Paving the Way for Digital Financial Services in Jordan Market and Regulatory Assessment of Payments and Remittances June 2017

WORKING PAPER

Paving the Way for Digital Financial Services in Jordan Market and regulatory assessment of payments and remittances June 2017

This report was written by Nana Yaa Boakye-Adjei, Gemma Robson, and Leon Isaacs from DMA Global. The research was over- seen by CGAP (Nadine Chehade, Mayada El-Zoghbi, Antoine Navarro) and GIZ (Katharina Braun Botão and Rainer Schliwa). It has benefitted from invaluable input from Maha Bahou and Amr Ahmad of the Central Bank of Jordan and from Alaa Abbassi peerof Abbassi review Law process. Office and legal adviser to all parties. The team is grateful to reviewers Stefan Staschen (CGAP); Ilka Funke, independent consultant (GIZ); and Harish Natarajan (World Bank) for their valuable comments and suggestions during the -

This report was funded by the German Government through GIZ. The project “Improving Access to Remittances and other Fi (BMZ)nancial in Services 2014 as through a means Digital to provide Solutions short-term in Jordan” support (Digi#ances) to refugees is partand theirof the host special communities. initiative, “Tackling the Root Causes of Displacement, Reintegrating Refugees,” initiated by the German Federal Ministry for Economic Cooperation and Development comprehensive baseline study of digital person-to-person remittances. The Digi#ances project is jointly implemented by GIZ and the Central Bank of Jordan, with whom CGAP partnered to conduct a

TABLE OF CONTENTS

EXECUTIVE SUMMARY...... xvi

INTRODUCTION...... 1

PART 1: JORDAN DOMESTIC PAYMENTS MARKET...... 2 ...... 2 ...... 2 1. Jordan Domestic Payments Market 1.1.1. Banks...... 2 1.1. Market Players: Bank and Nonbank Financial Institutions ...... 2

1.1.2. Exchange Houses ...... 4 1.1.3. Jordan Post Company (JPC) and Jordan Postal 1.1.4. Mobile Payments Services Providers...... 4 Savings fund (JPSF) ...... 6 1.3. Supporting Payments Infrastructure...... 7 1.2. Access Points to the Payments Ecosystem in Jordan ...... 7 ...... 7 1.4. Ongoing and Future Projects ...... 7 1.4.1. JoMoPay—Software Upgrade 1.4.3. Mobile Payments Acceptance...... 7 1.4.2. eFAWATEERcom 1.4.4. Planned and Ongoing Pilots...... 9 1.5. Concluding Remarks...... 9 2. Domestic Payments Regulatory Overview...... 10 2.1. Regulatory Neutrality and Proportionality...... 11 2.2. Risk Management...... 12 ...... 12 ...... 13 2.3. Protection of Customer Funds ...... 15 2.4. Financial Customer Protection 2.6. Concluding Remarks...... 17 2.5. Financial Integrity

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PART 2: JORDAN INTERNATIONAL REMITTANCES MARKET...... 18

Emigration Stocks...... 18 1. Demographics of Jordan: Immigration and 2. International Remittances Market...... 20 2.1. Approach to Researching and Improving International Remittances Markets...... 20 2.2. Market Size...... 22 ...... 24 2.4. Overall Remittances Market Assessment...... 25 2.3. Market Players: Exchange Houses, IMTOs, and Banks 2.4.1. Market structure and competition...... 26 2.4.2. International Remittances Infrastructure...... 27 3. International Remittances Regulatory Assessment...... 29 ...... 30 3.2. Licensing Processes...... 31 3.1. AML and CFT 3.3. Prudential Requirements...... 31 3.4. Consumer Protection...... 32 3.5. Transparency...... 33 3.6. Concluding Remarks...... 34 4. Selected Corridors: Volume, Value, and Transaction Sizes...... 34 ...... 36 4.2. Inbound Corridors...... 38 4.1. Selected Corridors Features ...... 38 ...... 38 4.2.1. UAE-Jordan ...... 39 4.2.2. Qatar-Jordan ...... 39 4.2.3. Saudi Arabia-Jordan 4.3. Comparing the Inbound Markets...... 39 4.2.4. Germany- and USA-Jordan 4.4. Outbound Corridors...... 42 ...... 42 ...... 42 4.4.1. Jordan-Egypt ...... 42 4.4.2. Jordan-Palestine 4.5. Comparing the Outbound Markets...... 43 4.4.3. Jordan-Philippines 4.6. Concluding Remarks...... 43 4.6.1. Inbound corridors...... 43 4.6.2. Outbound corridors...... 43

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PART 3: MAIN FINDINGS, REMAINING CHALLENGES, AND RECOMMENDATIONS...... 49 ...... 49 1.1. Domestic Payments...... 49 1. Main Findings 1.1.1. Cash continues to dominate domestic payments...... 49 1.1.2. A concerted drive to transition away from cash – from both a consumer and service provider perspective – is required...... 49 1.1.3. In general, the regulatory environment for e-money ...... 49 1.1.4. Consumer protection and transparency present gaps issuance in Jordan is sound, proportionate and robust in the regulatory environment for domestic payments...... 50 1.2. International Remittances...... 50

...... 50 1.2.1. While Jordan is a net receive market, it is also a 1.2.2. There is a highly-segmented client base for sending significant send market for international remittances and receiving international remittances...... 50

General Principles...... 50 1.3. Findings Related to the International Remittance 1.3.1. Market Structure and Competition...... 50 1.3.2. Payment System Infrastructure...... 51 1.3.3. Legal and Regulatory Environment...... 51 1.3.4. Transparency and Consumer Protection...... 52 2. Scenarios for Connecting International Remittances to the Domestic Digital Payments Infrastructure...... 52 2.1. Scenario One: exchange houses becomes licensed as MPSPs...... 52 2.2. Scenario Two: exchange houses become agents of licensed MPSPs....54 2.3. Scenario Three: MPSPs create their own digital international remittances services, linking into IMTOs or hubs...... 55

remittances hubs and aggregators...... 56 2.4. Scenario Four: JoMoPay links directly with international 2.5. Concluding Remarks...... 56 3. Remaining Challenges and Recommendation...... 57 3.1. Challenges to Digitizing Domestic Payments...... 57 3.2. Challenges to Digitizing International Payments...... 59

ANNEXES...... 61 ...... 61 2. Mystery shopping Methodology...... 71 1. Regulatory Comparison – EU Directives and Jordan

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LIST OF TABLES, FIGURES, AND BOXES ...... 1 ...... 3 Table 1. Corridors Selected for Review ...... 5 Table 2. Total Assets of Banks in Jordan 2015 ...... 8 Table 3. Licensed MPSPs in Jordan ...... 9 Table 4. Overview of Domestic Payment infrastructure in Jordan ...... 19 Table 5. Planned Mobile Money Ecosystem ...... 19 Table 6. Migration Stocks 2015, Selected Arab Countries

Table 7. Migrant Stocks, Selected Corridors of Analysis ...... 22 Table 8. Largest Remittance Corridors Inbound and Outbound,

Jordan, 2015 (from Market Interviews)...... 35 Table 9. Volume, Value and Average Transaction Size ...... 46 ...... 47 Table 10. Corridor Readiness for a Digital Pilot (inbound corridors)

Table 11. Corridor Readiness for a Digital Pilot (outbound corridors) for P2P Transactions and Readiness for a Digital Pilot...... 48 Table 12. High-level Overview of Value Chains by Relevant Corridor

...... 6 ...... 10 Figure 1. Number of Access Points to the Payments Ecosystem in Jordan ...... 23 Figure 2. Interoperability of Payment Systems in Jordan ...... 24 Figure 3. Total Inbound and Outbound Remittances, Jordan (USD Millions) ...... 24 Figure 4. Market Size (Value) by Selected Corridor, 2015 (USD Millions) ...... 25 Figure 5. Remittances Services Providers, by Corridor (inbound corridors) ...... 28 Figure 6. Remittances Services Providers, by Corridor (outbound corridors)

Figure 7. Global Value Chain for P2P transactions (inbound and outbound)...... 28 Figure 8. Value Chain for P2P Remittances in Jordan

and Estimated Volume per Year, by Selected Corridor...... 37 Figure 9. Average Transaction Size (Maximum and Minimum) ...... 39 ...... 40 Figure 10. Type of Remittances Services Providers (inbound corridors)

Figure 11. Payment Instrument (inbound corridors) Maximum (inbound corridors)...... 40 Figure 12. Foreign Exchange Margin, Minimum and ...... 41 ...... 41 Figure 13. Speed of Service (inbound corridors) ...... 45 Figure 14. Cost of Services, % of Send Amount (inbound corridors) ...... 45 Figure 15. Cost of Services, % of Send Amount (outbound corridors) Figure 16. Payment Channel (outbound corridors)

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...... 3 ...... 5 Box 1. Key Facts about Exchange Houses in Jordan ...... 15 Box 2. eFAWATEERcom ...... 16 Box 3. Data Privacy and Protection in Mobile Money: A Global Overview ...... 21 Box 4. Mobile Tax in Jordan ...... 26 Box 5. Estimating Remittances to and from Syria ...... 29 Box 6. The General Principles of International Remittances ...... 44 Box 7. Super and Subagents in the Remittance Value Chain in Jordan Box 8. Sending Habits of Filipino Staff at a Major Hotel in Amman

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CURRENCY EQUIVALENTS As of 30.03.2017 5

US$1 5 0.71 JOD US$1 0.93 EUR ACRONYMS

ACH Automated Clearing House AML/CFTAPI Anti-MoneyApplication ProgramLaundering Interface and Combating the Financing of Terrorism B2P Business to Person

CBJCDD CentralCustomer Bank Due of Diligence Jordan CPSS Committee on Payment and Settlement Systems

DFS Digital Financial Services ECCHEMP ElectronicEmerging MarketsCheque ClearingPayments House EMI Electronic Money Institution

EUR Euros FI Financial Institutions FXG2P ForeignGovernment Exchange to Person

HSWIMTO HouseholdInternational Service Money Worker Transfer Organization

JOD Jordanian Dinar JoMoPay Jordan Mobile Payments JPC Jordan Post Company JPSF Jordan Postal Savings Fund JWDKYC JordanKnow Your Workforce Customer Development Project

OFW Oversees Filipino Worker

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MENA Middle East and North Africa MEPS Middle East Payment Services

MFIMNO MicrofinanceMobile Network Institution Operator

MOUMPSP MemorandumMobile Payments of UnderstandingServices Provider NGO Nongovernmental Organization P2P Person to Person P2B Person to Business POS Point of Sale PSP Payment Services Provider RSP Remittance Services Provider

SWIFTRTGS SocietyReal Time for Gross the Worldwide Settlement Interbank Financial Telecommunication

UAE United Arab Emirates UNHCR United Nations High Commissioner for Refugees USSD Unstructured Supplementary Service Data

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GLOSSARY Agent-level Refers to agents of one service provider offering interoperability services to customers of another service provider.

Interface (API) applications that access the features or data of an Application Program operatingFunctions system,and procedures application, that or allow other the service. creation of Automated Clearing An electronic clearing system in which payment orders

magnetic media or telecommunications networks, and House (ACH) thenare exchanged cleared among among the financial participants. institutions, A data primarilyprocessing via center handles all operations. Bank Guarantee A promise from a bank or other lending institution to

pay a sum of money to a beneficiary in case the opposing Cash-In1 partyCash exchanged does not fulfill for e-money. a future engagement or an obligation. Cash-Out1 E-money exchanged for cash. Clearing2 The process of transmitting, reconciling and, in some

potentially including the netting of orders and the estab- cases, confirming transfer orders before settlement,

Cross-Platform lishmentRefers to ofthe final customers’ positions ability for settlement. to undertake money Level interoperability transfers between two accounts held with different commercially and technically independent services providers participating within different platforms (e.g., mobile wallet to bank account).

Digital payments,The broad rangecredit, of savings, financial remittances, services accessed and insurance. and Financial Services delivered through digital instruments, including digital where agents or third-party intermediaries (such asFor banks this report, and international a financial service money istransfer not classified organizations) as

accessed and delivered through a nondigital instrument. exchange electronic messages, but the financial service is

Digital Payment includes A form of payments digital financial where serviceeither the where payer the or financial the payee usesservice a digital is a payment. instrument, For this but report,does not this include definition payments that are initiated and collected in cash (e.g., cash to cash services), even where the agent transacts electronically.

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Derisking3 - tions terminating or restricting business relationships withDerisking clients refers or categories to the phenomenon of clients to of avoid, financial rather institu than manage, risk. E-money1 A type of monetary value electronically recorded. It is generally understood that e-money: (i) is issued upon receipt of funds in an amount no less in value than the value - vice (e.g., a chip, prepaid card, mobile phone, or computer of the e-money issued; (ii) is stored on an electronic de

system); (iii) accepted as a means of payment by parties E-money issuer1 otherAn entity than that the issues issuer; e-money and (iv) againstconvertible receipt into of cash. funds. Also called electronic money institution. See also Mobile Payment Services Provider. E-wallet An e-money product, where the record of funds is stored on a device, typically in an integrated circuit chip on a card or mobile phone. See also mobile wallet.

East. These businesses are licensed as money changers Exchange House and Usually are refersoften family to a type owned. of business Many have unique expanded to the Middle to provide a wide variety of payment services, particularly cross-border, and form a vital part of the remittance market. Although traditionally focused on regional trade and payments, many exchange houses now collaborate with international money transfer operators to facilitate

called money exchange companies. international remittances into and from Jordan. Also, - tion point for payment services providers to connect to, Hub Service allowingIn the context them of to this access report, multiple a hub channels is a common and products connec through one application program interface (API). Informal Remittances Refer to transactions that are unrecorded, meaning they

wheredo not thereappear is inno official record government of the transaction statistics. or because This theis either government because has the decided flows are not sent to collectthrough the channels data in a systematic way. This includes cash carried by businesses, friends and relatives, or oneself as well as transactions

that include practices such as “netting off” and therefore might not be included in official balance sheets.

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(IMTO)International Money toBroadly note that defined unlike as exchangea company houses, that offers in most cross-border cases IMTOs Transfer Organization money transfer services. For this report, it is important conversion or cross-border payment services, but partner withdo not banks hold anda license exchange in Jordan houses to thatoffer hold foreign the exchangelicense and act as agents.

consumer or business. Issuer The financial institution that issues a payment card to a

Customer (KYC)1 institution to identify a customer and the motivations Know Your A set of due diligence measures undertaken by a financial- - ingbehind of terrorism his or her regime. financial activities. KYC is a key compo nent of anti-money laundering and combating the financ

Services service is accessed through a mobile phone (both smart- Mobile Financial A form of digital financial service in which the financial

phones and feature phones). For this report, mobile financial services do not include the use of a mobile Nationalphone to Switchaccess banking(i.e. mobile services banking). and executeSee also financialMobile Payment.transactions through banks outside of the JoMoPay Mobile App Refers to application software available on a mobile device and requires a smart phone for use. Mobile Money A form of e-money, accessed through a mobile phone. Mobile Network A company that has a government issued license to Operator (MNO) provide telecommunications services through mobile devices.

are initiated through a mobile phone (both smartphones Mobile Payment A form of mobile financial services in which payments include the use of a mobile phone to execute payments and digital feature phones). For this report, this does not

through banks outside of JoMoPay (i. e. mobile banking). Services Providers is an e-money issuer licensed by the Central Bank of Mobile Payments Terminology specific to Jordan in this report. An MPSP national payment switch. Also referred to as a payments (MPSP) servicesJordan to provider. issue e-money and connect to the JoMoPay

Often used synonymously with mobile money account. Mobile Wallet A type of e-wallet which is accessed through a mobile phone.

