Kenya: Mobile Money Faces Tighter Control Under CBK
By Geoffrey Irungu, Business Daily
Users of mobile money transfer services will soon pay more for the convenience under a proposed law aimed at bringing all payment instruments and systems under one regulation.
If the National Payments System Bill 2011 becomes law, customers will not lose their money if a service provider such as an online or cellphone money transfer company collapses or is declared insolvent.
Service and network providers will incur the cost of compliance that includes risk management, regular reporting, hiring of qualified personnel and upgrading of ICT systems.
“Compliance will see operators dig deeper into their finances to meet the guidelines without necessarily controlling or reducing fraud,” said Mr Robert Nyamu, the forensic and litigation services director at Deloitte East Africa, who has been working with banks and some operators on reducing payment risks.
The operators will be given six months to comply with the law that encompasses all electronic payment systems and instruments such as real time gross settlement (RTGS), cellphone-based and online banking systems.
Safaricom, which runs Kenya’s leading mobile phone money transfer platform M-Pesa however, said operators were already incurring costs on self regulation.
“The cost of complying with these regulations is not expected to be remarkably higher than the current cost of enforcing providers’ self-regulation mechanisms or complying with prevailing law or regulatory practices,” said Mr Nzioka Waita, Safaricom’s corporate affairs director.
He said the Bill proposes to offer better regulation that will enhance services, hold operators to account and increase consumer confidence.
The costs are expected to arise from meeting terms that will be spelt out by the Central Bank of Kenya on a case by case basis.
Once CBK designates a platform as a national payment system, the propriety will formulate a constitution that will guide its operations and be used as basis in its supervisory actions.
The guidelines will be open to public scrutiny and cannot be changed without the approval of the Central Bank.
“There has been a long-running debate about how to regulate the payments systems even those relating to the mobile money transfer,” said Mr Muriuki Mureithi, a telecoms consultant with Summit Strategies.
“It is critical that we have some law even though there are going to be costs because the issue of security of transactions has always arisen.”
Mr Nyamu, however, said the guidelines would need to be more vigilant on risks, adding that some players in cellphone money transfer services had made efforts to reduce fraud, but others were reluctant because of the costs involved.
He said that there had been increased cases of fraud in both banking and money-transfer services, but specific guidelines, including sharing information and collective action, would curb the crime.
“We are currently collecting data and analysing the patterns of fraud and other risks on mobile phone and banking services.
Unfortunately, industry players see adverse reputational risks emerging from disclosure of what is happening,” said Mr Nyamu.
RTGS is the leading payment system in the country with Sh150 billion changing hands daily compared to Sh3 billion daily through mobile phone services.
Mr Stephen Nduati, the director of the national payments at CBK, said more use of paperless transactions or technology would help mitigate the risks.
The new proposal will make it illegal for companies operating money transfers and online payment systems to use customer balances for their operations.
The law will take precedence over the Companies Act, the Banking Act, the Building Societies Act, the Co-operative Societies Act, 1997, or the Microfinance Act, 2006, with regard to insolvency.
The receiver will be expected to make the settlements to the full as registered in the system before any transactions can be conducted in relation to the insolvent firm.
Investors in securities may also find themselves facing new charges if the intermediaries pass on the cost incurred in compliance.
“This law will reduce the incidence of having counterparties not settling transactions,” said Evans Osano, the manager in charge of Efficient Securities Market Institutional Development at the International Financial Corporation.
He said that the greatest hindrance to the development of the securities markets especially the post-trade bond market settlements has been infrastructure because some of the parties are not electronically connected to ensure seamless payment once a transaction is made. Only banks have such a system due to their linkage with the central bank.
“Parties to the securities transactions have to pay for infrastructure without which the costs are higher in the long term due to sluggish settlement of trade,” said Mr Osano.