WITH Haiti having embraced mobile financial services, there are increasing calls to see it implemented throughout the Caribbean where large swathes of populations remain unbanked.

The liberalisation of the telecoms sector has seen practically every adult in the region in possession of a mobile telephone, thus providing an avenue for more transactions and bringing the region even closer to a cashless society.

The advent of mobile financial services and mobile banking will therefore see some form of collaboration between the major banks and the mobile telephone service providers which in turn will mean a redefinition of the regulatory landscape. In Jamaica, the chief regulatory body, the Bank of Jamaica, is paying attention to developments in mobile financial services and considering the various models with a view to setting an applicable regulatory framework.

Informa Telecoms & Media has forecast that revenues from mobile banking and payment services will grow from US$831 million worldwide at the end of last year to US$5.4 billion by the end of 2013. By this time, Informa predicts, there will be more than 3.2 billion users of mobile financial services. In the interest of providing greater clarity, a distinction must be made between mobile banking(mbanking) and mobile payments (mpayments).

Mobile banking describes only the provision of account information and transaction opportunities while mobile payment is any transaction paid for using a mobile phone. In Jamaica both Scotiabank and FirstCaribbean are offering mobile banking in a very basic format with very little transactional functionality. What now has to take place is mutually dependent relationships between financial service providers and mobile operators, with an overarching regulatory body ensuring all is above board.

Mobile banking

A decade ago, it was said that online banking would never prove viable because customers would never entrust modern computer technology with their financial affairs. How wrong those people were! According to Jim Bruene, author of The Case for Mobile Banking: “Starting from essentially zero just three years ago, more than half of the US online banking population will be using mobile banking by 2015. That’s zero-to-40 million households in just eight years. There is little doubt that mobile is the next online, not just in banking, but with many information rich, time-sensitive services. Even in the online-centric US, we expect mobile banking to eclipse online by the end of the decade.”

The prospect of conducting financial transactions on a mobile telephone handset is such a departure from the more traditional forms of banking that many are concerned and remain reticent about its introduction. Some cite fears about mobile banking being used as a conduit for nacro-traffiking, that it is susceptible to money laundering and that it can be manipulated to facilitate fraudulent transactions — all cause for concern for regulators who presently are able to comfortably monitor the banking system.

It is not envisaged that mobile financial services will encompass the ability to engage in transactions that involve large sums. That will to some extent mitigate concerns involving money laundering and narco trafficking. It will no doubt be employed largely by the unbanked and small and medium enterprises. In other words, there is an indubitable correlation between money laundering and transaction size.

The Consultative Group to Assist the Poor (CGAP) favours a “proportionate” approach to regulation in branchless banking, one that can easily be applied in Jamaica. This sees accounts being opened but limits applied to the balance, the number and the size of transactions allowed. This can be a governing factor in the issuance of mobile wallets. Just like many traditional financial institutions, mobile operators should be required to report any transaction that they believe is connected to money laundering, financing of terrorism or narco trafficking.

Mobile operators who are in the business of mobile financial services will have to employ customer profiling and identity authentication in order to combat fraud and money laundering. The key also is to look for activity that is outside the norm of transaction activity. These measures can be reconciled by establishing a regulatory framework that reconciles the central bank, banking houses and mobile operators.

What it comes down to is this: the receiving party is governed by regulations that must ensure they know who the sender is. It is a case of trust. The sender must be confident that they know who the receiver is and that the receiver conforms to the prevailing KYC regulations in that country.

As one astute observer noted : ” The approach to combating fraud needs to be three-fold: First, the solution should be analytics-oriented so it can be integrated with the product to provide (a) transaction alerts based on scenarios, (b) transaction profiling based on transaction types, and (c) have a calibration model built in to identify normal behaviour compared to risky behaviour.

“Secondly, the fraud solution should be enterprise-wide so it covers multiple products, channels, clients and locations; it should not be isolated to a specific need. Finally, the solution should be technology-orientated with a component-based design, service-oriented architecture, and an open system to connect to multiple applications, without glitches for high reliability and efficiency.

‘The devices customers are using to access the data or process the payments should be secured through biometric authentication, as should the channel that is transmitting the data.”

With 60 per cent of Haiti’s mobile market,Digicel has partnered with Scotiabank there to offer the “Tcho-Tcho” mobile money service. This provides opportunities for both the financial service provider who can use this as a competitive tool while at the same time reducing its costs while serving low-income customers, and the mobile operator who can lower subscriber churn and increase revenue per use.

Governor of the Central Bank of Haiti, Charles Castel, sees such a service as enabling the unbanked already displaced by one of the world’s most destructive earthquakes, to conduct necessary transactions without resorting to a brick and mortar edifice.