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the card transaction. Payment Acquirer The financial institution that is responsible for processing Payments Channel See Payment Instrument

Payments Instrument The product (service) used by the consumer at the point of payment (e.g., cash, debit card, mobile wallet). Often used interchangeably with payment product and payment channel.

Payments Processors Third-party services providers that handle the details of processing card transactions between merchants, issuing banks, and the merchants’ bank (also called acquiring bank).

Payments Services An entity providing services that enable funds to be Provider (PSP)1 deposited into an account and withdrawn from an

acquisitionaccount; payment of payment transactions instruments (transfer that ofenable funds the user tobetween, transfer into, funds or (e.g.,from checks,accounts); e-money, issuance credit and/or cards, and

central to the transfer of money. debit cards); and money remittances and other services Platform-Level Refers to the customers’ ability to undertake money Interoperability transfers between two accounts held with different commercially and technically independent service providers participating within a platform. Prepaid Card A payment card in which money can be preloaded and stored Real-Time Gross The continuous settlement of interbank payments on a

in central banks and used for large-value interbank funds Settlement (RTGS) transfers.real-time (instant) basis. Usually through accounts held Remittances A person-to-person international payment of relatively low value. Remittance Services An entity, operating as a business, that provides a Provider (RSP) remittance service for a price to end users, either directly or through agents. Safeguarding Measures aimed at ensuring that funds are available to 4 meet customer demand for cashing out e-money.

CustomerScheme (or Funds Payment A body that sets the rules and technical standards for the Scheme)5 execution of payment transactions using the underlying payment infrastructure.

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Settlement Account Refers to the bank account in which a licensed MPSP

escrowmust place account, JOD 1 and for trustevery account 1 e-money (depending unit issued. on theOften legalused status).interchangeably Can also withbe referred pooled to account, as a mobile float phoneaccount,

account (terminology specific to Jordan).

Society for the A messaging service for financial messages, such as TelecommunicationWorldwide Interbank primaryletters of means credit, for payments, interbank and communications securities transactions, Financial between member banks worldwide. SWIFT remains the- ment and clearing for bank transfers. (SWIFT) cross-border. Note that SWIFT does not provide settle Subagent Refers to an entity that offers the services of an IMTO by signing an agreement with a super-agent, rather than directly with the IMTO. The revenue share is then split

MPSPs can also have subagents. between the subagent and the super-agent. In Jordan, Super-Agent Entities that are licensed directly with an IMTO (e.g.,

suchWestern as training, Union, MoneyGram), advertising, and and reporting then sign support, a network as of subagents, generally offering back-office support, super-agents. Also, referred to as a master agent. well as revenue share. In Jordan, MPSPs can also have Switch A computer-based software system where transactions are routed. Generally, this occurs for the transaction to be rerouted to a different PSP and/or product, enabling in-

switch.teroperability. In Jordan, transactions by the same mobile services providers are also routed through the JoMoPay

Supplementary that is used to send text between a mobile phone and an Unstructured A global system for mobile communication technology include prepaid roaming or mobile chatting. Service Data (USSD) application program in the network. Applications may

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NOTES “Guideline Note Mobile Financial Services: Basic Terminology”. http://www 1 Adapted from AFI, .afi-global.org/sites/default/files/publications/MFSWG%20Guideline%20 “Payments and Markets Glossary”. https://www. Note%20on%20Terminology.pdf

2 Adapted from European Central Bank, “De-risking? Key Findings and ecb.europa.eu/home/glossary/html/act6c.en.html#313 Recommendations” http://pubdocs.worldbank.org/en/953551457638381169/remit- 3 Adapted from World Bank, Data Gathering Efforts: ; tances-GRWG-Corazza-De-risking-Presentation-Jan2016.pdf

4 Adapted from CGAP, “Nonbank E-money Issuers: Regulatory Approaches to Protecting Customer Funds.” https://www.cgap.org/sites/default/files/CGAP-Focus-Note-Nonbank http://www.accesstopaymentsystems.co.uk/introduc- -E-Money-Issuers-Regulatory-Approaches-to-Protecting-Customer-Funds-Jul-2010.pdf tion-payment-systems/what-payment-scheme 5 Adapted from Payments UK.

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EXECUTIVE SUMMARY -

CGAP engaged DMA to research the Jordanian remittances market to inform devel opment interventions and pilots aimed at improving access to financial services for low-income Jordanians and Syrian refugees living in Jordan, leveraging international remittanceResearch took flows place into between and out ofApril the andKingdom. September 2016 and focused on assessing -

Principlesthe supply forof servicesInternational for both Remittances, the domestic a general and international assessment paymentswas completed market. on Usthe marketing the Committeestructure, regulatory on Payment and and competitive Settlement environment, Systems (CPSS)-World transparency Bank and General consumer protection. A detailed analysis of eight corridors, selected based on their size and potential for digitization, was also completed to assess the viability of launching a digital pilot in one of these corridors to test an end-to-end digital solution for international remittances. The five inbound corridors were from the UAE, Saudi Arabia, Qatar, the United States, and Germany to Jordan; three outbound corridors were from Jordan to Egypt, Palestine, and the Philippines. - - frastructureThe main findings and regulatory are as follows. framework In the domesticare sound market, and offer the theinnovative potential new for pay the rapidments uptake system of of mobile JoMoPay payments, sits alongside a concerted a highly effort cash-based is needed society. to drive While this uptake,the in both from a consumer and a service provider perspective. Consumer protection also needs to be addressed in the near term. to connect into the international payments system, which is highly competitive, but alsoIn terms cash of dominated, digitizing international with few digital remittances, options available. JoMoPay offersTo be aeffective unique opportunityand achieve scale, this would require creating a nondiscriminatory and sound market, without ensuring that exchange houses become part of the ecosystem, and also ensuring that areaslosing such the benefits as transaction of the already limits and competitive consumer market protection Jordan are holds. addressed This would for interna mean- tional remittances.

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1. Jordan’s Domestic Payments Market -

Despite a stable and profitable financial sector, Jordan has low levels of financial in clusion and cash remains prevalent. According to Findex, 25 percent of the adult fuelspopulation the ongoing in Jordan growth has access in use to of some cash formas a paymentof account, instrument, and 6.4 percent with electronic use debit paymentscards for payments. (e-payments) There mechanisms remains a remaininglack of trust relatively in financial stagnant. institutions, and this Attempts to introduce mobile payments previously failed, but an innovative and ambitious regulatory environment alongside some equally innovative private sector actors has resulted in a renewed focus on the area, presenting new opportunities inclusionfor growth across in digital the country. financial services use throughout Jordan. The Central Bank of Jordan (CBJ) has recently embarked on a national strategy to try to increase financial JoMoPay, the Jordanian national mobile payments switch, is a unique payments system that has created cross-platform and platform level interoperability for mul-

- bilitytiple digital between payments mobile wallets,instruments bank in accounts, Jordan. Thisand prepaidincludes cards. interoperability This type of between system, andthe five the licensedlevels of mobileinteroperability, payments is services highly uniqueproviders and (MPSPs), is yet to asbe well seen as elsewhere interopera in the world. The ongoing dominance of cash leads to a disconnect that needs to be overcome between the new and innovative digital payments infrastructure and how domestic - bile wallets has not been seen. Barriers on the digital supply side, including a limited agentpayments and acceptanceare being made. network, “Cash also is king”contribute in Jordan, to the and, slow as uptake. yet, rapid As foruptake the domes of mo- tic remittances market, exchange houses, who have well-developed branch networks around the country, are preferred by consumers. They facilitate cash-based domestic money transfers for individuals, bypassing the e-payments system. However, the mobile payments services instructions, and corresponding operational guidelines released in 2013, have formed a solid foundation for the development of e-money in Jordan. The regulations that allow both nonbanks and banks to apply to become e-money issuers are particularly important. Although the initial capital requirement to become an MPSP is relatively high, it is not considered a barrier the protection of consumer funds, including in the event of an MPSP’s insolvency. to entry, and it protects the integrity of JoMoPay. There are also safeguards in place for CBJ will address concerns regarding consumer protection regulation, including gaps in transparency and data protection, and risks over the loss of customer funds in the event of bank failure.

Key Recommendations to Support the Digitization of the Domestic Payments Market Conduct national above and below the line marketing campaigns to encourage the transition from cash, avoiding the message that new mobile payments solutions and exciting service mobile money offers, notably for small payments. are “for the poor” or financially excluded, instead focusing on the innovative, safe,

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Support the development of the agent network

(ATMs) to facilitate the cash-in and cash-out of mobile across payments Jordan for at agentmobile locations. financial services (MFS), including encouraging the upgrade of automatic teller machines Support the development of an acceptance network to create a fully digital ecosystem to increase use cases available for consumers and therefore the convenience of digital payments solutions. Support the digitization of large-volume transactions to help drive volume in mobile payments. This includes raising awareness of mobile wallets with key - thatinstitutions—specifically allows users to view andgovernment-related pay bills electronically. payments and the seamless introduc tion of value-added services, such as eFAWATEERcom, a central payments platform Ensure that exchange houses become part of the domestic digital payments ecosystem. demand-side research for this project found them to be trusted by the consumer for Exchange houses have a network of 256 branches across Jordan, and digital ecosystem, either as agents or licensed MPSPs, and they continue to largely operateboth domestic in cash. and international payments. However, they are not yet part of the new Address areas of concern with consumer protection legislation is rapidly developed to guarantee consumers protection. This is particularly important given the ambitious plans to scale services. CBJ quicklyneeds to and ensure the reticence effective and lack of trust observed among the consumer base for digital payments.

2. Jordan’s International Remittances Market Migrant trends to and from Jordan have created well-established corridors for both inbound and outbound remittance flows. In the latest census, 30.6 percent of the 9.5 million population were non-Jordanians. The vast majority is made up of- tionrefugees for economic fleeing the migrants protracted originating conflict infrom neighboring South East Syria, Asia, and South there Asia, also and is aAfrica. large Iraqi and Palestinian refugee population. Jordan is increasingly becoming a destina

However, emigration from Jordan has also established a large Jordanian diaspora, particularly in the Gulf Cooperation Council (GCC), Europe, and the United States. ThisThe Jordanianhas made Jordan market a uniquepredominately international receives remittances remittances, market. although outbound flows remain significant. Services providers estimate that 75 percent of the total value of remittances flow into Jordan, and 25 percent flow out. The size of the market forThe receiving large and remittances established was inbound US$4 billion remittances (JOD 2.4 marketbillion) in 2015,Jordan according predominate to CBJ.- ly consists of high-value payments to middle- and higher-income Jordanians from oil-rich and western countries - eral Remittance Matrix).1 (particularly Saudi Arabia, UAE, Qatar, Kuwait, Libya, the United States, Germany, and Canada, as per the World Bank Bilat

1 Palestine is also a large inbound corridor.

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There is also a large and growing outbound market, largely from traditional economic migrants and increasingly refugees arriving in Jordan. These refugees are mostly from neighbouring countries, while economic migrants tend to be from South East Asia. These outbound remittances tend to be lower-value transactions that are sent more frequently. The largest corridors for outbound remittances are to Egypt, followed by Palestine, Syria, China, Iraq, Sri Lanka, India, and other South Asian countries (Indonesia, Philippines, Bangladesh, and Pakistan). The remittances market in Jordan is predominantly cash-based, with limited end-to-end digital options available for both inbound and outbound services. Anecdotal evidence from services providers suggests that cash accounts for about 80 percent of cross-border transfers, reaching up to 90 percent in some corridors

market for international remittances, offer almost exclusively cash-cash services, al- (e.g., Jordan to Egypt). Exchange houses, which make up a large proportion of the

organizationsthough some larger(IMTOs) ones will offer offer SWIFT more direct-to-bank direct-to-bank services. account Theservices, introduction using the of improvedthe automated domestic clearing infrastructure. house (ACH) may mean that international money transfer There is a prevalence of netting-off processes between exchange houses for both inbound and outbound payments within the region, with limited settlement as and when it is required. This means formal settlement infrastructures such as

RTGSThe regulatory in Jordan are environment often completely for remittances bypassed. in Jordan is sound and nondiscriminatory and has created a competitive market structure. As of December

act as IMTO agents and offer their own remittance services through partnerships with2016, other there exchange were 140 houses exchange and/or houses banks. operating They are in Jordan.an integral These part exchange of the interna houses-

tionalThe licensing remittance process market and in regulatoryJordan. framework for international remittances in - cialist law developed to license and regulate exchange houses (the Money Exchange Law).Jordan It reflects allows the exchange unique housesrole played to offer by exchange international houses. remittance In effect, Jordanservices, has as a spewell as other services such as foreign exchange conversion, under the supervision of the 2

ExchangePricing in House all eight Department corridors of coveredCBJ. in this study reflects its competitive environment. The costs in all outbound corridors were below the global average cost

- ofing 7.60 international percent to remittances. send US$2003 (as of Q2 2016). The total cost to send US$200 from Jordan to Egypt and to the Philippines was almost half4 the global average for send For inbound corridors, all except Germany-to-Jordan were cheaper than the global average to send US$200.

2 Money Exchange Supervision Department when translated literally.

3 For sending remittances from Jordan to the Philippines, the average total cost to send US$200 was 4 percent in Q3 2016, and for Jordan to Egypt, the cost was even lower at 3 percent. 4 For sending remittances from the UAE, Qatar, or Saudi Arabia to Jordan, the average total cost to send US$200 was 5 percent, from the United States to Jordan it was 7 percent, and from Germany to Jordan it was 10 percent (as of Q3 2016).

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As with domestic payments, considerable gaps remain in regulation for consumer protection and transparency global derisking practices, are refusing to facilitate cash deposits or bank guarantees to some exchange houses raises concerns. Reports about thatthe protectionJordanian banks,of customer in line funds. with The fear is that this behavior has the potential to erode the buffer that existing regulations created to protect customer funds in the event of insolvency.

Key Recommendations to Support the Digitization of the International Remittances Market Connect international remittances to the JoMoPay system. is unique, innovative, and interoperable. It is recommended that international re- The JoMoPay system particularly once there is evidence of domestic uptake. mittances be digitized and connected to this system. CBJ is keen for this to happen, Encourage cooperation between the Payments System Department and Exchange Houses Department. each other. An attempt to bridge this gap and encourage cooperation, particularly in terms of licensing and These supervision, two CBJ would departments allow for typically a more workstreamlined independently payments of system. Re-evaluate exchange house law revisions, and introduce consumer protection laws, with a focus on safeguarding customer funds. There are still gaps in the regulatory environment for international remittances, particularly relating to safeguarding customer funds. Further research partnerships in pilot receive markets. The Philippines and Egypt are suggested for a pilot on market scoping. Both could be a complete digital solution, but further investigation into potential partnerships, costs, and consumers’ needs in these countries would be required before developing a product.

xx Paving the Way for Digital Financial Services in Jordan

INTRODUCTION The objective of this study is to as performed according to the 2008 CPSS- sess the supply of payments services in World Bank General Principles for Inter Jordan to identify the best approach for national Remittances.5 The international digitizing the international and domes remittances review also included a deep- tic remittances market. Identifying where dive analysis of eight selected corridors an international pilot might be possible (see Table 1). is also an integral part of the research. Part II focuses on international remit In Part I, the report provides an over tances. It provides an analysis of the view of the domestic payments market international remittances offering and in Jordan, including an overview of the the international remittances infra payments infrastructure and the regu structure. It then provides a regulatory latory environment. Part I begins with assessment of the international pay an analysis of the domestic payments ments market. Next, the report explores offering, followed by an analysis of the the eight chosen corridors in detail, fo infrastructure for domestic payments, cusing on which products and business models are available in each corridor, as forms the basis for the recommendations well as average transactions sizes, cur forand digitization finally, a regulatory of domestic overview. payments. Part I rent prices, and speed of service, with the aim of understanding which markets Part II analyzes the international remit hold the greatest potential to digitalize tance market both into and out of Jordan, with an overview on pricing, market dynamics, and products available, and remittancePart III brings flows. together the analysis and where possible, improving our under provides recommendations for the dig standing of the underlying business itization of domestic payments and for models for facilitating remittances. This the potential of a digital international includes a review of the formal (recorded) remittances pilot. Part III outlines the and informal (unrecorded) approaches to completing low-value cross-border mendations, which include how uptake person-to-person (P2P) transactions. The ofmain e- payments findings, challenges,should be andencouraged recom review of the international market was domestically and internationally.

