Mobile Financial Services: Ragulatory Approaches to Enable Access

Worldwide mobile phone penetration is soaring, with subscriptions more than quadrupling since 2002 to more than 4 billion in 2009. More than half of these users are unbanked, representing a huge potential for expanding financial access at a lower cost than through brick-and-mortar bank branches.
The mass proliferation of mobile phones around the world presents a new delivery channel for basic financial services that can be extremely beneficial for poor people. Clients can convert cash to electronic money and use their mobile phones to perform many financial transactions through traditional financial service providers (banks, microfinance institutions, etc) or new entrant non-bank actors (such as mobile network operators) providing financial services, without being present at a branch or an agent. Mobile phones can be used as a delivery channel for a range of banking services, including cash transfers and deposits, retail purchases, bill payments, and welfare payments and other social services. However, to date, many available services are limited to payments and transfers.
Regulators successfully allowing for the growth of mobile financial services to expand financial access have adopted a risk-based approach to regulation and supervision. A careful assessment of the risks of the new channel through a “test and see” approach along with the creation of products and systems that lower the risk profile of such services, have allowed regulators to expand access through innovation while maintaining systemic stability, regardless of whether services are led by banks or telecommunications groups. Regulatory innovations to harness the potential of this technology include ensuring the strong financial health and reputation of the electronic money issuer, monitoring transactions, limiting transaction size and the range of services offered, and adjusting KYC norms for low-value accounts