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Interoperability of Mobile Money: International Experience and Recommendations for Mozambique

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Interoperability of Mobile Money: International Experience and Recommendations for Mozambique Final report Interoperability of mobile money: International experience and recommendations for Mozambique Marc Bourreau Steffen Hoernig December 2016 When citing this paper, please use the title and the following reference number: S-36404-MOZ-1 Interoperability of Mobile Money: International Experience and Recommendations for Mozambique Final Report (28/12/2016) Steffen Hoernig (Universidade Nova de Lisboa, Portugal) Marc Bourreau (Telecom ParisTech, France) IGC contract reference: 1-VCS-VMOZ-VXXXX-36404 Project number: 36404 2 Table of Contents 1. Interoperability in Mobile Money .............................................................................. 5 1.1 Mobile money ...................................................................................................... 5 1.2 Concepts of interoperability ................................................................................ 7 1.3 The benefits of interoperability ........................................................................... 8 1.3.1 A2A interoperability ...................................................................................... 8 1.3.2 Agent interoperability ................................................................................. 12 1.3.3 Government-to-person interoperability ..................................................... 13 1.4 The challenges to interoperability ..................................................................... 13 1.4.1 Technical standards and coordination ........................................................ 14 1.4.2 Dominant firms ........................................................................................... 15 1.4.3 Investments................................................................................................. 16 1.5 Interoperability agreements and schemes ........................................................ 18 1.5.1 Supranational initiatives ............................................................................. 18 1.5.2 National interoperability initiatives ............................................................ 19 1.5.3 International interoperability ..................................................................... 21 1.6 Regulatory approaches ...................................................................................... 22 1.6.1 The larger picture ........................................................................................ 22 1.6.2 Mandated or collaborative interoperability ............................................... 25 2. Mobile Money and Interoperability Arrangements by Country .............................. 31 Bangladesh ............................................................................................................... 31 Ghana ....................................................................................................................... 31 India ......................................................................................................................... 32 Indonesia .................................................................................................................. 35 Kenya ........................................................................................................................ 37 Madagascar .............................................................................................................. 40 3 Mexico ...................................................................................................................... 41 Nigeria ...................................................................................................................... 42 Peru .......................................................................................................................... 43 Philippines ................................................................................................................ 44 Rwanda .................................................................................................................... 44 South Africa .............................................................................................................. 45 Sri Lanka ................................................................................................................... 47 Tanzania ................................................................................................................... 47 Thailand .................................................................................................................... 56 3. A Portrait of Mobile Money and Interoperability in Mozambique ......................... 57 4. Findings from Stakeholder Meetings ....................................................................... 61 4.1 Financial inclusion and reach of mobile money ................................................ 61 4.2 The various modes of interoperability............................................................... 62 4.3 SIMO – the national switch ................................................................................ 63 4.4 The role of Bank of Mozambique ...................................................................... 65 5. Discussion and Recommendations .......................................................................... 67 5.1 High-level interoperability options .................................................................... 67 5.2 Voluntary or mandated interoperability ........................................................... 68 5.3 Market maturity ................................................................................................. 70 5.4 Dominant operators ........................................................................................... 71 5.5 Lessons for Mozambique ................................................................................... 72 References ................................................................................................................... 75 4 1. Interoperability in Mobile Money 1.1 Mobile money The introduction of mobile money is revolutionizing the financial sector of many developing countries. First created as a means to facilitate money transfers in Kenya, it is transforming itself into an alternative to the formal banking system, which remained closed to the poor, that has the potential of reaching out to the whole population. We first clarify some concepts repeatedly used in this report. By mobile money we mean money held in accounts (mobile wallets) with mobile telephony operators. It is a specific form of electronic money, i.e. money that is held in electronic form. This also includes traditional bank accounts, which give access to debit and credit cards, savings and credit, and banking wallets. The latter are simple accounts created by commercial banks that only allow for money transfers and cash-out at ATMs. While all three types of accounts can be accessed via mobile phones, we reserve the term mobile money for accounts hosted by mobile telephony operators. Several factors pertaining to each country will determine whether the reach of mobile money will live up to expectations. Foremost is the local culture and actual need for a mobile money solution that is felt by the population. The two extremes in this respect are given by Kenya, where M-Pesa arose from an improvised airtime-as- money remittance scheme invented by Safaricom’s customers, to South Africa, where the number of formal bank accounts is so high that mobile money never took off, and in 2016 both M-Pesa and MTN decided to close their operations. A second factor is the attractiveness of the mobile money solutions. This includes pricing and possible related services (international transfers, merchant payments, saving, loans, insurance), but it also depends on the size of the network of other people that mobile money customers can transfer money to and receive from. This network size increases substantially if different mobile money operators are 5 interconnected to each other and to the banking system, which is called interoperability. As reported by the GSMA (GSMA 2015 SOTIR), “… as of December 2015, almost two- thirds of markets where mobile money is available have two or more live mobile money services (60 of 93 markets) and more than one third have three or more live mobile money services (35 markets, with a median of five services per market).” By mere numbers of operators, there is thus a large scope for the introduction of interoperability, which indeed has started recently. In 2012, it was mandated in Nigeria, in 2013 and 2014 it was implemented in Indonesia, Pakistan, Sri Lanka, and Tanzania, and in 2015 in Madagascar, Rwanda, and Thailand. The Philippines, Madagascar, Mexico and Peru followed more recently. Dozens, if not hundreds of studies, many of them cited in this report, have been written about the prospects of mobile money, but the actual evidence of what works and what does not is still rather thin. This report focuses on the available evidence on creating interoperability and attempts to organize it according to the regulatory approach taken. What until now is completely absent in the literature is hard evidence on how strongly interoperability increases mobile money penetration and financial inclusion. Given that the introduction of interoperability is still very recent, this evidence will only be available in a few years’ time. In this report, we first review concepts and recent developments. As a second step we present country-specific
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