TABLE 1. Corridors Selected for Review Inbound corridors Outbound corridors United Arab Emirates (UAE) → Jordan Jordan → Egypt Saudi Arabia → Jordan Jordan → Palestine Qatar → Jordan Jordan → Philippines United States → Jordan Germany → Jordan

5 See http://www.bis.org/cpmi/publ/d76.pdf for the full report.

1 Paving the Way for Digital Financial Services in Jordan

PART 1. JORDAN DOMESTIC PAYMENTS MARKET

The following is an overview of the do- ■■ As it stands, the main stakeholders mestic payments ecosystem in Jordan. in the Jordanian domestic payments It reviews access points, services pro- market are banks, exchange houses, viders, available channels, and the sup- MPSPs, and payments processors. porting payments infrastructure. The research methodology used included 1. Jordan Domestic Payments desk-based research and information Market garnered from interviews with key stakeholders, including services provid- 1.1. Market Players: Bank and ers, regulators, and associated bodies. Nonbank Financial Institutions The section forms the foundation for exploring the potential to digitize the 1.1.1. Banks domestic market, and how the interna- As of December 2016, there were 25 tional remittances market might con- banks operating in Jordan, of which nect with the domestic market. 16 are Jordanian and nine are foreign.6 ■■ - Total domestic bank assets amounted to US$59.8 billion (JOD 42.5 billion) in aDespite highly cash-based having a stable society and with profit low 2015, with assets of foreign banks to- able financial sector, Jordan remains taling US$6.6 billion (JOD 4.7 billion) in 2015 (see Table 2).7 ■■ levelsUse of of checks financial and inclusion. cash continues to grow while use of e-payments 1.1.2. Exchange Houses mechanisms has remained relatively stagnant. Exchange houses form the largest group

■■ Given the low level of bank account Jordan. They play a central role in do- ownership and card penetration mesticof nonbank and financialinternational institutions payments, in (25 percent of the population over 15 supporting trade-related and personal have an account, and 6.4 percent use payments (see Box 1). a debit card according to Findex), CBJ The 140 exchange houses in Jordan are on its agenda, and is leading the de- licensed by CBJ to practice money ex- velopmenthas placed and financial implementation inclusion highof a change under the money exchange busi- National Financial Inclusion Strategy. ness law. The majority are family-owned It has also embarked on a compre- businesses that have developed multiple hensive reform process to increase revenue streams related to the movement of money.

theaccess domestic to financial payments services system. and to Although exchange houses tradition- enhance the safety and efficiency of ally focus on regional trade and pay- ■■ As part of this reform, CBJ’s Pay- ments, many now collaborate with ments System Department is driving international money transfer operators the development of MFS, with the (IMTOs) to facilitate international remit- aim to further encourage and facili- tances into and out of Jordan. Interviews tate use of digital payments. with services providers suggest that

6 7 http://www.cbj.gov.jo/uploads/jordan_figures2016.pdf http://www.cbj.gov.jo/uploads/jordan_figures2016.pdf

2 Paving the Way for Digital Financial Services in Jordan

TABLE 2. Total Assets of Banks in Jordan 2015 Total Total Assets Assets Market Number of Market share (JOD (US$ share in branches in number of Banks billion) billion) assets (%) (incl. offices) branches (%) Arab Bank 17.8 25.0 37.8 119 13.7 The Housing Bank for 7.9 11.1 16.8 126 14.4 Trade and Finance Jordan Islamic Bank 3.8 5.3 8.0 73 8.4 Jordan Kuwait Bank 2.8 4.0 6.0 56 6.4 Cairo Amman Bank 2.5 3.6 5.4 85 9.8 Jordan Ahli Bank 2.5 3.5 5.3 51 5.9 Other banks 9.8 13.8 20.7 361 41.4 Total 47.1 66.4 100.0 871 100.0

Source: Individual bank reports and CBJ report. cash-to-cash service for domestic trans- The average transaction size for domes- fers is a highly competitive market. The tic transactions is thought to be around biggest exchange houses can facilitate US$2,800 (JOD 2,000)—although it up to 13,000 transactions per month. is common for larger transactions Smaller and mid-sized exchange houses (around US$5,600 [JOD 4,000]) to be report 400–3,000 transactions a month. processed.8 Services providers assume

BOX 1. Key Facts about Exchange Houses in Jordan

1. The Exchange House Department of CBJ regulates exchange houses.

2. The sector has developed its own association.

3. Multiple revenue streams exist within the sector. These are driven by strategic partnerships with other exchange houses across the Arab world and/or by becoming an agent for an IMTO.

4. Cash is king—a clear majority of transactions are initiated and terminated using this channel. Select exchange houses also offer SWIFT service, which allows clients to deposit cash directly into bank accounts.

5. The marketplace is highly competitive—both domestically and internationally— with many exchange houses offering similar pricing to their competitors.

6. Due in large part to the ongoing conflict in Syria and the resulting destruction of trade routes, many of the smaller exchange houses, particularly those located along borders, are struggling to remain profitable.

7. According to the exchange house association, approximately 75 percent of exchange houses are based in Amman.

8 Based on services providers consultations in April and June 2016.

3 Paving the Way for Digital Financial Services in Jordan

that a proportion of these transactions It is unclear where that investment will may be for trade rather than personal come from. reasons. However, as these are recorded in the same way, it is not possible to de- 1.1.4. Mobile Payments Services Providers

In 2014, as part of its commitment to 1.1.3.termine Jordan exact figuresPost Company on this. and Jordan Postal Savings fund for all, the Central Bank embarked on an The Jordan Post Company (JPC) has ambitiousimproving program access to to financialintroduce services MFS to over 310 branches in its network. With Jordan. The approach built on lessons good coverage, particularly in rural learned from earlier experiments, and areas, there is a strong focus on using from the experiences of other countries - around the world. It has several core nancial services for the poor and other principles: excludedthis network groups. to improveIn line with access this, to the fi Jordan Postal Savings fund (JPSF) and 1. The regulatory framework for MFS JPC have had in place an agreement by would provide room for banks which JPSF uses JPC and its branches and nonbanks such as mobile net- to conduct its operations. JPSF has work operators (MNOs) to issue 50,000 active savings accounts, and a e-money—allowing multiple types customer can open an account with a of institutions to become licensed as minimum balance of US$14 (JOD 10), MPSPs. maintaining a minimum balance of US$35 (JOD 25). 2. The customer experience would be as seamless as possible to encour- JPC is distributing national aid funds to age uptake and use. Central to this 98,000 families across Jordan amount- was to create a system that was ing to US$13 million (JOD 9 million) completely interoperable, allowing per month. Recently, JPC has begun cross-provider transactions at the - outset. vices. It now acts as a key distribution pointbroadening for select its focusgovernment on financial payments; ser 3. To create an infrastructure for mo- it also offers CBJ-endorsed bill payment bile payments that was fully integrat- services (see Box 2 on eFAWATEERcom) ed into the broader digital payments for private and public services (such as ecosystem of the country, allowing municipalities, universities, telecommu- customers to not only make mobile nication companies, utility companies, payments, but to also make and re- and government entities). ceive payments to bank accounts and prepaid cards and to pay bills via JPC has agreements with two of the four eFAWATEERcom (see Box 2). licensed MPSPs9, Motamayezah (Zain Cash) and Al Hulool (Mahfazati), to To achieve this, CBJ created a central act as agents for its mobile money ser- mobile payments switch, JoMoPay. All vices. Although the network is strong, mobile payments providers licensed a great deal of investment is required within Jordan are mandated to connect if all branches are to be able to facili- to this switch and CBJ’s Payments De- partment have been working to ensure tate access to digital financial services. 9 Following this assessment, it was announced that two initial licences were granted to two additional MPSP.

4 Paving the Way for Digital Financial Services in Jordan

BOX 2. eFAWATEERcom

eFAWATEERcom is a central payments platform that allows users to review and pay bills electronically. Introduced by CBJ in 2014, it links public and private institutions, such as government services, utility companies, transport companies, educational institutions, and telecommunication companies, on one side with banks and payment services providers on the other.

The platform can be accessed by banked clients (online or through a mobile app linked to a bank account) and unbanked customers (through the Post Office, with money deposited in cash). Currently eFAWATEERcom is connected to the new mobile payments switch, JoMoPay, allowing the platform to be accessed through a mobile wallet. So far, the service has been well-received. US$23 billion (JOD 16 billion) in person-to-government payments were made in 2015, according to CBJ. that JoMoPay can be fully integrated into the existing and future e-payments in- four MPSPs were licensed to offer MFS. frastructure of the Kingdom. JoMoPay AllAt theof them time were of finishing authorized the toassessment, operate in is fully owned and operated by CBJ, but 2016 (see Table 3). These MPSPs appear there are plans to privatize it.10 to be focused on building their agent

TABLE 3. Licensed MPSPs in Jordan Mobile Wallet Licensed Entity Ownership Details Mahfazati Al Hulool A consortium of companies contributed to (“my wallet” the paid-up capital to become licensed. in Arabic) The following companies own a share of the Al Hulool holding company: • Umniah (MNO, 96% owned by Bahrein-based Batelco) • Emerging Market Payments (EMP) (card processor and acquirer) • Cairo Amman Bank (bank) • Arab Jordan Investment Bank (bank) • Al Etihad Bank (bank) • Bank of Jordan (bank) • Microfund for Women (MFI) • Jordan Ahli bank (bank) • Housing Bank for Trade and Finance (bank) Dinarak Motakameleh Several individual investors and technology (“your dinar” providers established a third-party provider in Arabic) of mobile payments. Aya Aya Several individual investors and technology providers established a third-party provider of mobile payments. Zain Cash Motamayezah A subsidiary of the larger Kuwait-based Zain MNO.

10 Following this assessment, it was announced that a newly established MPSP will own the retail payments and settlement systems, including the JoMoPay switch. CBJ and all licensed banks are founding shareholders.

5 Paving the Way for Digital Financial Services in Jordan

networks, apps, and unstructured sup- and/or payment card. Point of sale (POS) plementary service data (USSD) based terminals are the most widely available services, as well as their market entry point of access. These are provided by approaches—most of which is focused the largest payments processors, namely on identifying key use cases that can be Emerging Market Payments (EMP), Mid- leveraged to capture and convert cus- dle East Payments Services (MEPS), and tomers quickly. Use cases include work National Express. POS terminals are used - only by Jordanians who have a credit, nance institution (MFI), and nongovern- debit, or prepaid card.11 Similarly, while mentalwith transport, organization government, (NGO) payments. microfi there are 1,513 ATMs in Jordan, most of There were more than 72,000 users in them can be used only by banked cus- March 2017, but the sector is still too tomers and those with some form of pay- young to analyze use and uptake. ment card.12 Given the low levels of bank account and card use in Jordan, these ac- 1.2. Access Points to the cess points are not readily used. Payments Ecosystem Exchange houses are one of the most ac- Jordanians can access the domestic payments system (see Figure 1) using several for those without a bank account or pay- different methods. However, most ap- mentcessible card. nonbank As of December financial institutions 2016, the proaches require access to a bank account 140 exchange houses had 265 branches

FIGURE 1. Number of Access Points to the Payments Ecosystem in Jordan

Mobile Money agents 58

Exchange Houses 265

Post Offices Branches 310

Bank Branches (incl. 871 offices)

ATMS 1,513

POS Terminals 25,963

Source: CBJ and JPC. Date: 09/2016

11 There are plans to link POS terminals to iris-scanning technology and the mobile money ecosystem. However, both require

linked to prepaid cards. significant investment, which has yet to be made on a large scale. As of October 2016, the mobile money ecosystem has been 12 Iris scanning technology also allows refuges to receive cash assistance though some of Cairo Amman bank’s network of ATMs.

6 Paving the Way for Digital Financial Services in Jordan

across the Kingdom. They are a vital part all banks licensed in Jordan, thereby in- of the domestic and international payments ecosystem. However, there is a of government and business transac- level of disconnect between their activi- tions,creasing which the were efficiency previously and conducted timeliness through SWIFT—a system usually re- broadly, as discussed later in this report. served for international payments. In ties and the financial infrastructure more most countries, ACH oversees more than 90 percent of the total value of all are two other points of access for those e-payments transactions. It should have withoutMobile money a bank agents account. and the While post officethere are relatively few mobile money agents, Jordan’s e-payment market over time. service providers suggest that the num- a significant impact on the growth of ber of agents will increase rapidly over 1.4. Ongoing and Future Projects the next two years. Agents have the potential to be another important ac- 1.4.1. JoMoPay Software Upgrade cess point for previously underserved The plan is to fully integrate Jo-NET and JoMoPay, so that mobile wallets can be ruralcommunities. areas. Post office branches also cashed out (and to a lesser extent, cashed provide access to financial services in in) through the ATM network. While system operator EMP has agreed to this, in- 1.3. Supporting Payments dividual banks would need to invest in Infrastructure upgrades to their software systems to Cashless payments are processed allow them to accept mobile payments, through eight main interconnected sys- as well as upgrades to their hardware tems. These systems form the founda- systems, for cash-in transactions. For tion for the infrastructure that supports this reason, timing for when this might the domestic payments system in Jordan happen is unclear. With that said, two (see Table 4). banks, Jordan Kuwait Bank and Cairo Amman Bank, have already upgraded All commercial banks in Jordan have ac- their software systems to allow them to cess to ACH, ECC, and RTGS-Jo systems. accept mobile payments through their All ATMs and banks are connected to ATM networks. the Jo-Net switch for full interoperability and this is operated by the leading 1.4.2. eFAWATEERcom payments acquirer in Jordan—EMP. In addition to Jo-Net, EMP manages Over the next 12 months, customers will its own member-based switching and be able to use any wallet within the eco- card-acquiring system. Key market play- system to pay bills via eFAWATEERcom, ers, such as MEPS, MasterCard, and Visa, to make and receive payments to or from run other systems. any bank account or prepaid card in Jordan, and to use either the app-based An important development is the launch or USSD-based service on their phone. of Jordan’s automated clearing house (ACH). The long-planned ACH became 1.4.3. Mobile Payments Acceptance operational in December 2016, after extensive testing. ACH is an electronic Many licensed MPSPs are working with funds-transfer system that handles retailers to improve user experience payroll, direct deposit, tax refunds, con- and the acceptance of mobile payments sumer bills, tax payments, and many across the country. MPSPs and retail- other payments services. It connects ers are partnering to facilitate mobile

