This has boosted the ability of the banks to distribute products cheaply, run the back office and enhance capabilities for cross-selling products. But fraud is emerging as the biggest threat to mobile-banking, a platform seen as a key frontier to growth of the sector. A report by Deloitte East Africa , titled Financial Crime Survey 2013, shows that financial institutions across the region have lost in excess of $30 million to fraud, though the figure could be as high as $89.41 million since most institutions opt not to report cases of fraud. READ: Kenyan banks lose $18.8m to savvy fraudsters KBA said at most banks, to some extent, perceive mobile operators as potential competitors although they were quick to clarify that the mobile operators were not in direct competition because they are registered and licensed by different regulatory bodies and hence conduct different trades. READ: Banks get innovative to beat threat of mobile cash "However, the fact that the mobile operators offer money transfer services that were traditionally left to the banks has led to some business and revenue loss for the banks, to the extent that if left unregulated may have an effect on the larger banking scene," said KBA. Telecoms operators have also intensified their investments in mobile money transfer services, seeking new revenue streams as the voice market matures, leaving little room for growth. Voice, however, remains the major contributor of most of the telcos' revenues. The KBA survey released on Tuesday shows penetration of mobile banking as still low, given Kenya's high use of mobile phones. Data from the Communication Commission of Kenya shows at least 20 million Kenyans use mobile phones. But users of the mobile banking platforms are still faced with operational bottlenecks. "... they cannot transact when the mobile phone network is down, sometimes transactions are not online, some services are not available on mobile banking platform and phone software cannot access some utilities of mobile banking," said KBA chief executive Habil Olaka . The respondents in the survey cited fraud and distrust in third party agents as the greatest fear in mobile money transactions. "Mobile banking face various challenges, among them, system delays by the mobile money transfer service providers, slow processing of transactions especially on weekends, high transaction costs and limits on the amount of money that can be withdrawn in a day," said the survey. KBA, in a series of recommendations on the regulatory challenges, said there is a need to include interfaces between different tiers of service providers (banks and mobile operators), to build the public's confidence in the system. "Lack of clarity and uncertainty is not good for any business or for confidence in the financial systems. By setting the rules clearly, the playing field is more predictable and this will promote further investments and competition," it said. Banks expanding across the region face different challenges in the different markets due to varying regulatory frameworks. "Whenever any banks expand regionally, they fall under the regulatory of the Central banks in those countries. Current efforts to harmonise central banks' operations will help fight regional fraud," said Jared Osoro , the research director at KBA.
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