Introduction. u Is that True? 3

Transcription

1 Dealing with a Decentralized Strctre with a Centralized Plan: The Political Economy of the Financial Inclsion throgh Mobile Payment Services in Sdan Khalid O. M. Ahmed Islamic Development Bank (IsDB) Grop UNCTAD Smmer School 2018, 6 September 2018, Geneva 1

2 Introdction 2

3 Introdction In the 2030 Agenda, 7 of its 17 Sstainable Development Goals (SDGs) and 16 ot of 169 specific targets in these SDGs are directly related to expand access to banking, insrance and financial services for all. In March 2017, the G20 committed to advance financial inclsion worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclsion. The World Bank Grop considers financial inclsion a key enabler to redce extreme poverty and boost shared prosperity, and has pt forward an ambitios global goal to reach Universal Financial Access (UFA) by Is that Tre? 3

4 Cont. 4

5 The Start of the Mobile Payment Service Story Aware of their financial instittions and banking sector weaknesses in terms of the low penetration rates and the lack of effective distribtion channels, many of low-income African and Soth Asia contries have decided to tilize the Mobile Network Operators infrastrctre and its relatively high penetration rates to enhance the FI Evoltion of the global mobile money landscape (2001 to 2016) 5

6 The Start of the Mobile Payment Service Story 6

7 Cont. Nmber of registered and active cstomers, by region (90-day, December 2016) 7

8 Cont. This is a strategic move since the telecommnication sector has developed sbstantially in Africa with +30% (CAGR) between (AMO, 2011), +6.1% expected CAGR ntil 2020 (GSMA, 2017); making Africa growing 50% faster than the international average. 8

9 1. Share of individals with bank accont and mobile phone 2. Mobile penetration in top 25 African Contries (2010) 9

10 Bt, What is the Mobile Payment Service? There are three keywords here: Mobile Payment Service, Airtime Transfer Service, and Airtime Money. The mobile payment is a service that links each mobile phone nmber with an electronic bank accont, this service can be obtained throgh all mobile phone types with no need for smart phones or the internet. Under the mobile payment service, money is saved in an electronic bank accont that allows cstomers to transfer money (from mobile to mobile, from mobile to bank accont, from bank accont to mobile), pay their electricity bills, recharge their mobile airtimes and other services sch as payments for the government bills. 10

11 Cont. Main fnctions of mobile payment services 11

12 Cont. The airtime transfer service is provided by the telecommnications companies to their sers. This service enables each mobile holder to transfer part of the airtime on his/her mobile chip to a friend or relative so that the latter can se the airtime in his/her telephone calls in case he/she does not have a balance or cannot recharge his mobile chip by bying recharge cards. However, many people have sed airtime service as a sbstitte for the cash! 12

13 Cont. Therefore, we can say that the airtime transfer service is a parallel or competitive service for the MPS since it offers the main services that offered by the mobile payment service and more importantly, it operates totally otside the banking system reglations and it creates a hge amont of Airtime Money. This service has been working in Sdan since 2005, and more than 80% of the Sdanese citizens have sed this service to transfer their money to their friends or relatives. It has more than 50,000 agents. The Airtime Money, simply refers to the amont of the money or balance that in circlation within the airtime transfer service and it is not linked to the banking system. The amont of AM in Sdan is exceeded $ 5 billion in Feb

14 The Strctre of this Presentation. This stdy discsses the Central Bank of Sdan (CBS) initiative and reglations to enhance financial inclsion in Sdan throgh mobile payments service that started in 2016, and becase it is the first of its kind: 1- The first section traces the historical development of the CBS s policies that aim to reglate this service, and it follows the political economists' heritage that shows special concern abot whose interest are being served by any given set of economic arrangements. 2- The second section explains why this MPS project has failed to achieve its goal by analyzing the differences in the instittional arrangements and bsiness models. 3- The third section compares the Sdanese experience with a nmber of African and Asian experiences in achieving financial inclsion throgh mobile payment services, and identifies the critical factors for enhancing inclsive 14 financial inclsion throgh mobile payment service.