7 Paving the Way for Digital Financial Services in Jordan Minimal — — — Annual Transactions 705 million Not available (launched in December 2016) 22.5 million 42 million (cash-out only) Minimal — — — Annual Value US$2.4 trillion (JOD 1.7 trillion) Not available (launched in December 2016) US$120 billion (JOD 85.2 billion) billion) 8.1 (JOD billion US$11.4 (in and out) CBJ National Bank of Belgium (NBB) and G10 Central Banks CBJ CBJ Lead Overseer/ Regulator CBJ CBJ CBJ — 13 Interbank transfers—domestic and cross-border Retail payments Retail payments Type of Transfer Type All bank settlements Low-value bank-to-bank transfers Check clearing (and Bank account to ATM vice-versa in approximately 30% of ATMs) Mobile wallet to mobile card Mobile wallet to prepaid Bank account to mobile wallet (and vice-versa) SWIFT MEPS EMP System Operator CBJ CBJ CBJ EMP CBJ (being spun off) Overview of Domestic Payment infrastructure in Jordan 2015 in Jordan Overview of Domestic Payment infrastructure Through five banks: Cairo Amman Bank, Arab Bank, Bank of Jordan, Housing Bank, and Commercial Bank. Housing Bank, and Commercial Bank, Bank of Jordan, Amman Bank, Arab Cairo banks: five Through SWIFT MEPS Switch EMP Switch Name of System Real-Time Gross Real-Time Gross Settlement System (RTGS-Jo) Automated Clearing House (ACH) Cheque Electronic Clearing (ECC) Jo-Net JoMoPay 13 TABLE 4. TABLE

8 Paving the Way for Digital Financial Services in Jordan

payments in hyper-supermarkets (e.g., the underlying e-payments infra- Safeway), with car parks and petrol sta- tions to shortly follow. Mobile payments inclusion may be facilitated, Jordan re- through NFC are already possible on mainsstructure, a highly particularly cash-based where society, financial im- select bus routes to universities. portant developments have been made:

■■ 1.4.4. Planned and On-Going Pilots the payments infrastructure, mak- CBJ is also working with other govern- ingACH it hasquicker filled and a significant cheaper for gap low- in ment departments, universities, and value transactions to move between PSPs to test several use cases on differ- Jordan’s 25 licensed banks. In prin- ent customer segments, including the ciple, banks should be able to offer following: very low-cost domestic payments services that compete directly with ■■ NFC-enabled mobile payments for the cash-based services offered by bus services to the main universities exchange houses, which dominate in Jordan, as part of a broader pro- the domestic payments market. gram for encouraging “cashless universities.” Pilots have already begun. ■■ The ecosystem that is being developed for mobile payments has ■■ the potential to improve access to that are unbanked, salaries are be- ingFor disbursed specific streams to mobile of thewallets military and However, consumers and service linked to prepaid cards, in partner- providersand use of need digital to financialmake a concerted services. ship with the Credit Military Fund. effort to transition away from cash. - Once planned and ongoing projects are cial education more broadly and a completed JoMoPay should be one of the targetedThis transition marketing will campaign lean on finan that most advanced MFS ecosystems in the emphasizes the innovative and ex- world (see Table 5. and Figure 2). - vices for small payments rather than 1.5. Summary—Jordan’s Domestic onciting the natureconcept of that digital the newfinancial products ser Payments Markets are “for the poor.”

Although CBJ has been committed to ■■ Partnerships will be essential continually upgrading and supporting to the growth of noncash-based

TABLE 5. Planned Mobile Money Ecosystem Cash-in and Cash-out points Channels options—P2P Other digital channel options – MPSPs branches – Mobile-to-mobile – Use at any merchant who – Banks – Mobile-to-prepaid card has an upgraded POS or – Exchange houses* – Mobile-to-bank account a mobile wallet to accept – Post office (and vice versa) payments* branches* – Pay bills through – ATMs eFAWATEERcom – MPSP agents* – Pay for public transport, car parking, and retail purchases* *Planned

9 Paving the Way for Digital Financial Services in Jordan

FIGURE 2. Interoperability of Payment Systems in Jordan

CBJ TRC

Electronic Cheque Selement Banks Banks MNOs Clearinghouse (ECC) JoNet Merchant / (ATM / POS Switch) ATM POS

PSPs Mobile wallet Mobile RTGS JoMoPay PSP Agent phone

Banks Mobile wallet Online / PC eFawateercom (Electronic (for banked Automated Clearing Bill Presentment and customers only) House (ACH) Payment) End- Plaorms (Naonal Payment System) Providers Instrument Channels Users

Source: CBJ and Enclude.

payments services. Creating a col- laborative environment for the dif- payments services, a proportionate, non- ferent segments of the payments discriminatory,To offer efficient, and safe, sound and regulatory accessible market will be important. Partner- framework is required. This is partic- ships between MPSPs and exchange - houses—given their prominent role as domestic and international pay- systemularly the for caselow-income where improvingcommunities finan is a ments providers—could help to build priority,cial inclusion as it is and in Jordan. access Indeed,to the financial accord- consumer trust by demonstrating ing to the Payment Aspects of Financial that new and unfamiliar services are Inclusion (PAFI) report, “the legal and safe and effective. Both MPSPs and ex- - change houses need to feel that part- cial inclusion by effectively addressing nerships will advance their business allregulatory relevant framework risks and by underpins protecting finan con- models (including exchange houses sumers, while at the same time fostering as agents for domestic remittances innovation and competition.”14 and PSPs as agents for international remittances) and revenue streams. The following is an overview of the regulatory environment of domestic ■■ - payments. Four areas in the regulatory environment are important to achieve NGOTargeting payments specific will use be cases essential on trans to gainingport, government, a critical mass microfinance, of users and to achieving scale. ■financial■ Regulatory inclusion: neutrality and proportionality

2. Domestic Payments Regulatory ■■ Risk management Overview ■■ Consumer protection The regulatory framework is a critical element of any payments environment. ■■ Financial integrity

14 Guiding Principle 2. The World Bank Payment Systems Development Group. April 2016. http://www.worldbank.org/en/

topic/paymentsystemsremittances/brief/pafi-task-force-and-report

10 Paving the Way for Digital Financial Services in Jordan

Rather than review the complete regula- 2.1. Regulatory Neutrality and tory framework for domestic payments Proportionality in Jordan, the report has focused on e-money issuance and other areas that Technological innovations in business directly impact the potential of launch- models tend to be driven by new types ing a digital pilot and/or improving ac- of PSPs. Managing and understanding the risks associated with new models underbanked Jordanians. A comparison and new actors in this space can be chal- againstcess to financial the Electronic services Money for unbanked Directive or lenging for any regulator. Finding the (EMD) Directive 2009/110/EC, the Pay- balance between addressing potential ment Service Directive 2 (PSD2) Directive (EU) 2015/2366, and other relevant reg- and consumers, and encouraging in- ulations within the European Economic novationrisks to the and prevailing competition financial is critical system to Area (EEA) will be undertaken. These are regularly cited as examples of good According to the PAFI report (p. 25), practice for establishing an enabling en- achieve financial inclusion goals. “the challenge is therefore to design a le- vironment for e-money issuance. While gal and regulatory framework that is fair EMD and PSD 2 are not necessarily the and balanced for all stakeholders, ad- gold standard and some features of the dresses risks and promotes innovation. directive may not be wholly applicable This requires that the framework be to the Jordanian example, the compar- risk-based, provider- and instrument- ison helps to identify opportunities to neutral, and forward-looking.” improve the market environment and to An unbiased and proportionate environ- and access to e-payments services. ment is essential to fostering competition better support financial inclusion efforts in the marketplace and creating space CBJ is responsible for regulating and over- for innovation in payments services and business models. Balanced prudential re- following three departments oversee quirements, particularly capital require- variousseeing the aspects financial of the sector regulatory in Jordan. frame The- ments, are a major element in this regard. work that governs domestic payments: Annex I.I provides a detailed overview ■■ The Payments Department oversees of the initial capital requirements for the development of the payments e-money issuance in Jordan and EEA. infrastructure. Its mandate is the development and oversight of e-pay- Although the operating environment ments, including establishing the framework for issuing e-money. and EEA are considerably different, aand comparison financial inclusion offers usefulneeds ofinsights. Jordan ■■ The Exchange House Department On initial assessment, the capital re- of CBJ oversees licensed exchange quirement for MPSPs in Jordan, when houses. Its mandate covers both do- compared with those of PSPs in EEA, mestic and international payments appears to be very high—almost four facilitated by exchange houses. times the amount required in Europe. An initial capital requirement that is too ■■ The Anti-Money Laundering Unit is high can be a barrier to entry. In a coun- an autonomous entity. It is responsi- try such as Jordan, where e-money issu- ble for AML/CFT policy and legislation for all organizations throughout Jordan and for adherence to FATF capitalance has requirement been identified level asmay a key limit pillar the recommendations. numberof the financial of potential inclusion new strategy, entrants a highinto

11 Paving the Way for Digital Financial Services in Jordan

the market and, therefore, the number ■■ Strengthening the capacity of stake- of services available to excluded groups. holders to effectively implement such measures However, capital requirements present a trade-off between allowing business- ■■ Ensuring ongoing compliance with es to enter the market, versus allowing the framework in companies that might not be strong Six risk areas should be assessed at the the regulator’s requirement of sound licensing stage for any PSP: riskenough management to operate and in a business way that developsatisfies- ■■ IT security/fraud ment. CBJ appears to have chosen to focus on the importance of preventing the ■■ Reliability and business continuity latter. From this perspective, the initial capital requirement of JOD 1.5 million ■■ Business risk (US$2.1 million) may not necessarily be ■■ Contractual relations and enforceability a nonproportional requirement. With that said, it will be interesting to observe ■■ Use of third-party agents the impact of this choice on the level of services provision within the market and ■■ Credit and liquidity risks to customers as account holders

financialTheoretically, inclusion the overlicensing the coming process years. for The processes developed by CBJ to li- MPSP in Jordan is nondiscriminatory. CBJ cense MPSPs appear to cover all the criti- provides room for banks and nonbanks to obtain a license to become e-money is- that this is a relatively new sector within suers. However, the challenges facing ex- Jordan,cal areas the identified effectiveness (see Annex of ongoing I.II). Given su- change houses in applying for an e-money license suggest that there may still be assess. The Payment Systems Department obstacles to ensuring the licensing frame- haspervision maintained of licensed open MPSPs communication is difficult to work is nondiscriminatory in practice. with all licensed entities to ensure that the capacity of private-sector stakehold- 2.2. Risk Management ers is high and that a culture of ongoing consultation is developed. These softer Retail payments systems are vulnera- elements of the regulatory environment ble to many risks, including operational, are very important for risk management liquidity, reputational, business, and fraud risks. The licensing processes implemented by the regulator should be 2.3.and forProtection ensuring offinancial Customer inclusion. Funds robust enough to ensure that effective systems and controls are in place within Risks presented when e-money is is- each licensed business to effectively sued against funds stored in a pooled manage these risks, thus protecting con- account held on behalf of customers need to be effectively mitigated, as with traditional sight deposits. Risks include sumersThe PAFI and report the financial states that system. striking the the risk of misuse or loss of consumer right balance in the licensing and regula- funds, the risk of the PSP becoming in- tory process requires the following: - ■■ Correctly identifying the risks stitution holding the underlying funds facingsolvent, bankruptcy. and the risk Financialof the financial authori in- ■■ Designing right-sized risk manage- ties are paying more attention to these ment requirements risks globally and are working to ensure

12 Paving the Way for Digital Financial Services in Jordan

a regulatory environment where risks amending the rules that apply to the are mitigated and funds held on behalf deposit protection scheme to extend the of customers are always safeguarded deposit protection to individual account (PAFI report, p. 26). balances held within in a pooled account up to JOD 50,000 per wallet. This pro- Annex I.3 provides an overview of the cess should be supported because it approach to safeguarding customer would help to safeguard customer funds funds under the e-money directive gov- in the event of bank failure. erning EEA and regulations adopted in Jordan. All MPSPs (whether a bank or 2.4. Financial Customer Protection nonbank) must place a cash deposit of 100 percent of the amount of e-money - it plans to issue in a settlement account quires that consumer rights are upheld held in escrow at a licensed bank. byEffective service financialproviders inclusionand that the also infor re- mation about the services rendered is Nonbank MPSPs were previously also accurate and transparent. This is further required to submit to CBJ an irrevocable and unconditional bank guarantee for the consumer base—ensuring consum- the amount of e-money they planned to erssupported understand by sound the services financial available literacy toof issue. This was intended to ensure cus- them and their rights as consumers. tomer funds were protected in the case of MPSP insolvency. However, newly re- There is no general legislation relating leased CBJ instructions cancelled this to consumer protection in Jordan and no requirement. This was possible due to the latest changes in Article (50) of the regulations. Customers who hold bank CBJ Law, which instructed that customer accountsspecific financialare covered consumer by the 2012 protection Instruc- funds are automatically protected from tions on Dealing with Customers Fairly creditors when the funds are placed in and Transparently (no.56/2012), which escrow at the settlement account. The mandates activities such as transparen- additional safeguard of a bank guaran- cy of fees and interest rates, disclosure of tee is therefore no longer required. terms and agreements before the client enters into a relationship with the bank, However, the settlement account will and the establishment of a consumer still be at risk if the settlement bank complaints procedure. Articles (73), (74), fails. Although Jordan has a deposit pro- and (75) of the Banking Law (no.28/2000) tection scheme—the Jordan Deposit provides for data protection and privacy. Insurance Corporation (JODIC)—the However, MPSP clients who use MFS in funds held in the settlement account are Jordan are not covered by these regula- treated as a single account for insurance. tions. Annex 1.4 provides further detail. Thus, individual consumer funds held in mobile wallets are not fully protected Because of this, the JoMoPay Mobile once the overall settlement account val- Payments Service Instructions and the ue becomes larger than the amount in- accompanying Mobile Payment Service sured (JOD 50,000 [US$70,000]). Operational Framework provides for consumer protection and include the To mitigate this risk, regulations should following: specify that customer funds be pooled in multiple accounts with multiple set- ■■ Consumer complaints procedure. tlement banks, spreading MPSPs’ (and The MPSPs policy for handling ultimately the consumer’s) exposure customer service and customer in the event of bank failure. CBJ is also complaints is required to be outlined

13 Paving the Way for Digital Financial Services in Jordan

as part of the license application However, the consumer protection frame procedure.15 The Mobile Payment work still has gaps that could create risks Service Instructions also contains to consumers using MFS. These risks in- minimum standards for ensuring clude the following: customers are aware of the complaints procedure in place and the ■■ Risk of consumer’s private data handling of the procedure itself. This being improperly released. Jordan includes announcing the complaint has no general legislation on data center’s address, email, and phone protection and privacy, besides numbers; recording the complaint/ those within the banking law that suggestion when it is received; and cover banked customers. The lack addressing the complaint or looking of regulation within the e-money into the suggestion within three days ecosystem as to who can access data and informing the customer of the and where exceptions exist creates result.16 If the complaint is not set- concerns that consumer’s data may tled, CBJ has the right to form a com- be improperly used. There is also no mittee to look into the situation and penalty in place should this occur. make a decision on the complaint.17 Box 3 presents a more detailed overview of key considerations related to ■■ Data protection and privacy. MPSPs data privacy in mobile money. must provide information on their se- ■■ curity and protection policy as part of Risk of fraud. MPSPs are not re- the license application procedure.18 quired to provide a full policy on how The Mobile Payment Service Opera- to recognize, manage, and minimize tional Framework also includes in- fraud as part of the licensing proce- structions to create and “periodically dure. This could result in a lack of test” MPSPs’ back-up infrastructure.19 strong internal controls to recognize and manage fraud. It also does not ■■ Protection of consumer funds. The encourage mechanisms such as con- Mobile Payment Service Instructions sumer education and due diligence ensures consumer funds are pro- on staff and agents to minimize fraud. tected by requiring MPSPs to deposit 100 percent of e-money issued into ■■ Risk of consumers being unable a pooled account held at a licensed to make informed choices. There bank.20 are no instructions in place for full disclosure of terms and conditions to ■■ Fraud prevention. The Mobile Pay- consumers before they open a mobile ment Service Instructions requires wallet, or full disclosure of fees be- MPSPs to be able to “track and verify fore they make a transaction. There the validity and reliability of custom- are also no guidelines that require er transactions” and “seek to develop consumers be given adequate time to special controls to monitor activities respond before any changes to fees or to be performed by the agent.”21 terms and conditions come in effect.