Speaking with Caribbean Business Report from Port-au-Prince last month, Castel said: “We opted for the bank-based model, which see the banks responsible for all deposits and all compliance measures that address fraud, money laundering and so forth. People seem to forget that we have to protect the dignity of the payment system and the money that goes to Haitian families. We put the entire responsibility on the banks, but we as the Central Bank regulate and supervise the banks to ensure that they abide by all laws and regulations concerning the matter.”

So how was Castel able to navigate around the regulatory roadblocks?

“Here we are not pioneers. A lot of countries, particularly Mexico, have opted to go with the bank-based model. As you know, Mexico has a very large remittance business. So we didn’t really have to reinvent the wheel. As far as implementing mobile money services in the Caribbean is concerned, a central bank can work with any number of consultants to put the regulations in place. The training for the central bank here is not complicated.

“Like Jamaica, Haiti has a significant remittance component which has proven to be a mainstay of both economies. Mobile money has a definitive role to play here, particularly in trying times such as those that befell Haiti last year.

“At the end of the day, I believe we can transfer money from people to people, whether it be from the Caribbean or outside the Caribbean, and you can do so efficiently from a mobile phone. I can see no reason why this technological advance cannot translate into safe ways for the public to transact and to receive money,” said Haiti’s Central Bank Governor.

With close to two million depositors and now with mobile money services, Castel says he can see fewer Haitians going to the banks to conduct transactions.

“If you do whatever you want with your money via the phone you will not want to cash out, it reduces the need for cash, you see. For instance, you can shop at the supermarket , go to the stadium, even pay employees and no cash is required. However, we must be mindful that mobile banking is not the panacea; we have to fight the battle on other fronts to win the war against poverty.”

Country Head of Scotiabank Haiti, Maxime Charles, said that it has been very exciting working with Digicel on this project and that the important factor here was bringing financial inclusion to Haiti, bearing in mind that only 10 per cent of the population has access to formal financial services.

“Mobile banking will make it easier for Haitians to get to their funds. Our partnership with Digicel will be a good one. Scotiabank’s presence in Haiti is limited to the capital of the country where we have four branches. We do have plans to go beyond Port-au-Prince. Right now we are focusing on the mobile wallet aspect because many Haitians are in dire need of funds and need to access them as expeditiously as possible. What we do is outsource some of the services to the super agents. The agents are the ones who can charge the accounts for the mobile wallets. The account on your phone acts like a wallet. The agent opens the account for you, provided you can provide a piece of identification and a minimum of 100 gourdes. Once the account is set up on your mobile phone you can begin to make transactions. You can also top up your account and transfer funds to and from someone who has a “Tcho-Tcho” mobile account. It is a very convenient service which we will be formally launching in March of this year.

“On the regulatory side, things went very smoothly. The Central Bank made a number of suggestions which we took on board and implemented. All along the process we kept the Central Bank informed because it wanted to ensure that people’s funds were safe and secure,” said Charles.

Turning his attention to Jamaica, Director of the Centre of Excellence, Mona School of Business at the University of the West Indies, Dr. Maurice McNaughton said: “Mobile phone access to financial services for many citizens that are currently underserved is timely and in fact has enormous scope. The latest initiatives signal the importance and rapidly growing commercial interest in the application of mobile technology to deliver financial services. Given Jamaica’s profile with respect to the well reported teledensity as well as its banking demographics, it is primed for the emergence of such services.”

Speaking with Caribbean Business Report at the Mobile Financial Services Conference at the Terra Nova Hotel, McNaughton added: “The Mona School of Business can bring a scholastic process to informing what is a significant opportunity with mobile financial services. We are neutral, so we can engage the likes of Digicel, the big banks and the Bank of Jamaica and get them all in the same room. We also see strong research possibilities here.

“On the regulatory side there clearly has to be a degree of collaboration and interaction because we are talking about cross-sector interests. The Office of Utilities Regulation (OUR) has governance over the telecoms sector and must be given a voice, particularly as far as pricing of the transactions is concerned. Now obviously this is anchored in the banking infrastructure regardless of the model that emerges. There will no doubt be regulatory constraints, and the role of the Financial Services Commission (FSC) cannot be discounted, because things like the disbursement of pension benefits have to be addressed. The FSC has governance over the likes of micro insurance and securities and that also has to be attended to.

“At UWI we do not just see scope here for financial services but also for the agricultural sector. Just think how the Ministry of Agriculture and RADA interacts with 150,000 farmers across the country both in terms of information sharing and technical support; there are huge possibilities.”

He further added that mobile financial efforts by Scotiabank, NCB and FirstCaribbean demonstrate unequivocally that there is strong commercial interest in these opportunities.

He noted that it provides yet another convenience for their current account holders, but that the broader economic benefits to Jamaicans have to outweigh incremental benefits to existing customers.