15 1- The Historical Development of the MPS in Sdan Phase I: Planning and Lanching Stages (2009-Sep 2016) The project of mobile payment service was initiated in Bt, the project did not receive mch attention in its early stages becase the state, back then, was a rent-seeker. The mobile payment service was lanched in early September 2016 by the Head of the State and the Governor of the Central Bank of Sdan, who indicated this service aims to benefit from the high penetrations rates of the telecommnications companies, which have more than 28 million operating chips and cover more than 84% of the poplation in Sdan. 15

16 Cont. In this first phase, Sdanese policy makers had presmed that becase the mobile payment service is safer and cheaper than the airtime transfer service, people wold atomatically leave the latter in favor of the former. Therefore, the Central Bank of Sdan had no intentions to stop the airtime transfer service and the plan was jst to activate the mobile payment service and market this new service. 16

17 Cont. Phase II: The Implementation Stage (Oct 2016 April 2017) Technically, the mobile payment service needs two reqirements to scceed in enhancing financial inclsion. Firstly, a great effort to promote the service and market its seflness to sers and, secondly, a smart partnership with the network of the dealers/agents who rn the airtime transfer service (with more than 50,000 agents!). The National Telecommnications Corporation (NTC) and the Central Bank of Sdan paid a very little attention to the first one, and ignore the second one (as we mentioned in phase 1). So dring these 8 months, MPS didn t get the people s attention. Even thogh, dring all these 8 months there was no intentions to stop the airtime transfer service and the plan was jst to activate the mobile payment service and promote its se. 17

18 Cont. Phase III: New Implementation Strategy: The Fight Against the ATS (April 2017-present) The following two official steps were taken eliminate the ATS. The first one was against the Service Provider and the second one was against the Service Agents: A. A Memorandm of Understanding (MOU) was signed between the Sdanese Telephone Company (Zain) and the Central Bank of Sdan to work as MPS provider. 18

19 Cont. Why Zain? Zain Telecom exceeds the rest of the companies in terms of the nmber of towers and the coverage of poplated areas in Sdan. The three companies combined cover 85.2% of the poplated areas, while Zain alone covers 75.37% which means that the poplated areas that are not reached by Zain alone is only 9.83%, making Zain the largest and strongest company in terms of coverage and services. Becase it is the largest and strongest company almost all the ATS agents are sing it as the main mobile-chip. So, Zain is considered as the main provider for ATS. 19

20 Cont. 20

21 Cont. And Why Zain didn t join MPS from the Start? 1- Sdani Telecommnication Company (AKA Sdatel), which is one of Zain s biggest competitors, owns a large share (30%) of the capital of Electronic Banking Services Company (EBS), a company that holds exclsive control over the reglations, policies, operations and the technical assistance related to all software services (inclding the mobile payment service) owned or managed by the CBS. The fact that Sdani is a big and inflential shareholder in EBS in the context of mobile payment service creates a very clear conflict of interest sitation becase the service provider cannot be at the same time a reglator for its policies and procedres. It is not only abot the legal conflict of interest! Bt Why Sdani? 21

22 Cont. Zain Telecom exceeds the rest of the companies in terms of the nmber of towers and the coverage of poplated areas in Sdan. The three companies combined cover 85.2% of the poplated areas, while Zain alone covers 75.37% which means that the poplated areas that are not reached by Zain alone is only 9.83%, making Zain the largest company in terms of coverage and services. 2- The interoperability principle in MPS means that all companies have the right to se, for free, the infrastrctre Zain paid and invested billions of SDG to bild. What happened after signing that MOU? 22

23 Cont. B- Setting a ceiling to the amont of transferred airtime and Completing Registration of Mobile SIMs/Chips: The sccessfl implementation for this ceiling reqired a nmber of procedres, the most important among them is to limit the nmber of chips per ser, to avoid violations by agents/dealers having, for example, more than seven or ten mobile chips. However, limiting the nmber of chips per ser cannot be done nless there is a comprehensive database of the chips owners. Conseqently, the Ministry of Commnications and Technology, and the NTC set the first of Janary, 2018 as the final date after which the telecommnication-service will be disconnected from nregistered mobile sers. 23