15 Article (5) Mobile Payments Services Instructions. 16 Article (35) Mobile Payments Services Instructions. 17 Article (36) Mobile Payments Services Instructions. 18 Article (5) Mobile Payments Services Instructions. 19 Section 6.b Mobile Payments Services Operational Framework. 20 Article (8) Mobile Payments Services Instructions. 21 Article (4) Mobile Payments Services Instructions.

14 Paving the Way for Digital Financial Services in Jordan

BOX 3. Data Privacy and Protection in Mobile Money: A Global Overview

Data privacy and protection is a growing concern among mobile money consumers and regulators. According to a recent GSMA study, approximately 80 percent of mobile users want their personal data to be private. The lack of data protection presents risks that consumer accounts can be illegally accessed to steal funds or to conduct illicit activities and that consumers may be subject to identity theft, black- mail, or in extreme cases, intimidation and harassment. There are also broader concerns over consumers’ rights to privacy, particularly in markets where digital footprints are being created for the first time. Only recently has there been discus- sions on how best to protect consumer privacy in digital financial services (DFS), while also recognizing the benefits of data sharing for creating a credit history, generating business cases, and promoting AML/CFT efforts.

Some countries have general data privacy laws that protect personal data. For example, most European Union countries have implemented the European Union data protection Directive 95/46/EC—a principles-based, technology-neutral directive that ensures data collection and processing are done in a way that protects the privacy rights of consumers. Although DFS is not specifically mentioned in the directive, it is covered within the framework. Outside of Europe, Canada also has laws around the collection, use, and disclosure of personal information based broadly on the principles in the European Union data protection directive.

In countries where there are no general data privacy laws, specific mention of data privacy protection can sometimes be found in the framework of DFS regulations. In Kenya, for example, NPS Act 2014, which is specifically related to PSPs, states that the sharing of consumer data is prohibited except in specific circumstanc- es and that a fine will be assessed if these requirements are not met. This is in line with the Jordanian law on consumer privacy in banking. In other countries, such as Rwanda, outlining data privacy and security is part of the licensing procedure for MPSP. The introduction of data privacy and protection within the framework of DFS regulation is still in early stages, and remains highly debated among stakeholders.

Sources: Kenya Subsidiary Legislation, 2014 713; EU data protection Directive 95/46/EC; Norton Rose Fullbright (2014) Global data privacy directory; CGAP (2014) Do Mobile Money Clients Need More Protection?

■■ Risk of consumers losing funds if 2.5. Financial Integrity their bank failures. As noted, there are no provisions to ensure individual funds held in mobile wallets are - protected in the event of bank fail- nancialEnsuring inclusion the integrity efforts. of One the financialexample ure. However, CBJ is working to miti- issystem the ongoing sometimes challenge can conflict of balancing with fi gate this risk. risk while at the same time improving - CBJ plans to release consumer protec- er proportion of a country’s population. tion by-laws that will address many of access to financial services for a great these issues. It is also in the process of the system from money laundering and establishing a dedicated department for Specific challenges include protecting- consumer protection. terrorist financing abuses, while also fa cilitating access to financial services for 15 Paving the Way for Digital Financial Services in Jordan

- The high penetration of national IDs for tion documents required to access regu- Jordanians, combined with the decision those who may not have the identifica to recognize UNHCR cards for refugees and passports for non-Jordanians, could latedIn light financial of this services.challenge, FATF supports mean that a large majority of consumers a risk-based approach to implementing will be able to open a wallet account.22 its recommendations. However, this approach is not always possible given Due to this, some stakeholders do the extent of the AML/CFT, and related not think that transaction size lim- know-your-customer (KYC) challenges its and monthly limits on the amount in many emerging markets. Following that can be held in a mobile wallet are an assessment of Jordan’s AML/CFT the Jordanian market. Currently, an recommendations for improvements unbankedan accurate customer reflection can oftransfer the risk up to in andregime put inJordan 2009, on FATF a regular made follow-up specific 100 JOD (USD 140) to another unbanked process list. CBJ responded by making customer, and has a monthly balance extensive changes, and in 2013 Jordan limit of 1000 JOD.23 However, CBJ has was removed from the FATF list. An- acknowledged this and is engaging with nex 1.5 provides an overview of the ap- services providers to discuss increasing proaches adopted in Jordan and EEA. transaction limits. Mobile tax is another matter that may require adaptation or Although some countries use a tiered Box 4). - tion documents available to clients, for clarificationNote that all as MPSPs highlighted are required in to be openingKYC approach, a mobile based wallet on the account identifica and connected to the national payments subsequent limits on transaction sizes, switch (JoMoPay), and to have a national this approach is not used in Jordan. ID number, passport number, or UNHCR

BOX 4. Mobile Tax in Jordan

A 2015 GSMA report found that Jordan has one of the highest levels of mobile- specific taxation worldwide. The same report found that the mobile industry paid almost US$500 million in recurring taxes and fees in 2013—equivalent to over 50 percent of mobile industry revenues in Jordan during the same period.

In terms of taxes on MFS, interviews with services providers found that some were confused about the current tax rates. Providers sought clarification on whether mobile money services would be exempt from sales tax, as banking services in Jordan are. Providers also were confused about how MPSPs were classified to determine the level of income tax they are required to pay, given that income tax for FinTech companies is 5 percent, while income tax for financial services is 35 percent.

Source: GSMA (2015). Digital inclusion and mobile sector taxation in Jordan.

22 At the time of the assessment, UNHCR cards were not accepted as a form of ID for opening a mobile wallet. However, there are plans to release an instruction enabling this. 23 Transaction sizes limits and monthly limits vary by unbanked and banked customer, and type of transfer. Annex 1.5 provides further detail.

16 Paving the Way for Digital Financial Services in Jordan

card linked to their transactions. In turn, Consumer protection and transparency all transactions are recorded and limits present big challenges, and adherence are automatically adhered to, thus en- to international standards of consumer protection is very important, particularly for lower-income groups that have 2.6.suring Concluding the financial Remarks integrity of JoMoPay.

Overall the regulatory environment anlow area levels that of financial requires literacy. attention, While effec CBJ- for issuing e-money in Jordan is sound. tivehas legislation identified must consumer be developed protection in the as The recent amendment to the CBJ law short term to ensure that consumers are (article 50) and the issuance of the protected as soon as possible. It also is 2017 instructions requiring settlement important to recognize that consumer accounts to be held in escrow and the protection is a broader issue through- subsequent cancelling of the bank guar- out Jordan and that it is not limited to antee mean that protection of customer e-money issuance or payments services. funds is proportionate and robust. However, there remains some risk to the As the sector continues to grow and use safety of consumer funds in the event increases, it will be important to ensure of bank failure, given the scope of the robust ongoing oversight of the sector, country’s deposit protection scheme and CBJ must continue to foster an envi- and the lack of settlement account di- ronment of open dialogue and consultation with industry players. versification rules.

17 Paving the Way for Digital Financial Services in Jordan

PART 2. JORDAN INTERNATIONAL REMITTANCES MARKET The following is an overview of current

The overview is designed to provide only a small proportion work informally- and historic migration flows in Jordan. or in temporary, low-paid positions. This is in line with the migration policy cen context for remittance flows, both to and ter’s (2013) overview of Jordan, which- from Jordan, including values, volumes, showed that, in 2006, 43.2 percent of 1.and averageDemographics: transaction Immigration sizes. and Jordanian emigrants had aWhile tertiary similar edu Emigration Stocks cation, and 39.8 percent28 had completed secondary education. According to the latest population census demographics have been suggested for Jordanian migrants in the United States and Germany, less information regarding (2015), 9.5 million people live in Jordan,24 throughthe demographics interviews of during Jordanians research living for in of which 2.9 million or 30.6 percent of the these countries was able to be gained overall population are non-Jordanians. This was a significant increase from the thisPalestinians project. remain the largest migrant previous census in 25 2004, where only 349,933 or 7 percent of the population 2 million registered Palestine refugees wereaccording non-Jordanians. to United Nations In 2015 migration 699,719 community living in Jordan, with The overma- Jordanian citizens were living abroad, 29 26 in 2015 according to UNRWA. Whendata. compared with other countries in accordingjority of Palestiniansto the 2015 livingnational in census Jordan have full Jordanian citizenship. However, the region, the volume of both in and out- data, 634,182 Palestinians (6.65 percent migration is relatively high, an indicator of the population of Jordan) do not have of Jordan’s position as a trade and mi a national ID. gration center (see Table 6). According to the United Nations, Table 7 outlines the migration history of- 138,939 Egyptians were living in Jordan the selected corridors analyzed for this in 2015. However, some argue that report. Historically, the largest destina this number vastly underestimates the tion for Jordanian migrants has been the number of Egyptians who work and GCC countries, with Saudi Arabia and- live in Jordan. Several key stakeholders ingUAE to each United hosting Nations more international than 150,000 mi- thathave is suggested more in that line 400,000–600,000 with the 2015 Jordanian migrants Interviews in 2015,suggest accord that a Egyptians live in Jordan—an estimate large proportion27 of these migrants are - granthigh-income data. “white collar” workers; national census data, which estimates the number to be 636,27030 (6.68 per cent of the population). Some believe 24

http://www.jordantimes.com/news/local/population-stands-around-95-million-including-29-million-guests 25 The Preliminary Results of the Population and Housing Census 2004, accessed at JOR_2004_PHC_Result_EN.pdf 26 United Nations, Department of Economic and Social Affairs (2015). Trends in International Migrant Stock: Migrants by Destination and Origin (United Nations database, POP/DB/MIG/Stock/Rev.2015). 27 United Nations estimates are based on population censuses. Population registers and nationally representative surveys. International migrants have been equated with the foreign-born population whenever this information is available. 28 http://www.migrationpolicycentre.eu/docs/fact_sheets/Factsheet%20Jordan.pdf. This is in sharp comparison with inward migration, where in 2004 only 7.5 percent had a tertiary education. 29 http://www.unrwa.org/where-we-work/jordan 30 http://www.jordantimes.com/news/local/population-stands-around-95-million-including-29-million-guests

18 Paving the Way for Digital Financial Services in Jordan

TABLE 6. Migration Stocks 2015, Selected Arab Countries Immigrants Emigrants Total % of Total % of Total Stock Stock Resident Population Population Country (inbound) (outbound) Population Immigrants Emigrants Saudi Arabia 10,185,945 270,029 31,540,000 32 1 UAE 8,095,126 36,557 9,157,000 88 0 Jordan 3,112,026 699,719 7,595,000 41 9 Turkey 2,964,916 3,114,471 78,666,000 4 4 Kuwait 2,866,136 187,871 3,892,000 74 5 Lebanon 1,997,776 798,140 5,851,000 34 14 Oman 1,844,978 21,333 4,491,000 41 0 Qatar 1,687,640 25,681 2,235,000 76 1 Syria 875,189 3,718,001 18,502,000 5 20 Bahrain 704,137 55,964 1,377,000 51 4 Iraq 353,881 1,479,966 36,423,000 1 4 Yemen 344,131 1,012,889 26,832,000 1 4

Source: Emigrant and Immigrant stock: United Nations, Department of Economic and Social Affairs (2015). Trends in International Migrant Stock: Migrants by Destination and Origin (United Nations database, POP/ DB/MIG/Stock/Rev.2015). Total population: United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects: The 2015 Revision, DVD Edition. that the United Nations estimate is low - According to the Philippines department United Nations migrant data suggest. because many Egyptians may be infor mally and/or temporarily employed and of labor, there are about 25,000 overseas may not have residency and/or work Filipino workers (OFWs) in Jordan—4.231 permits. - percent of all migrant workers. Many- OFWs are household services workers The number of Filipino migrants in Jor (HSWs), many of whom are in Jordan il TABLEdan is also 7. likelyMigrant to be Stocks, much higherSelected than Corridors legally ofand Analysis are undocumented. In 2010, Country Official Migrant Official Migrant Undocumented Host Country of Origin Stocks 1990 Stocks 2015 Migrants Saudi Arabia Jordan 90,278 182,152 low UAE Jordan 26,078 167,585 low United States Jordan 31,871 64,868 low Qatar Jordan 10,999 55,709 low Germany Jordan 12,527 12,663 low Jordan Egypt 171,413 138,939 400,000–600,000 Jordan Palestine 851,880 2,142,755 low Jordan Philippines 2,245 4,056 25,000 Source: United Nations, Department of Economic and Social Affairs (2015). Trends in International Migrant Stock: Migrants by Destination and Origin (United Nations database, POP/DB/MIG/Stock/Rev.2015).

31 http://www.dole.gov.ph/ro_polo_updates/view/293

19 Paving the Way for Digital Financial Services in Jordan

- - - Jordan and the Philippines signed a Mem market and better safeguarding cus orandum of Understanding on labor co 2.1.tomer Approach funds. to Researching operation, which paved the way for the and Improving International “Principles and Controls” protocol, in an Remittances Markets attempt to document Filipino migrants and, in doing so, reduce the number of- - incidents of abuse. This is an ongoing process, and reports of abuse and strug32 The World Bank and the Bank for Inter gles with documentation continue. - makersnational who Settlements want to (BIS)improve developed the mar a- set of general principles to guide policy There are a number of challengesBox in es 5 - timating remittances to and from Syria ket for remittance transfers (see Box 6). given the protracted conflict. For this specific assessment, the gener 2.presents International further detail. Remittances al principles have been used to assess- Market the overall market. However, given that this assessment focuses on establish- Overview ing a digital pilot, a deep dive analysis

■■ of specific corridors was also undertak infrastructure for international re- en (while still adhering to the five main The use of the domestic payments- toprinciples). support the This digitization deep-dive ofanalysis remittanc will- enable opportunities for an intervention mittances, for both digital and non The following is an overview of the mar- sentdigital in payments,cash through is low the in network Jordan. ofA es in specific corridors to be drawn out. ket against the framework of the gen- majority of payments are received or

exchange houses, which are the most eral principles. An assessment of eight ■■ prevalentCash is the RSPs dominant in the market. channel for specific corridors is then provided. (The While there are more options for in- five inbound corridors were from the sending remittances from Jordan. UAE, Saudi Arabia, Qatar, the United - States, and Germany to Jordan; three bound services from the send side, outbound corridors were from Jordan including a higher use of bank ac- to Egypt, Palestine, and the Philippines.)- counts services by those sending The corridors were selected because from the GCC and Europe, the dom of their size (see Table 8, those select ■■ inantThere receive is a well-developed channel is cash. market for ed are in bold), market dynamics, and - the authors’ initial assessment of their suitability for piloting a digital solution; both outbound and inbound remit “suitability” included digital readiness tances, particularly with regard to in the corresponding market. ■■ market competition. For each of the corridors, this section The Exchange House Department of will detail market dynamics identified- CBJ is doing an extensive review of- from interviews, desk-based research, the regulatory framework for this and mystery shopping of services pro market segment. The review is fo viders conducted in the first and second cused on reducing opaqueness in the quarters of 2016. and

32 See, e.g., https://www.migrant-rights.org/2013/05/115-stranded-filipinas-in-jordan-plea-for-repatriation http://www. thenational.ae/news/world/asia-pacific/abuse-of-maids-in-jordan-continues-despite-efforts-to-protect-them.

