Mobile Money, Financial Inclusion and Financial Integrity: the South African Case

• Citation: Vol. 8 No. 3
• Publication year: 2013

Washington Journal of Law, Technology and Arts Volume 8, Issue 3 Mobile Money Symposium 2013

Mobile Money, Financial Inclusion and Financial Integrity: The South African Case

Vivienne A. Lawack (fn*) © Vivienne A. Lawack

ABSTRACT

The usage of mobile banking and in particular, payments by means of mobile phones, has increased in recent years in South Africa, with consequent impacts from a legal and regulatory point of view. South Africa is a developing economy with a large "unbanked" sector. That is, a large segment of the population does not have bank accounts and "banking" happens through informal means. This Article deals with the legal and regulatory framework pertaining to mobile money and examines issues relating to financial integrity and financial inclusion as they present themselves in South Africa. The author states that the regulatory framework in South Africa is not entirely conducive to greater financial inclusion and argues for a better balance between the regulation of risk and access to the payment system through an enhanced implementation of a risk-based approach.

TABLE OF CONTENTS

Introduction..................................................................................318

I. Definition of Mobile Money.................................................319

II. Mobile Money in South Africa.............................................320

III. Financial Inclusion and the south African Legal and Regulatory Framework for Mobile Money...........................323

A. The National Payment System (NPS)..............................323

B. Oversight of the NPS.......................................................325

IV. Financial Integrity.................................................................330

A. South Africa .....................................................................330

B. Analysis............................................................................331

1. Customer Identification and Verification...............331

2. The Provision and Verification of a Residential Address...................................................................336

3. Enhancing Financial Inclusion: Exemption 17 and Mobile Money.................................................337

4. Cross-Border Networking......................................342

V. Recommendations.................................................................343

Conclusion...................................................................................344

INTRODUCTION

Mobile banking, and consequently, mobile payments and mobile money are the latest in a myriad of emerging technological innovations in the banking industry. The usage of mobile banking and in particular, payments by means of mobile phones, have increased in recent years in South Africa, with consequent impacts from a legal and regulatory point of view.

South Africa is a developing economy with a large "unbanked" sector. That is, a large segment of the population does not have bank accounts and "banking" happens through informal means. It also appears from latest figures that the penetration level of South Africans with mobile phones is increasing, yet the regulatory framework is not entirely conducive to greater financial inclusion. This Article seeks to examine the legal and regulatory framework pertaining to mobile money and examines issues relating to financial integrity and financial inclusion as they present themselves in South Africa. Regulatory gaps and areas for improvement are highlighted. The author argues for a more flexible approach to regulation in South Africa to enhance financial inclusion through the use of mobile money there.

I. DEFINITION OF MOBILE MONEY

Before one could understand the term "mobile money," it is necessary to understand associated terms that may have bearing on the definition of mobile money. As a form of e-banking,(fn1) "m-banking" is defined as "financial services delivered via mobile networks and performed on a mobile phone. These services may or may not be defined as banking services by the regulator, depending on the legislation of the country in question, as well as on which services are offered."(fn2)

"Mobile money" or "m-money" is a form of electronic money and refers to services that connect consumers financially through mobile phones. Mobile money allows for any mobile phone subscriber-whether banked or unbanked-to deposit value into their mobile account, send value via a simple handset to another mobile subscriber, and allow the recipient to turn that value back into cash easily and cheaply.(fn3) In this way, m-money can be used for both mobile money transfers(fn4) and mobile payments.(fn5) Mobile money transfers are thus included in the definition of mobile money for the purposes of this Article.

II. MOBILE MONEY IN SOUTH AFRICA

Mobile banking has been increasing in South Africa. Several initiatives have emerged for initiating payments from mobile phones by using short messaging services (SMS) or phone calls. Some products use the phone as an access channel through existing bank accounts or payment cards. Meanwhile, other products allow customers to pay using prepaid value stored on their mobile phone or to pay afterwards, where payment for goods or services are additional items on the customer's phone bill or through the use of Near Field Communication (NFC) technology. However, this system was only piloted once within a closed system during a music festival called "Oppikoppi" and on a trial basis by ABSA employees.(fn6)

Initially the four major banks in South Africa were given a wake-up call with the emergence of then-new kid on the block, WIZZIT.(fn7) However, it is apparent that it is now the four biggest commercial banks (Nedbank, First National Bank, Standard Bank, and ABSA) that are the providers of mobile banking services in south Africa through joint ventures with mobile technology companies and retailers. For example, Nedbank and mobile operator Vodacom teamed up to launch M-PESA, a solution that enables person-to-person money transfers via mobile phone, even between persons without bank accounts. This followed the Standard Bank's launch of a similar product, called "Instant Money," a joint venture between the bank and local retailer Spar. Standard Bank also has a joint venture company called "Oltio" between itself and pan-African mobile network operator MTN, which, through its "payD" platform enables customers to purchase products and services online and use their debit cards to pay for the purchase while making use of their mobile phones to enter their personal identification numbers (PINs). First National Bank also entered the fray, launching its "e-Wallet" mobile money transfer solution, which allows customers to send money to anyone in South Africa with a valid mobile phone number. Finally, as stated previously, ABSA Bank conducted South Africa's first live user trial of NFC technology on mobile phones, in a partnership with MasterCard, to embed the "Paypass Tap and Go" payment chip on mobile handsets for the trial. This enabled customers to load funds onto their phones through the ABSA website or ATMs and then to pay for goods or services by merely holding their phones in front of NFC-enabled pay points. The value of their transactions is then immediately debited from their stored value.(fn8)

Mobile devices are well positioned for making payments because the penetration level of digital mobile phones is higher in South Africa than that of computers. Latest figures from Wide World Worx suggest that in 2009 South Africa had a mobile penetration level of about 10.8 percent, which amounted to 5,300,000 users out of a population of 49,052,489.(fn9)

It is interesting that, even though the use of Internet services has exploded in South Africa, less than half of urban mobile phone users who have Internet-enabled phones use the Internet. As many as 9,500,000 South Africans are able to browse the Internet on their phones.(fn10) If they use the Internet, the figure of World Wide Worx would almost double to 9,600,000.(fn11) The potential thus clearly exists for a higher penetration level with respect to Internet-enabled payments through the use of a mobile phone.

It is also interesting to note the inroads that have been made to increase the level of banked South Africans. Between 1993 and 2009, the number of banked South Africans increased remarkably, especially in the black ethnic group. This increase has largely been due to easier access to banking services being provided to people living in informal urban areas and to those earning less than ZAR2,000 a month. The driving force behind the substantial increase was the South African government policy on economic empowerment and the inclusion of targets in the Financial Sector Charter, which led to a proliferation of products and services offered, such as "Mzanzi accounts," ATM cards, debit/check cards, credit cards, savings and transaction accounts, as well as mobile banking.(fn12) Nonetheless, a significant portion of the black population is still unbanked.(fn13)

III. FINANCIAL INCLUSION AND THE SOUTH AFRICAN LEGAL AND REGULATORY FRAMEWORK FOR MOBILE MONEY

The regulatory stance in South Africa has mostly been with reference to electronic money, a subset of e-banking. The legal and regulatory framework with regards to...