24 Cont. After all these decisions, policies and historical developments since the lanching of the service in September 2016 till Jne 2018, the CBS has failed in achieving the desired spread of mobile payment service. As declared by the Minister of Telecommnications and Technology in her speech in the seventh Economic Form abot the mobile money service: challenges and opportnities, she said: The mobile payment services still at sqare one and haven t taken off in Sdan yet! The more optimistic people, sch as the EBS's general manager, stated, "The service performance is less than what we expected. 24

25 2- Discssing the Failre's Reasons In terms of nderstanding the reasons behind the failre the Minister of Telecommnications and Technology said: One of the most important obstacles to the widespread adoption of the mobile payment project is the poor marketing strategy and the lack of pblic knowledge abot the service, bt is it really abot poor marketing strategy? In order to flly nderstand why the mobile payment service did not achieve the expected widespread adoption even after redcing the costs paid by sers in money transfer from 10% to 1% of the transferred money (in compare with the airtime transfer service), attention shold be paid to nderstand the main featres of the bsiness model for the airtime transfer service, a similar service that simply works! 25

26 The Main Featres of the Bsiness Model for the Airtime Transfer Service: 1- The easiness of working as an agent; all what is needed is jst a mobile phone, a chip and a capital to by the airtime; no need to get a bank accont or any kind of technical or banking knowledge. 2- Users' trst in the otcome, qickness, availability and efficiency of the service. Everyone holds any amont of money as a balance/airtime in his/her mobile phone can easily cash ot that balance anytime (day or night), anywhere and receive cash money immediately; with no need to go to a bank branch or ATM to withdraw money. Bt if we go deeper and ask what is the reason behind the qickness and effectiveness, we will find the answer lies in the network of agents/dealers, who rn all operations and work in all regions and states of Sdan in anytime (day or night). - The agent's or dealer s commission, In general, the network of dealers has the pper hand in determining the commission, and this commission is only affected by the laws of spply and demand, regardless of the instrctions from the 26 telecommnications companies, or the reglations from the Central Bank.

27 Cont. If we consider the telecommnication companies as the service providers, the network of dealers/agents as the service agents, and the citizens as the service sers we can say that all these featres have decentralized the strctre and the bsiness model of the airtime transfer service. In simple words, decentralization means, first, the network of dealers/agents (the service agents) has a great power in this service since they have the right to determine the fee/commission for the transfer service. Also, a decentralized service, in its prest form, is one where there are no barriers to entry, in other words, it is permissionless". 27

28 The Main Featres of the Bsiness Model for the Crrent Mobile Payment Service The featres of the bsiness model for the mobile payment service are characterized by being centralized, in which the CBS and EBS have the pper hand in the determination of costs and incentives, registration procedres, and reglations. This central bsiness model provides service incentives only to the service sers withot giving the service agents (i.e. the dealers/agents network) any significant incentives, so it has strctrally marginalized the network of the dealers/agents that is the basis of qickness, availability and widespread adoption of the airtime transfer service. 28

29 Cont. I do not think anyone who works as a service agent in the airtime transfer service can spport nor advertise the new mobile payment service becase he sed to earn 10-15% of the converted vale, and in this new service he/she will earn 1%! The Depty General Manager of Bank of Khartom The strctral problem that hinders the widespread adoption of MPS, since its lanch in September 2016, is the adoption of a bsiness model that has a centralized natre to deal with a reality that needs a decentralized bsiness models. 29

30 3- Sdan in the Global MPS Experiences A- What is the reason for having a centralized plan? Nick Hghes, spervisor of the M-PESA mobile payment team, said that dring the early planning stage for the M-PESA, the first and most important decision his team had to make was "Do we by a readymade application/bsiness model or design or own one?" He said that when they examined the software market they fond a significant nmber of similar softwares, bt the central problem they faced was that all the available softwares were designed mainly for the Western Banking Infrastrctre, which is completely different from banking infrastrctre in the developing contries and different also from the telecommnication companies infrastrctre. 30

