Africa leads the way with mobile money where financial value stored on electronic devices can be used for transactions outside the banking system. But overregulation could stop the innovation in its tracks.
In the developed world, it’s easy to take the banking services we use every day for granted. But the residents of developing nations are not so fortunate.
In Malawi, for example, four-fifths of the population don’t have access to an account at a formal banking institution and cash remains the dominant form of payment.
However, mobile phone companies are stepping in to provide the services that banks can’t. By allowing small sums of money – such as $50 – to be credited to mobile phones in the same way that pre-paid call plans are, customers can send the ‘money’ via a text code to other mobile phone owners, who can redeem the cash at their own local store.
The service is known as mobile money and is now used by 61 million people in 84 countries, according to figures cited in The Regulation of Mobile Money in Malawi by UNSW Scientia Professor Ross Buckley – the King & Wood Mallesons chair of international finance law at UNSW and two UNSW research fellows, Jonathan Greenacre and Louise Malady.
According to Professor Buckley and his colleagues these transactions create challenges for regulators because they involve non-bank institutions performing many of the functions traditionally performed by banks, especially the provision of payment services.
“When the regulators get involved, it generally stops it dead because the amounts are very small, the profits are therefore very small, and the minute you impose a regulatory burden, it’s a big expense.”
Buckley says regulators need to respond in two ways. First, they must take an “enabling approach” to help mobile money to grow safely.
Second, they must adopt a “proportionate approach”, where the costs of regulation to the regulator, market participants and consumers is in proportion to the risks and benefits of mobile money. Overly burdensome regulation risks stifling the development of mobile money.
Buckley is now working with regulators in East Timor to facilitate the payment of government welfare payments via mobile phones, rather than forcing recipients to forgo a day’s income to travel to and from the bank and wait in line.
Read the full story at UNSW's Business Think.