20 Paving the Way for Digital Financial Services in Jordan

BOX 5. Estimating Remittances to and from Syria

Before the conflict, in 2010, the flow of remittances to Syria was estimated to be US$2,079 billion (JOD 1,476 billion). The top sending countries were broadly in line with where Syrians had developed well-established communities, including Jordan, Saudi Arabia, the United States, Kuwait, and Germany (see tables B5-1 and B5-2). While a proportion of this flow is still destined for Syria, it is believed that new corridors are being established to the main host countries for Syrian refugees, predominantly Lebanon, Turkey, and Jordan.

Interviews with remittances services providers (RSPs) in Jordan have yielded a mixed set of results on the proportion of current inflows to Jordan that are destined for Syrian refugees residing in the country. Very little is known about this consumer group; this is in large part due to the sensitive nature of the data, and the AML/CFT challenges this group faces when attempting to receive remittances through formal channels. Many RSPs cannot accept UNHCR IDs as valid identification for the collection of remittances. However, the official ID cards for Syrians issued by Jordan’s Ministry of Interior are accepted. It has been suggested that, even with these challenges, this market is relatively buoyant and growing.

Although several questions about the dynamics of this market segment remain unanswered, it is highly likely that inbound remittances to Jordan (both formal and informal) are directed to this specific group. A better understanding of the source of these funds and the extent to which they are being sent to Jordan is needed to understand how these transactions might be digitized to aid financial inclusion of this community.

TABLE B5-1. Top 10 Remittances Corridors to Syria, 2015 Estimated Remittance Received to Syria 2010 % of Total Sending Country USD Million (JOD million) Remittances Received Jordan 518 (368) 25 Kuwait 353 (251) 17 Saudi Arabia 255 (181) 12 United States 186 (132) 9 Germany 105 (75) 5 Palestine 61 (43) 3 Libya 58 (41) 3 Canada 57 (40) 3 Sweden 51 (36) 2 France 41 (29) 2 Other 394 (279) 19 TOTAL 2,079 (1,476) 100

Source: World Bank Bilateral Remittance Data, accessed 09/2016.

21 Paving the Way for Digital Financial Services in Jordan

TABLE B5-2. Top 10 Countries Receiving Syrian Migrants, 2015 Host Country Official Migrant Stocks 1990 Official Migrant Stocks 2015 Turkey 5,247 1,568,494 Lebanon 25,553 1,255,494 Jordan 51,557 700,266 Saudi Arabia 305,838 623,247 Iraq 0 246,556 Egypt 1,359 146,837 United States 36,782 69,459 Sweden 38,795 69,199 Germany 15,330 53,099 Libya 15,014 27,762

Source: United Nations, Department of Economic and Social Affairs (2015). Trends in International Migrant Stock: Migrants by Destination and Origin (United Nations database, POP/DB/MIG/Stock/ Rev.2015).

2.2. Market Size - reflected in a relatively large number of RSPs conducting remittances transac In the Arab world, Jordan is a relatively- tions to and from the country. large remittance market. One IMTO total value of formal remittances are Itsreferred position to itas as a thesending fifth and most receiving import Some believe that 75 percent of the- ant market for IMTOs in the region. directed into the country from Jordani market for both person-to-person and ans who are living overseas. The World trade-related international payments is Bank estimates that Jordan received TABLE 8. Largest Remittance Corridors Inbound and Outbound, Jordan, 2015 Remittances Size of corridor USD Remittances Size of corridor USD Inbound Millions (JOD Millions) outbound Millions (JOD Millions) 1 Saudi Arabia 1,468 (1,000) Egypt 1,293 (920) 2 UAE 716 (510) Palestine 1,074 (760) 3 United States 376 (270) Syria 254 (180) 4 Palestine 220 (160) China 45 (32) 5 Qatar 207 (150) Iraq 43 (30) 6 Kuwait 198 (140) Sri Lanka 35 (25) 7 Libya 82 (58) India 19 (14) 8 Germany 65 (46) Indonesia 18 (13) 9 Bahrain 60 (43) Bangladesh 16 (11) 10 Oman 47 (33) Lebanon 13 (9.2) 11 Canada 42 (30) Philippines 12 (8.5)

Source: World Bank Bilateral Remittance Data. Accessed 09/2016.

22 Paving the Way for Digital Financial Services in Jordan

FIGURE 3. Total Inbound and Outbound Remittances, Jordan (USD Millions) 4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

- 2005 2006 2007 2008200920102011 2012 2 013 2014 2 015

Inbound Remiances Outbound Remiances

Source: World Bank Annual Remittance Data. Accessed 09/2016.

2015 selected remittances corridors to and over 33 US$3.8 billion (JOD 2.7 billion) in- Figure 4 provides an overview of the eight —the equivalent of 10.4 percent- of the Kingdom’s gross domestic prod from Jordan. The value (based on World uct (GDP) over the same period. Out Bank bilateral remittances estimates) of bound remittances were estimated to be- the Jordan-to-Egypt corridor is higher- far lower—close to US$500 million (JOD than the total estimate for outbound flows 360 million) in 2015—although ser from Jordan (see Figure 3). This dispar vices providers would say this figure is whichity highlights are complex the challengeand at times in fragment obtaining- much larger (see Figure 3—this will be consistent data on remittances markets,- discussed later in this paper). - - ed. Anecdotal evidence obtained from in- Not surprisingly, given Jordan’s migra terviews puts the outbound market from tion profile, GCC countries, specifical Jordan closer to US$2 billion (JOD 1.4 bil ly Saudi Arabia, UAE, and Qatar are the- lion) in 2015—roughly four times the size- largest send markets to Jordan. The of the official reported figure—and closer United States, Libya, and Germany fol- to the 25 percent figure of total remittanc low these. The largest corridors for esChallenges suggested bywith key stakeholders.sizing remittances outbound remittances are also to coun- - tries in the region: Egypt, followed by AsiaPalestine region and as Syria.migrant However, communities increas in markets persist for several reasons, in- theing volumesregion continue are being to sent grow to in the popula wider- cluding the way transactions are settled in specific corridors, the scale of informality in a given market, and the volume tion. Key corridors in this region include of irregular migration. These factors af China, India, Indonesia, Philippines, fect various Jordanian corridors to some Bangladesh, and Pakistan. extent. The impact they have on market

33 The size of the receive remittance market was US$3.4 billion (JOD 2.4 billion) in 2015, according to CBJ.

23 Paving the Way for Digital Financial Services in Jordan

FIGURE 4. Market Size (Value) by Selected Corridor, 2015 (USD Millions)

Jordan - Philippines $12

Jordan - Palesne $1,074

Jordan - Egypt $1,293

Germany - Jordan $65

USA - Jordan $376

Saudi Arabia - Jordan $1,468

Qatar - Jordan $207

UAE - Jordan $716

$0 $500 $1000 $1500 Millions USD

Source: World Bank Bilateral Remittance Data. Accessed 09/2016.

Exchange Houses. dynamics will be explored in subsequent market as the principal As is customer- typical forfacing the 2.3.sections Market of this Players: report. Exchange region, exchange houses dominate the Houses, IMTOs, and Banks exchange house can offer up to three or fourentity. different Depending channels on for the sending corridor, funds an - withinThere arethree several main financial groups: institutions exchange (e.g., cash-to-cash or cash-to-bank ac in the remittance market, and these fall count). Transactions are usually driven by partnerships designed to facilitate houses, IMTOs, and banks (see Figure 5 the transaction and/or the underlying and 6). The postal network also plays a business model that is used for moving role in selected corridors. money internationally. FIGURE 5. Remittances Services Providers, by Corridor (inbound corridors)

USA - Jordan

Saudi Arabia - Jordan

Qatar - Jordan

Germany - Jordan

UAE - Jordan

0% 20%40% 60%80% 100%

Bank Exchange House MNO MTO Post

Source: Mystery shopping, Q1–Q2 2016.

24 Paving the Way for Digital Financial Services in Jordan

FIGURE 6. Remittances Services Providers, by Corridor (outbound corridors)

Jordan - Palesne

Jordan - Philippines

Jordan - Egypt

0% 20%40% 60%80% 100%

Bank Exchange House MTO

Source: Mystery shopping, Q1–Q2 2016.

IMTOs. Given that exchange houses as- - Exchange houses occupy a variety of positions within the market. For remit sume a client-facing role, IMTOs tend to tances, they operate in two ways: operate in a “wholesale” position, and are represented by their agents in country. 1. As an agent for the principle service The three main IMTOs serving Jordanian provider, usually an IMTO such as- corridors (Western Union, MoneyGram,- atingWestern remittances Union,34 Express transactions Money, andfor and Express Money) are not regulated in customersMoneyGram, and payingreceiving out a orrevenue initi Jordan, instead they partner with regu share derived from the fee and for- latedBanks. entities in the market. - eign exchange margin charged to Banks are also in the market share of the market for remittances place. They operate as agents of IMTOs the customer. While IMTOs hold a and they offer international transfers greatest in corridors to Asia or from from bank accounts for customers who intra-regionally, their presence is 2.4.want Overall to send Remittancesmoney overseas. Market Assessment the United States and Germany.

2. As the partner of another exchange - allowshouse orfor bank the settlementin another ofcountry. transac In- The Jordanian remittances market is this case, the bilateral partnership- unique in that there is a significant de- tiesmand in the for challenges both sending and andopportunities receiving tions on behalf of customers (individ- remittances. While there are similari- ancesuals and are businesses), “netted-off” without against moving each tion of funds and the different custom- money internationally. Instead bal erseen segments in both served market has places, also the resulted direc

other over a period of time. This - model is usually used only within the in significant differences. This report Arab world, where there is also a high assessmentwill provide framework an overview derived of the Jordafrom incidence of trade-related payments, thenian General remittance Principles market, for International against the enoughalongside volume P2P remittances. within a given The corri“two-- Remittances (see Box 6 way” traffic that is created generates ). In addition to dor for this model to persist. the assessment approach, a comparison

34 Interviews with services providers suggest these are the three largest IMTOs operating in Jordan.

25 Paving the Way for Digital Financial Services in Jordan

BOX 6. The General Principles of International Remittances

Transparency and Consumer Protection (GP1): The market for remittance services should be transparent and have adequate consumer protection.

Payment System Infrastructure (GP2): Improvements to payment system infrastructure that have the potential to increase the efficiency of remittance services should be encouraged.

Legal and Regulatory Environment (GP3): Remittance services should be supported by a sound, predictable, nondiscriminatory, and proportionate legal and regulatory framework in relevant jurisdictions.

Market Structure and Competition (GP4): Competitive market conditions, including appropriate access to domestic payments infrastructures, should be fostered in the remittance industry.

Governance and Risk Management (GP5): Remittance services should be supported by appropriate governance and risk management practices.

Roles of Remittance Services Providers and Public Authorities

A. Role of remittance services providers. Remittance services providers should participate implementing the general principles.

B. Role of public authorities. Public authorities should evaluate what action to take to achieve the public policy objectives through implementation of the General Principles.

Source: World Bank (2007) General Principles for International Remittance Services, p. 1.

to relevant regulations governing the create an increased likelihood of de facto international remittances space in the - local monopolies. Exclusivity conditions EEA will be provided as well as a de can thus be particularly35 undesirable in tailed look at the inbound and outbound receiving countries.” - markets, focusing on specific corridors 2.4.1.of interest Market within structure each. and competition In terms of price, the international remit- (GP4) tance market in Jordan is one of the most competitive in the world. Pricing for out bound corridors covered in this study, with the exception of Jordan-Palestine, “Exclusivity conditions are where an RSP are almost half the global average price allows its agents or other RSPs to offer its for sending international remittances,- remittance service only on condition that- ketwhich would stood need at to 7.40 compete percent with as existing of Q4 they do not offer any other remittances 2016. Any DFS that launches in this mar service. The difficulty with such condi tions is that, by restricting choice, they low-priced services.

35 CPSS/World Bank, General Principles for Remittances, January 2007, p. 18.

26 Paving the Way for Digital Financial Services in Jordan

2.4.2. International Remittances Infrastructure (GP2) However, there are still concerns about anti-competitive practices. In particular,- interviews suggested that exclusivity conditions are still prevalent in the Jor “Remittance services, except perhaps danian market. Several exchange houses those that are entirely cash-based depend undertakeremarked thatfor theyfear wereof losing limited existing in the at some stage on the domestic payments number of new partnerships they could infrastructure for settlement. In some countries, such infrastructure remains partnerships. under developed. For example, noncash payment services36 may be available only in The impact of exclusivity agreements urban locations.” - theon pricemain hascorridors been difficultto to observe. Because IMTOs are less prevalent in “RSPs need to be able to use the domes tic payment systems. In most countries Jordan (i.e. from- the GCC sending markets to Jordan) the only banks can be direct participants impact on price for inbound remittanc in such systems. Nonbanks have access to the systems37 directly as customers of es has not been excessive. Similarly, the- price for outbound corridors has not banks.” - been as affected as we would have ex- In Jordan, as in most countries, only pected, because exclusivity conditions banks have direct access to the pay have tended to be in contracts that pre ments settlement systems (RTGS-JO date the establishment of the outbound and ACH). However, as exchange houses corridors. In other words, agreements are derisked and lose access to a bank- were written with the intent that Jordan account and banking services, their- would be the receiving market, not the ability to access these systems, even in sending market, so for outbound flows directly, has become increasingly diffi exclusivity is not a major issue. The cult. This needs to be addressed by the corridor-specific analysis highlights regulator.International remittances transactions some of pricing trends observed from within the region tend to not go through the mystery shopping exercises. - related to anti-competitiveness in the - marketplaceAs mentioned, is the an derisking additional of exchange concern standard international payments pro - cesses (SWIFT and correspondent bank change houses to compete on a level ing). Instead, netting-off processes are houses, which affects the ability of ex often used, with limited settlement as- and when is required. Therefore, many- playing field, even with each other. Some cross-border payments made through ex exchange houses (usually the larger change houses bypass the domestic set or more well-known exchange houses, tlements system infrastructure entirely. - which are considered less “risky”) are- - able to access the domestic payments Furthermore, from a cross-border stand systems, while others are not. The intro point, there is limited interconnectivi duction of ACH is likely to exacerbate this providety of payments an overview systems of the for remittances facilitating situation, by allowing some exchange transactions in Jordan. Figure 7 and 8 houses to use the system and offer straight to/from bank account services, value chain (i.e., the various funding and while others will be unable to do so. receiving channels and how the first and

36 CPSS/World bank, General Principles for Remittances, p. 22. 37 CPSS/World bank General Principles for Remittances, p. 18.

