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SMART COMPANY: Banks revive battle with mobile money service providers

January 27, 2014


Commercial banks have revived a long-running battle with mobile money service providers over regulation of the financial services sector. The banks are upset by the fact that despite Mobile Network Operators (MNO) offering services similar to theirs, they are not subjected to strict regulations applicable to the banking industry. Through the Kenya Bankers Association (KBA), the banking industry said there is a blurred line between what constitutes taking deposits from customers to effect payments, as done by MNOs, and taking deposits for saving, as done by banks. The argument is that the money paid to a MNO and not withdrawn is usually held as a deposit in a segregated account in one or more banks, yet the operators are not subjected to banking regulations. KBA says there is currently no regulation to extend deposit insurance to customers of e-money accounts held by Mobile Network Operators, a situation that casts doubt on the security of mobile money transfer services. The bankers say extending the benefit of deposit insurance to e-money is necessary to protect the future of mobile-aided transactions from bank failures or financial crisis. "These are concerns that need addressing and reassurance before they exhibit a bottleneck to mobile banking," said KBA chief executive officer Habil Olaka . The remarks came in the wake of increased partnerships between banks and mobile money providers aimed at shoring up mobile banking. A recent study by KBA indicated that 60 per cent of Kenyans are using mobile phone transactions for financial and banking activities because of its convenience."There should be a basic regulation with simple rules to ensure appropriate liquidity and ownership of funds collected against the electronic value issued," said Joy Malala , an economist with KBA's centre for research on financial markets and policy. She said regulations can set minimum standards for fund recovery in the event of insolvency of the bank or of a mobile network operator. Mobile banking space continues to be dominated by Safaricom's M-pesa that has a customer base of about 15 million and accounts for the majority of mobile transfers in the country. Airtel, Orange and Yu mobile also have mobile money transfer platforms that have since placed Kenya as a global leader in adoption of mobile money transfer services. Last year, for instance, Kenyans transacted more than Sh1.7 trillion on their mobile phones in the first 11 months, surpassing the value of the country's 2013/2014 budget. This represented a 23.7 per cent increase from Sh1.4 trillion in the same period in 2012, underlining the extent to which mobile money transfer is entrenched in the country. Mobile transactions nowadays range from transfer of money, payment of bills, school fees and even making savings and borrowing money. Safaricom , the pioneers of mobile money transfers in the country, however said the possibility of such risks having a huge impact on clients is very rare, although it exists. According to the company, the impact can be real only if all the banks in which it holds M-Pesa money are to be insolvent. The money is also held in government securities, considered to be more secure.

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Source: Nation (Kenya)

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