E money guide presentation


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E money guide presentation

  1. 1. E-Money: What it means for Mobile Money<br />Andrew Zerzan<br />Regulatory Projects Director<br />
  2. 2. Quote from a Regulator<br />“<br />E-moneyis an important way to increase financial inclusion. Customer funds need to be safe. We have made this happen with MNOsin our country.<br />”<br />- East African Central Banker<br />
  3. 3. Overview<br />Defining e-money<br />How e-money actually works in mobile money<br />Why is it so popular amongst MNOs?<br />Regulation – what regulators want to see<br />Funds protection<br />Financial system stability<br />Crime prevention<br />5 Questions to ask yourself for regulatory engagement<br />
  4. 4. What is e-money?<br />Gift cards, gift certificates, pre-paid cards<br />Electronic form of cash – different than airtime<br />1:1 relationship e-money to cash stored<br />Different than a bank account – bank deposits become loans<br />
  5. 5. How e-money actually works in mobile<br />e-money<br />e-money<br />Bank<br />(holds pooled account)<br />e-money<br />MNO<br />(e-money issuer)<br />Customer<br />Cash<br />Cash<br />Agent<br />
  6. 6. How e-money actually works in mobile – agent side<br />Agent puts cash in pooled bank account<br />Bank tells MNO of agent deposit so e-money system is always equal to amount in the bank.<br />MNO credits the agent’s m-wallet<br />2. Info sharing<br />MNO<br />(manages e-money)<br />Bank<br />(holds pooled account)<br />3. e-money<br />1. Cash<br />Agent<br />
  7. 7. How e-money actually works in mobile - customer<br />Customer hands cash to an agent<br />Agent tells provider to transfer equivalent amount of e-money to customer<br />Provider credits customer m-wallet<br />e-money<br />e-money<br />MNO<br />(e-money issuer)<br />Customer<br />1. Cash<br />Agent<br />
  8. 8. Why is it so popular among MNOs?<br />MNO maintains ownership of the customer relationship. <br />Direct management of customer accounts and activities<br />Simplifies customer experience, no need for customer to be lost for support or resolutions<br />Can enable direct license to give MNO better footing in the relationship with the partner bank<br />Has greater potential to reduce regulatory burden <br />Avoids costly a bank license<br />Helps avoid regulatory compliance “baggage” that often arises when a partner bank’s license is used<br />E-money<br />E-money<br />E-money<br />E-money<br />
  9. 9. What regulators want to see<br />Still, there are responsibilities for e-money issuers<br />Three core issues MNOs must tackle: <br /><ul><li>Protection of customer funds
  10. 10. The financial system’s stability measures
  11. 11. Processes that prevent crimes like money laundering</li></li></ul><li>Customers’ Funds Protection<br />Regulators’ Views<br />Solutions<br />Biggest concern in most countries is protection of customer money<br />Concern that MNOs will “borrow” customers’ money<br />Concern that creditors of the MNO would access customer funds in case of MNO bankruptcy<br />Separate accounts for customer pooled funds than other business<br />In many successful markets, MNOs have created a separate legal entity to “hold” the funds <br />Make the pooled account a Trust Account so it is ring-fenced from any use but the e-money system<br />
  12. 12. Financial System Stability<br />Regulators’ Views<br />Concentration risk concerns <br />One MM customer with too big of a withdrawal: localised liquidity crisis?<br />If the pooled account is huge, a bank could be too reliant on it as a base. <br />A large exodus of’ cash in a short period could crash the bank – U.S. financial crisis!<br />Solutions<br />Limit customer account size<br />Reduces exposure the activity of a single customer<br />Split pooled account as it grows to multiple banks<br />Ensures no bank is overly exposed to the MM system<br />
  13. 13. Crime Prevention<br />Regulators’ View<br />System could be used by criminals<br />Drug dealers will take their profits into the financial system, move them to hide illicit origins<br />Terrorist funding will move around to complicate the trace back to the original donor<br />Laws require providers take measures to reduce their risk exposure <br />.<br />Solutions<br /><ul><li>Put up controls to make criminal abuse more burdensome – KYC, limits, etc.
  14. 14. Have systems in place to monitor, detect and report suspicions
  15. 15. E-money is often lower risk so may justify lower reduced measures</li></li></ul><li>Questions to Ask Yourself<br />MNOs should have taken the following actions no matter what market:<br />The pooled account’s legal standing. <br />Ring fence the pooled account so it is separate from other business.<br />Protection of customer funds<br />Ensure the pooled customer funds are protected against MNO’s creditors’ claims<br />Customer account size<br />Limit customer account size to reduce concentration (and criminal) risk<br />Pooled account size<br />Split pooled account when it’s big so it does not pose a systemic risk to the bank<br />Crime controls<br />Make processes (anti-money laundering, KYC, monitoring, limits, etc) proportionate to the actual risk faced<br />
  16. 16. Q&A<br />GSMA Tool: E:Money a Guide for MNOs now in draft for your comment.<br />Will be available on MMU Blog website www.mmublog.org later this month<br />Thank you<br />Andrew Zerzan<br />azerzan@gsm.org<br />
  17. 17. Q&A<br />Unanswered questions?<br />Send them to:<br />e-mail<br />mmu@gsm.org<br />SMS<br />+60123211275<br />(include your name)<br />or<br />