27 Paving the Way for Digital Financial Services in Jordan

FIGURE 7. Global Value Chain for P2P transactions

FIRST MILE SECOND MILE THIRD MILE

Funding Point of Service Network Service Point of Receive remiance remiance method transfer provider linkage provider collecon method

Global Value Chain • Cash • In person, • Tradional MTO • Internal system • Tradional MTO • In-person, • Cash • Bank account branch • Banks • SWIFT • Banks branch • Bank account • Mobile Money • Phone • Exchange houses • Money transfer • Exchange houses • Internet • Payment card account • Internet • Non-bank FI hub • Non-bank FI • Mobile phone • Mobile money • Payment card • ATM • Retail networks • MasterCard / • Digital MTO • ATM account • Mobile phone • Digital MTO Visa network • MNOs • MNOs • Retail networks

Note: This schematic has been adapted from MasterCard Send™ presentations, 2015. third mile of a transaction link into the

account that can be accessed online or international payments infrastructure). through a mobile app. The second mile Figure 7 outlines the various channels for digital solutions—the “settlement” available globally for remitting money.- or “network linkage”—can be handled Figure 8 highlights the options available bilaterally (e.g., one MPSP connecting to in Jordan, for both outbound remittanc another MPSP) or through hubs. Hubs es and inbound remittances; options can facilitate the connections between that are live in Jordan are highlighted oneseveral provider digital to instruments,“switch on” multiple services in green. corridorsproviders, and and instruments corridors, through by allowing one - - As shown in Figure 7, digital remittance- - options available globally include re ingconnection. services Hubsproviders themselves to connect are tonot each cli mittances received onto a mobile wal ent facing, but they allow two client-fac let or payment card and into a bank FIGURE 8. Value Chain for P2P Remittances in Jordan (inbound and outbound)

FIRST MILE SECOND MILE THIRD MILE

Funding Point of Service Network Service Point of Receive remiance remiance method transfer provider linkage provider collecon method

Value Chains Inbound to Jordan • Cash • In person, • Tradional MTO • Internal system • Tradional MTO • In-person, • Cash • Bank account branch • Banks • SWIFT • Banks branch • Bank account • Mobile Money • Phone • Exchange houses • Money transfer • Exchange houses • Internet • Payment card account • Internet • Non-bank FI hub • Non-bank FI • Mobile phone • Mobile money • Payment card • ATM • Retail networks • MasterCard / • Digital MTO • ATM account • Mobile phone • Digital MTO Visa network • MNOs • MNOs • Retail networks

Value Chains Outbound from Jordan • Cash • In person, • Tradional MTO • Internal system • Tradional MTO • In-person, • Cash • Bank account branch • Banks • SWIFT • Banks branch • Bank account • Mobile Money • Phone • Exchange houses • Money transfer • Exchange houses • Internet • Payment card account • Internet • Non-bank FI hub • Non-bank FI • Mobile phone • Mobile money • Payment card • ATM • Retail networks • MasterCard / • Digital MTO • ATM account • Mobile phone • Digital MTO Visa network • MNOs • MNO • Retail networks

Note: This schematic has been adapted from MasterCard Send™ presentations, 2015. Options that are live in Jordan are highlighted in green

28 Paving the Way for Digital Financial Services in Jordan

other, thereby facilitating38 a business-to- option to send remittances to Jordan business transaction. from Qatar using a mobile wallet.

However, as Figure 8 shows, very few- The introduction of ACH should also- value chain innovations, particularly have an impact on the variety of services those for outbound payments, exist in Jor offered by IMTOs for international remit dan. Cash and bank accounts are the only- tances. IMTOs can now, in principle, offer- mechanisms for sending money across a cheap direct-to-bank account service to- borders. SWIFT and internal system set all Jordanian banks at a lower cost. Pre tlements, including netting off, remain viously IMTOs needed a direct relation the principle second-mile approach. ship with a bank to which they wished There also appears to be limited access- to offer direct-to-bank account services. to aggregator-based services or hubs Whilst this was possible, the RTGS would- that facilitate transactions to Jordan. Pre have been used. Given that the RTGS is paid payment cards and mobile wallets reserved for high value interbank trans receive remittances in a limited number actions, such a service would have been- of countries (e.g., the Philippines), but it ducesexpensive the forcost low of valuethe transaction payments. Theand is not possible to send remittances from- introduction of an ACH significantly re Jordan using a mobile wallet or prepaid- structurecard. One tomajor serve card remittances scheme iscorridors explor may well result in an increase in IMTOs ing the opportunity to leverage its infra offering a direct to bank account services 3.to remittanceInternational customers. Remittances from GCC to Jordan. Regulatory Assessment (GP3) There have been several innovations “Remittance services should be supported in the first mile for inbound payments- by a sound, predictable, non-discriminatory from countries such as the United States, and proportionate legal and regulatory Germany, and Qatar. These include on framework” (GP3, p. 23). line payments, payments through ATM and mobile app payments. There is one

BOX 7. Super and Subagents in the Remittance Value Chain in Jordan

Breaking down the value chains further reveals the added complexity of the culture of sub- and super-agents. The super-agent is the entity that has the relationship with the IMTO, and in turn has a relationship with a network of subagents with whom it works to facilitate transactions. The super-agent and subagent split the revenue from foreign exchange and transaction fees.

Anecdotal evidence suggests that the 33 percent of the total revenue for a transaction that is taken in at the first mile is further split to approximately 10 percent to the super-agent and 23 percent to the subagent. Thirty-three percent of total revenue plus the foreign exchange margin then goes to the second mile, and 33 percent to the third mile.

38 MFS Africa, for example, claims on its website to connect to over 100 million mobile money recipients across all major networks in Africa. Connecting to MFS Africa would therefore give a mobile PSP the ability to rapidly expand their pay-out network cross-border. Another example of a hub is HomeSend, which enables clients to connect to mobile wallets, payment cards, bank accounts or cash outlets in multiple markets.

29 Paving the Way for Digital Financial Services in Jordan

■■

In GP3, “sound” refers to the minimization ■■ PrudentialConsumer protectionrequirements of risk to RSPs and customers through a - - well-understood regulatory framework. - Predictability is reflected in the consis As with most jurisdictions, CBJ is respon tency in enforcement and through a limit sible for regulating and overseeing the re- to the frequency for which regulations mittances market. The Exchange House- are modified. Nondiscriminatory focuses Department of CBJ is responsible for licens on creating a level playing field between ing and supervising exchange houses in Jor different RSPs to foster healthy market- dan, the principle providers of remittances competition. A proportionate regulatory services in the Kingdom. The Anti-Money framework is one that is not overly re appropriate for the level of risk present- Laundering Unit develops and implements- strictive or burdensome, but instead is all regulation relating to money laundering and terrorist financing for the entire finan ed to the financial system and customers 3.1.cial services AML/CFT sector in Jordan. using the services. In the following, PSD2—the directive - under which PSPs in Europe are licensed duresAdherence and recording/reporting to AML/CFT regulations, individ- to provide payments services, including including know-your-customer proce international remittances services—is compared 39to the Money Exchange Laws ual transactions, is a key responsibility in Jordan. Other relevant regulation, of any licensed RSP. These regulations- including directives relating to AML/ - require RSPs to implement policies and CFT for cross-border payments, will also sessment of market conditions for inter- controls to ensure that their transfer sys be assessed. This will allow for the as national remittances and improvements tems are not used for moving illicit funds. - The Jordanian AML/CFT regime is based that could be made to ensure the mar on the 2007 Anti-Money Laundering- ket best serves the needs of senders and and Counter Terrorist Financing Law beneficiaries of remittances. Applying (no.46/2007), which established an in the general principles to the Jordanian dependent anti-money 40 laundering The law applies unit, context to ensure a robust and thorough and criminalized money laundering, and assessmentThe following will are also areas be addressed.of the legal and later terrorist financing. - to banks, money transfer companies,41 national remittances: foreign exchange companies, and other regulatory framework relevant to inter ■■ financial companies, including MPSPs. As mentioned, a 2008 FATF review found ■■ AML/CFT several deficiencies in42 Jordan’s AML/ CFT regime, and Jordan was put on the Licensing and supervision regular follow-up list. Consequently,

- 39 The Jordanian Money Exchange Business Law (no. 44/2015) clarified that licenced exchange houses are permitted to send and receive financial transfers (article 16). In reality, exchange houses had been undertaking international remittance ser vices based on the 1992 money Exchange Business Law (no. 26/1992), although it was not explicitly permitted. 40 Following the amendment of the law in 2010. 41 For a full list, see article (13) law (no. 46/2007). Although the law was written before JoMoPay was introduced and MPSPs were licensed, it includes entities providing payments and collection services and issuing and administrating payments and - credit instruments. - 42 For more information on the mutual evaluationMutual reports, Evaluation see MENAFATF Report Third (2009) Follow-Up Mutual Report Evaluation for Jordan Report at Anti-Money Laun- dering and Combating the Financing of Terrorism at http://www.menafatf.org/images/UploadFiles/MER_Hashemite_King dom_of_Jordan.pdf and MENAFATF (2013) http://www.mena fatf.org/MER/JordanFUR3_E.pdf.

30 Paving the Way for Digital Financial Services in Jordan

the Anti-Money Laundering and Counter and below JOD 10,000 (US$990 and Terrorist Financing Law was amended- 3.2.US$14,000). Licensing Processes cludedin 2010, instructions and several relatedon customer instructions due and guidelines were issued. These in Exchange houses are the principle pro- - diligence (CDD), internal controls, and reporting requirements, which were is viders of international remittances—a sued to money exchange companies and role that they play in other parts of the- banks separately (see Annex 1, Table 6, ateregion. as wholesale As mentioned, providers IMTOs, of transfer such as for more detail). - Western Union and MoneyGram, oper

Following the extensive changes un- services. Thus, instead of being licensed moveddertaken from by CBJ,the theregular 2013 follow-upFATF review to in the country in question, they partner- approved Jordan’s application to be re- with exchange houses, who operate as agents, offering their international re the biennial update. The review recog mittances services (for both sending nized the considerable improvements to andTo offer receiving). international remittances ser- Jordan’s AML/CFT regime. - - In Jordan, below 700 JOD, CDD is not re vices in Jordan, an entity must obtain- quired, except in specific circumstanc either a43 banking or a money exchange es (e.g. sending money to a high-risk license.houses are While not permitted banks can to offeroffer interother country). Compared with many other national remittances services, exchange sending markets around the world, including many countries within the- licensetypes of developed banking services. in part forIn effect,the inter the- European Union, Jordan’s AML/CFT money exchange license is 44 a specialist requirements are less stringent. It remains to be seen whether the regulator national payments business. in Jordan, like that in many other coun recognize the international remittanc- tries in the region, will issue guidance- esMany market of the as banks a strategic interviewed focus for did their not that requires licensed RSPs to document identification for all international remit tances transactions, irrespective of the servicebusiness. such For asthese Western banks, Union a partnership was the amount sent. extentwith an of internationaltheir involvement money in transfersthis sec- - As a receiving market, Jordan requires- the international remittances market as that beneficiaries present identifica- tor. Many banks saw operations within tion documents (IDs) before remit - tances are paid out. According to ser a risk to the bank more broadly, given CDDvices as providers, well as the there transaction appears limits to be the challenges they face regarding de some confusion over the definition of risking and correspondent banking - 3.3.relationships. Prudential Requirements at which CDD is required. According to- the Anti Money Laundering and Count er Terrorism Financing Regulation re lated to Money Exchange Companies Prudential requirements are usually (no. 2/2010), it is both below JOD 700, put in place to manage systemic risk

43 Jordan Postal Service also offers international money transfers to several countries that have postal networks. 44 Jordan Post is also allowed to operate as an IMTO agent.

31 Paving the Way for Digital Financial Services in Jordan

- - related to the failure of a major finan appear to be high, given the nature of- cial institution. Prudential require the business of exchange houses. This ments usually include capital adequacy is particularly the case for larger pro and/or liquidity rules. Given the size of- viders who potentially will have to tionstransactions is minimal of RSPs, and sothe prudential systemic risk re- meet an upfront capital requirement presented by these types of institu of JOD 3 million and an ongoing capital requirement of JOD 1 million once the quirements, in principle, should reflect new by-laws are introduced. A scaled this. However, this is not always the- approach based on volume and value case, and in some countries, only banks of anticipated transactions (revenue), can provide remittances services be as is observed within EEA, may be a cause they are regulated for prudential more effective way of managing risk reasons. 3.4.in this Consumer area. Protection (GP1) exchange houses have an initial capital Depending on where they are located, Consumers of remittances services - “should have adequate rights as consum- requirement of 350,000–1 million JOD- ers of remittances services.” (US$490,000 and US$1.4 million, re spectively). The value 45of upfront cap As per the General Principles for Inter- ital required is defined by the type of company and location. However, this- - requirement is under review, and it textnational of error Remittance resolution services, and protectionconsumer has been proposed that the initial cap- protection is usually viewed in the con ital requirement be set at JOD 300,000 to JOD 3 million (US$420,000–4.2 mil of customer funds. Consumer protection- lion). According to article 17/b of the- in this industry should be covered by opedMoney relating Exchange to the Business ratios of Law sound (no.- furthersufficient supported complaints with procedures alternative with dis- 44/2015) instructions will be devel- putein RSPs mechanisms themselves, and and clearthis shouldrecourse be processes at a national level that con- ness of money exchange houses, fi- sumers can access should no resolution changenancial housesposition, either and limits. maintain According a cash - to ongoing capital requirements, ex tomer funds legislation should ensure be reached with RSP. Safeguarding cus deposit of 30 percent of their paid-up capital or obtain a bank guarantee of that every licensed RSP has the internal JOD 100,00046 (US$140,000), whichever processes in place to protect consumers’ Whenis greater. compared with EEA (which re- money. there is no general legislation on con- As with domestic payments, although quires an upfront capital requirement- of EUR 20,000 (US$21,000) to offer a sumer protection, banked customers money remittances service) the up are covered by the 2012 Instructions front capital requirements in Jordan on Dealing with Customers Fairly and

45 For all money exchange business conducted outside Amman, the paid-up capital is JOD 100,000 (US$140,000). Within Amman, the amount of paid-up capital depends on the type of company registered. For general partnership companies, JOD 250,000 (US$350,000) is required; for limited and shareholding partnership; JOD 500,000 (US$700,000) is required; and for other companies, JOD 1 million (US$1.4 million), according to Article (7), The Money Exchange Business Law (no. 26/1992) at http://www.cbj.gov.jo/pages.php?menu_id=121. 46 Article (8) Money Exchange Business law (no. 26/1992) at http://www.cbj.gov.jo/pages.php?menu_id=121.

32 Paving the Way for Digital Financial Services in Jordan

- -

Transparently (no. 56/2012) and Arti- musta bank hold account the funds or get in a bankcash guaranin their cles 73, 74, and 75 of the Banking Law tee. Indeed, many exchange houses (no. 28/2000) relating to data protec - tion. However, these laws do not cover branches—which is a security risk customersThe main oflaws exchange relating houses. to the opera- to them, their business, and the cus tomers they serve.

tion of exchange houses are the Money- focusedAs outlined on consumerin the regulatory protection section across on Exchange Business Law (no. 26/1992) domestic payments, general legislation containand the limited revised provisions Money Exchange for consum Busi- erness protection Law (no. including 44/2015). safeguarding Both laws of 3.5.financial Transparency services is required in Jordan.

