Athu Karume, President East Africa Markets, eCurrency
When she needed to transfer money to her vegetable supplier, Amina a Mama lishe (Mother Nutrition) in Dar es Salaam, did not have to pay for transportation or wait in long bank queues after enduring the long process of filling in complex paperwork. She simply tapped on her mobile phone and opened an application called TigoPesa, supported by one of four major mobile money providers in Tanzania. She entered the preferred amount and pressed send. Within seconds, she received a confirmation that the amount was approved and sent to the desired recipient. This scene is repeated many times over every day in Africa and has helped facilitate the growth of e-money services on the continent. E-money is a driver in the process of extending affordable financial services to Africa’s marginalized communities and is increasing significantly in Africa. As of December 2016, there were approximately 280 million registered e- money accounts and 1.5 million registered agents in sub-Saharan Africa according to GSMA. Mobile money revenues in sub-Saharan Africa could exceed $1.3 billion by 2019; according to data by the consulting firm Frost & Sullivan. Kenya, Tanzania, Uganda, Côte d’Ivoire, Egypt, Nigeria and South Africa are the bellwethers of cashless payment use in Africa, according to GSMA.
For consumers, e-money, saves time and they benefit from the overall economic growth associated with digital payments. For businesses, benefits include the ability to send money seamlessly into bank accounts and mobile wallets. For governments, adopting digital payments not only reduces their payment costs, but also increases transparency and accountability credentials are enhanced. Finally for financial institutions, mobile financial services help move the poor from the informal to the formal financial sector. However, Mobile Network Operators (MNOs) have traditionally dominated mobile financial services and the private issuance of e-money. Financial institutions have only recently taken an interest in mobile financial services, have so far failed to compete directly with MNOs and have resolved to partner with them instead. Consumers, financial institutions, and governments are still bearing the high transaction costs associated with manual acceptance, record keeping, counting, storage, security vulnerabilities, and transportation. As Dr. Patrick Njoroge, Governor, Central Bank of Kenya, points out, “financial sector regulators need to remain vigilant on potential risks, while safeguarding an effective processing of payments and ensuring that a consumer-focused environment is maintained. As a regulator, financial stability continues to be our primary objective, regardless of the transaction channels that are deployed.”
The lack of interoperability within private e-money issuers is still a significant issue and makes it harder for current e-money services to operate at full potential. Interoperability will potentially offer great benefits to the e-money services market. It allows regulators to provide and opportunity to draw more cash into the formal financial system. For customers, it will result in more accessible and flexible payment options. Moreover, interoperability offers to potentially further advance financial inclusion.
Accelerating the process of financial inclusion is critical for governments in Africa to reach poverty reduction objectives and to achieve long-term inclusive economic growth. Governments want to maintain governance, and to have monitoring, control and visibility on the e-money ecosystem. As a result, this is going to drive regulators, policy makers, central banks and other stakeholders involved in regulating financial sector activities in various economic communities across Africa to issue instruments such as digital fiat currency (DFC) themselves and halt the dependence on privately issued e-money.
Central banks in Africa have thus far developed guidelines, but have lacked the regulatory framework to bring e-money under the regulatory authority. According to Tiémoko Meyliet Koné, Governor, BCEAO, “the resilience of a banking sector depends on the quality of its regulatory framework; the stability of the macroeconomic environment; the efficiency of micro- and macro-prudential monitoring mechanisms; as well as the overall robustness of the country’s financial infrastructure.” 2
With a favorable regulatory environment and the technologies now available to them, they can play a pivotal role in enhancing the regulatory environment for e-money by implementing technologies that enable:
The issuance of a true digital fiat currency authorized and issued by central banks alongside notes and coins.
The establishment of national e-money interoperability and instant settlement standard based on digital fiat currency.
The delivery of high security standards across the entire payments ecosystem.
The gathering and aggregation of real time data on all transactions flowing through the ecosystem.
Any payment system to operate in the ecosystem using central bank issued money.
The infrastructure already exists; e-money is widely used in Africa more than any other region in the world. Implementing these technologies will help set the stage for significant growth and robustness of digital economy in Africa.
Central Bank of Kenya (2017): International Money Transfer and Cross Border Payment Conference. https://www.bis.org/review/r171010c.pdf