31 Cont. In contrast, when the Central Bank of Sdan's software-engineers initiated the mobile payment service in 2009, they did not careflly think abot their niqe local context and they followed the wrong wisdom "One size fits all" by signing a contract to bild a bsiness model for the mobile payment service with two experts from the French Company Hors Development Finance in October There is a fndamental difference between telecommnication companies and banks that lies in the bsiness model. Telecommnication operators are relatively yong and entreprenerial companies that achieved rapid growth and high profits throgh a large nmber of lowvale transactions. On the other hand, the banks are large instittions with a long history of service, in which the bsiness model is based on a few high vale transactions that generate relatively high profit margins. 31

32 Cont. This sensitivity to the local contexts led Nick Hghes and his team to consider transferring the network of airtime transfer agents to a network of mobile payment service agents as critical factor among six other factors that the Task Force deemed necessary for the sccess of the project. 32

33 Right Bsiness Model is not Enogh! B- Is it good to let Zain leads the MPS in Sdan (as Zain claims)? When we compare the international experiences in MPS, we will find that who controls the MPS Vale Chain -whether a telecommnication company/private sector or a bank from the financial sector- will determine the bsiness model of the service, and will often not only eliminate the competitors from the same sector (e.g. other telecommnication companies), bt also take over the market share from the other sector (e.g. banking sector). In Kenya, "M-PESA service was exclsive for Safaricom's cstomers only for more than 7 years. Moreover, banks in Kenya have complained repeatedly to the government abot how Safaricom, are nfairly taking their market shares. Yo do not allow innovation to otsmart reglation! 33

34 Cont. In Soth Africa, where the mobile payment services are mainly provided by the banking sector, the Competition Commission listened to anti-competitive abses committed by the banking sector, among its conclsions was that the banking sector in Soth Africa impose high clearing fees as a monopoly mechanism to increase barriers to cstomers of other banks. Similarly, in India where the bank-led model has been adopted, the telecommnications companies are prohibited from establishing atonomosly mobile payment services. 34

35 Cont. Therefore the ideal instittion for managing MPS shold be independent of commercial banks and telecommnications companies, and shold be responsible for the cooperation between banks, telecommnications companies and the rest of the private sector entities. In fact, the appropriate instittion for this task is the central bank! Bringing Back the Embedded-Atonomy State again? 35

36 Smmary The effectiveness, qickness and availability and widespread adoption of the airtime transfer service did not reslt from the high penetration/wide coverage of the telecommnication companies. Rather, it was de to the network of dealers/agents who benefited from this coverage by changing the service into a profitable bsiness. The Decentralized Bsiness Model has worked! The strctral problem that hinders the widespread adoption of mobile payment service since its lanch in September 2016 is the adoption of a bsiness model that has a centralized natre to deal with a reality needs a decentralized bsiness models. From ptting Sdan in the global MPS Experiences: One of the reasons behind this centralized plan is the lake of sensitivity to the local contexts. it is not only abot having the right reglations and the right bsiness model (as what African Development Bank arges), and it is not only abot involving the pblic instittions, it is abot both of them. Remember that Shark and small fishes? It is not only abot financial Inclsion, bt most importantly abot the financialiaztion process itself. What next? 36

37 Thank yo! Khalid O. M. Ahmed (Linkedin) / 37

38 Policy Recommendations Designing a new implementation strategy to effectively attract the decentralized network of dealers/ agents in the airtime transfer service to become agents for the new mobile payment service. The Central Bank of Sdan shold not go ot completely from the management and reglations of mobile payment service and leave the policies and the management to the telecommnications companies, and/or other private sector companies. Solve the problem of the share of Sdani within the EBS capital (a rival of Zain Telecommnications Company), becase Zain's lack of participation in the adoption and promotion of the mobile payment service will remain nless this problem is solved 38