A recent Central Bank (CB) statement that a framework for mobile payments would be finalized in 2009 raised much interest in financial and communication circles in the region. The press statement does not make the objectives absolutely clear but it is expected to be an advance on what is available today in the Sri Lankan market.
Based on Sri Lanka’s reputation as the South Asian pioneer in information communication technologies, it is expected that the proposed framework would establish leadership in mobile banking and mobile payments as well. It is expected that Sri Lanka would not simply follow the conservative bank-centric approaches being adopted in Pakistan and India.
The European Union (EU) also did not have a good start. Its e-money directive of 2001 enabled non-banks to issue e-money but it was unduly restrictive in nature and is currently under review. The EU Payment Services Directive of 2007, yet to be implemented, has proposed to deregulate and establish a prudential framework for payment services.
Mobile payments have been seen as the ‘killer application’ since the late 1990’s, but only a few countries like Japan, the Philippines and Kenya have successfully launched this service. Many attempts by operators have failed because of regulatory barriers, lack of interoperability with banks and other operators, service complexity and bad user experience. In the last two years, however, m-payments have become a hot topic again.
Banks and Telcos: Friends or Rivals
Mobile payments should not be seen as a turf war between the financial and telecommunication sectors but as a complement to existing financial services. Banks have a long history of managing money and enjoy the confidence of depositors and businesses. However, the mobile companies have in a very short span of time reached all parts of the countries they operate in, established strong nationwide distribution systems and excelled in handling micro-payments worth millions on a daily basis in the form of top-ups. Mobile operators act as payment agents for content providers so seamlessly that most of the time customers don’t even know that they are dealing with a third party. In mobile payments, the question is not who is keeping the money but who is dealing with the customer. If the customer is dealing with the bank, the mobile operator becomes a mere conduit. If mobile operators deal with the customer, banks still have the important role of managing money. So the choice is between taking the customer to the bank at high street or taking the bank counter to the customer, wherever he is.
Is regulation necessary?
The genuine concerns of banking regulators about mobile payments and mobile banking must be addressed in any framework touching the financial system of a country. For a banking regulator it is important to provide adequate protection for consumers, ensure economic stability, provide interoperability of electronic systems and guarantee security of transactions. Central Banks, while allowing mobile payments, have to ensure the stability of the banking and payment systems and also ensure that issuance of e-money does not harm the national economy. For the purpose of checking how much credit is in the market, there should be an adequate level of transparency. The Anti-Money Laundering and Know-Your-Customer principles must also be applied to mobile payments.
In Sri Lanka, the CB has all the necessary legal powers to regulate mobile payments under the ‘Payment and Settlement System Act of 2005’ and under the broad framework of the ‘Money, Payment, Clearing and Settlement Service Providers Regulations No.1 of 2007.’ Partnership of banks and mobile companies already exist in Sri Lanka and to some extent it has been encouraged by the CB. Whether this partnership has been successful in achieving the objectives of mobile payments is still an open question.
I am sure, while preparing the new regulations, the CB would study the existing arrangements and see why it has not reached the level of mobile payments and m-banking achieved in the Philippines and Kenya, where mobile payments have changed the life of people and the way they do business.
(The writer is a regulatory consultant from Pakistan and can be reached at email@example.com)