- “The market for remittance service should customer funds. The cash deposit of no be transparent and have adequate con- less than 30 percent of the paid-up cap sumer protection” (GP1). ital, or a bank guarantee of JOD 100,000 Transparent prices and services fea- (US$140,000), is considered to be a tures are crucial to allow consumers buffer to protect customer funds in the eventThere ofare insolvency. several concerns regarding the safeguarding funds of exchange houses to make informed decisions about theremittances services they should use. ■in■ Jordan,Risk of including loss of fundsthe following: from the re- Such information should include the to mittance float. Customer funds are appliedtal price on (i.e., them; fees and at both other ends; costs foreign to the - exchange rates, including the margins gated account from the operations not required to be held in a segre user), the time it will take the funds to creates a risk should the exchange andreach receiving the receiver, countries and (Generalthe locations Princi of- account of the exchange house. This the RSP’s access points in both sending

house become insolvent or should it ples, p. 21). ■■ useRisk these of loss funds of fundsfor other in thepurposes. case of bank failure Although Jordan has no legislation to or cash deposit is held with a single mandate RSPs to provide transparent . The bank guarantee information about their services, most providers do so anyway. As part of this- account, creating a risk should the videdstudy, latermystery in the shopping report; exercisesthe methodol were- ■■ bankRisk offail. exchange houses being un- conducted (details and findings are pro able to hold the necessary paid-up the exchange houses that offer send and capital in bank. receiveogy is outlined international in Annex remittances 2) with many ser of- - It has been reported that gaining access to a bank account- clearvices. informationWe found that on manythe fee services charged pro for has become difficult for exchange viders were transparent—they provided houses, because banks consider ex - change house business too risky in the service, the foreign exchange rate,- terms of AML/CFT compliance, and mationthe speed was of provided service, andfor each pay-out product loca therefore subject them to derisking. tions in the receiving market. This infor This, in turn, creates security risks, because some exchange houses are (or channel) type. However, there are unable to hold their cash deposit in still some problems. It was not always 33 Paving the Way for Digital Financial Services in Jordan

clear whether a fee would be charged to stipulates that customer funds must be the sender or to the beneficiary at the held in a segregated account. other end of the transaction. 4. Selected Corridors: Volume, 3.6. Concluding Remarks Value, and Transaction Sizes - conclusions as to where and how digiti- While the regulatory framework in Jor Data analysis will help to inform our dan is strong in some areas, there are the market helps to determine whether important gaps. zation might occur. Knowing the scale of withThe 2013 useful FATF recommendations report on Jordan’s for AML/ im- digitizing remittances is viable. Where CFT environment provided the regulator scale is achieved, costs associated with- - tunitiesdigital to channels pass on these can savings be drastically to con- provements. FATF’s decision to remove reduced, and providers may have oppor Jordan from its monitoring list is a sig nificant endorsement of the regulator’s sumers. Where scale is not possible, the- improvements.The licensing regime for international - costs to services providers can be higher than that of cash, thus reducing the ap remittances providers has been devel- petite for introducing digital services. oped to take into account the specific As mentioned, remittances markets by role of exchange houses in Jordan, allow their very nature are fragmented and ing them to become licensed, monitored notoriously difficult to assess, given and supervised by CBJ. However, when - the lack of official data on volume of compared with other jurisdictions, - transactions, value of flows, and aver some of the prudential requirements views with over 45 service providers in age transaction sizes. A series of inter appear to be disproportionate, given the risk presented to the financial system by insights into transaction values and vol- the Jordanian market provided valuable internationalThe opposite remittances.is true for consumer pro- - ume in the corridors studied. The main- tection and transparency where consid- findings have been aggregated where cedureserable gaps in the remain. case of Areas fraud that and still disputes need possible and presented against the var (includingto be addressed access include to an mandatingalternative prodis- ious business models employed (see Table 9). These have been separated- where possible, as evidence suggests thatpute consumersresolution havemechanism), access to protecting transpar- very different remittance patterns be- customers’ personal data, mandating tween the business models, particularly in the size of transaction and use by cor ent information on the services offered, itridor. does While indicate the the dataset scale isof notoperations robust and adequately protecting customer forenough some for of the sizing main complete providers corridors, serving funds.

Jordanian banks, like many banks around- Jordanian corridors. the world, are refusing to facilitate the nature approximate values that are not deposit of cash or to provide bank guar Although such data are by their very antees to some exchange houses. This tobehavior protect has customer the potential funds in to the erode event the of thedirectly average comparable, transaction they sizes nonetheless tend to buffer provided by existing regulations corroborate important findings. First, insolvency. Furthermore, no regulation be significantly lower for outbound 34 Paving the Way for Digital Financial Services in Jordan US$250–700 (JOD 180–500) Unknown US$325* (JOD 230) US$325* (JOD 230) US$500 (JOD 350) US$325* (JOD 230) US$325* (JOD 230) US$1,500–14,000 (JOD 1,000–10,000) US$600–700 (JOD 430–500) US$7,000–14,000 (JOD 5,000–10,000) US$600–700 (JOD 430–500) US$1,700–4,300 (JOD 1,200–3,000) US$600–1,200 (JOD 430–JOD 850) Average Transaction Size Transaction Average US$500,000–1.4 M (JOD 360,000–1 M) Unknown Unknown US$27,000 (JOD 19,000) US$1.5 M–7.5 M (JOD 1 M–5.3 M) Unknown US$78,000 (JOD 55,000) US$30 M–90 M (JOD 21 M–64 M) US$95,220 (JOD 68,000) US$4.2 M–8.5 M (JOD 3 M–6 M) US$20,000 (JOD 14,000) US$8.5 M–21.5 M (JOD 6 M–15 M) US$26,000 (JOD 18,000) Value (per month/operator) Value 2,000 Unknown Unknown Unknown 3,000–15,000 Unknown Unknown 9,000–20,000 Unknown Unknown Unknown 5,000 Unknown Volume (per month/ Volume operator) IMTO Corresponding exchange Corresponding houses IMTO IMTO Corresponding exchange Corresponding Houses and Banks IMTO IMTO Corresponding exchange Corresponding houses and banks IMTO Corresponding exchange Corresponding houses and banks IMTO Corresponding exchange Corresponding houses and banks IMTO Business Model Outbound Outbound Outbound Inbound Inbound Inbound Inbound Inbound Direction Volume, Value and Average Transaction Size (from Market Interviews ) Size (from Transaction and Average Value Volume, Philippines Palestine Egypt Germany United States Saudi Arabia Qatar UAE Country TABLE 9. TABLE value is proxy where provider in the market. Used as a for all inbound and outbound corridors, given by a significant services based on an approximation figure *Average unknown. and vice versa. given in JOD, they have been converted to 2 significant figures, were figures Note: Where

35 Paving the Way for Digital Financial Services in Jordan

- - services than that of inbound services— digital products, the supporting infra particularly for correspondent relation- thatstructure costs tofor deliverproviding funds such efficiently, services ships. Second, the outbound corridor and the opportunity to achieve scale so to the Philippines has significant vol ume through IMTOs, which is greater are kept low. Specific features within a than World Bank bilateral remittance given corridor can also influence the use data would suggest. Finally, for three of ofThe digital previous solutions sections for payments.in this paper out- the eight corridors—namely Germany, lined estimates of the value and volume Palestine, and the United States—either little is known about volume, value, and average transaction size, or providers are of remittances flows in these selected not inclined to share information, making corridors, to assess the potential for it challenging to analyze the potential47 for whetherachieving the scale. digitization In this section, of remittances we assess digitization in these corridors. other market dynamics to help determine

The main findings on average transaction flowsEvidence to and includes from Jordan interviews is feasible. with ser- sizes have been aggregated and divided - by the value of transactions given by the- ping exercises conducted over the course World Bank bilateral remittance matrix vice providers and two mystery shop to estimate the yearly volume of transac tions by analyzed corridor (see Figure 9). of the research period. The methodology- While Jordan as a whole is a net receive used to undertake mystery shopping market for international remittances, it is based on that developed by the Pay has a significant outbound market that ment Systems Development Group of the World Bank and is outlined in detail is underestimated. For the purposesvolume of included calling or visiting provider lo- in Annex 2. Key features of the approach transactionsthis study and the corridors analyzed,- - Jordan is a sending market by mation on the following: ; this is an important find cations, as a customer, to obtain infor theing inmaximum terms of theaverage potential transaction digital pilot. size andThe findingthe minimum holds true average both whentransaction using 1. Fees charged for the service. 2. Foreign exchange rate, where relevant. size provided by service providers. As underestimatementioned, it is the thought true size that of data the forremit the- 3. The speed of the transfer, i.e., Philippines and Egypt may significantly when funds would be available for Thiscollection. information was collected for - tance market, given the extent of informal migration in these corridors. Therefore, two sending amounts: the JOD equiva the volume transaction is likely greater lent of US$20048 (JOD 140) and US$500 than estimated in these figures. 4.1. Selected Corridors Features (JOD 350).

The uptake and use of digital instruments The sample for the mystery shopping was defined with the aim of covering Thisat least means 80 percentthat while of thenot marketall service (in consumerfor international education payments and comfort services with are terms of total value of a given corridor). driven by several factors. These include providers are included, the largest

47 In contrast, the main IMTOs in Germany and the United States are already offering online-based services. 48 Actual value: JOD 355. Rounded down for ease of reporting.

36 Paving the Way for Digital Financial Services in Jordan

FIGURE 9. Average Transaction Size (Maximum and Minimum) and Estimated Volume per Year, by Selected Corridor

Maximum Size

4.0 3.98 $16,000 $14,000 $14,100 3.5 3.30 $14,000

3.0 $12,000

2.5 $10,000

2.0 $8,000 size, maximum value, (USD) 1.5 $6,000 $4,300 1.16 1.0 $4,000 transacon transacons (millions per year) 0.20 0.5 0.17 $700 $2,000 0.01 0.10 $325 $325 $325 $325 0.02

0.0 $0 Average

Volume of from from from from the from to to to the UAEQatar Saudi Arabia USA Germany Egypt Palesne Philippines Inbound corridors Outbound corridors

Volume of transacons (millions) Average transacon size

Source: Research team’s calculation, based on interviews with RSPs and World Bank Bilateral Remittance Data, 2015 (accessed 09/2016).

Minimum Size

4.0 3.98 $700

3.30 value, 3.5 $600 $600 $600 3.0 $500 2.45 2.5

$400 $400 )

2.0 size, minimum

$325 $325$325$325 (USD $300 1.5 1.19 1.16 $250 $200 1.0

0.52 transacon 0.5 0.20 $100 Volume of transacons (millions) 0.05 0.0 $0 Average from from from from from to to to the UAE Qatar Saudi Arabia USAEGermany gypt Palesne Philippines Inbound corridors Outbound corridors

Volume of transacons (millions) Average transacon size

Source: Research team’s calculation, based on interviews with RSPs and World Bank Bilateral Remittance Data, 2015 (accessed 09/2016).

37 Paving the Way for Digital Financial Services in Jordan

- sures that data is collected for services providers by markets share are. This en- account, it may be that the exchange houses and a lot of the cash-based that are mostly used by consumers send services are predominantly used for - 4.2.ing money Inbound within Corridors a specific corridor. trade related payments.

4.2.1. UAE-Jordan 4. Innovation in the remittances mar ket is being championed by the UAE regulator. The result is an increase in the number of channels available for 1. UAE is one of the most competitive issending. growing Door as the delivery, focus on remittance innova- remittances markets in the world. In cards, and mobile account credit use the UAE-Jordan corridor, exchange - houses, banks, and IMTOs play a tion and technology49 within finance significant role. As well as being a increases. One such example is Ex buoyant remittances corridor, it is- press Money, which has partnered- vicesalso a andwell-established providers activetrading in route the with MTN to allow cash-to-mobile that has influenced the types of ser theremittances innovation between happening UAE is and focused Gha - onna. Thislower-skilled example showsworkers that who a lot are of market place. Many of the exchange houses in Jordan have multiple part ners in this corridor, and some of the 4.2.2.remitting Qatar-Jordan to Asia and Africa. solutionslarger UAE-based that dominate exchange the houses mar- have developed specific remittances - ket. UAE Exchange, Al Ansari, and Al- 1. There appear to be two dominant Fardan Exchange, which are UAE- housesproviders that in thehave Qatar-Jordan developed remit- UAEbased, Exchange all partner is withalso aa range registered of ex tances corridor: both are exchange change houses and banks in Jordan. tance-specific products. In Qatar, exchange house in Jordan. It operates unlike in UAE, there are fewer trade- several branches across the Kingdom. related payments and funds tend to solutions for sending funds from flow only from Qatar to Jordan, and 2. While there are several cash-based- mostly for P2P transactions.

UAE to Jordan, several service pro- 2. Profiles of senders in Qatar seem to viders (exchange houses and IMTOs) be similar to those of senders in UAE, described the typical Jordanian re i.e., white-collared workers. mitter in UAE as white collar, highly skilled, and highly paid, who relies 3. The Qatar-Jordan corridor is the on bank account services. phoneonly market is used surveyed at the sending where end there of make up at least half of transactions is a mobile-based service (a mobile- 3. It has been suggested that trade the transaction) provided by Money undertaken in this corridor. Although Gram, in partnership with Ooredoo.- remittances flow in one direction mittancesSimilarly, MoneyGramservices to destinations also offers from UAE to Jordan, trade-related mobile-wallet-to-mobile-wallet re payments are multidirectional. If many of the Jordanians residing in such as Kenya and the Philippines, UAE are sending funds via a bank both via Vodafone.

49 https://www.linkedin.com/pulse/burgeoning-uae-remittance-industry-sudhesh-giriyan 38 Paving the Way for Digital Financial Services in Jordan

4.2.3. Saudi Arabia-Jordan 4.2.4. Germany- and United States-Jordan

- - 1. Banks dominate the financial services 1. For these corridors, providers had market in Saudi Arabia. To offer re very limited insights into the mar mittances services, a firm either must ket because almost all transactions be a bank or enter into a partnership come through an IMTO in the form of with one. Similarly, for other digital bulk transactions from multiple send channels, such as mobile and online markets around the world to Jordan.- payments, a bank-led approach has been adopted, which can be a barrier 2. However, the prevalence of exclusiv- to entry for some providers. ity agreements is important to note. - Super-agents and subagents are un 2. The major IMTOs are partnering- able to work with more than one with banks to offer remittances ser IMTO given specific clauses in their vices. This means that they can initi contracts. For many markets around ate transactions via a mobile banking the world this practice is illegal.- app or online. Although the issue has been raised operating within this corridor sug- 3. One of the major commercial banks with the regulator, the practice per 4.3.sists Comparing in several inboundcorridors. Markets gested that there is a significant flow of P2P transactions done via bank accounts. These tend to be high-value For inbound corridors, there is a larger transactions, with the bank receiving set of RSPs operating in the market between US$1.4 million to 4.2 million- (Figure“Niche” 10).operators include the post of- (JOD 1 million–3 million) per day 50in transactions from Jordanian individ FIGUREuals sending10. Type to of accounts Remittances in Jordan. Services Providersfice in Germany (inbound and corridors) an MNO in Qatar.

9 8 8 7 7 s 6 55 5 44 4 4 3 3 3

Number of provider 2 2 2 2 1 1

0 UAE - Jordan Germany-Jordan Qatar - Jordan Saudi Arabia - USA - Jordan Jordan

Bank Exchange House MNO MTO Post

Source: Mystery shopping, Q3 2016.

50 In this case, it was suggested these large amounts were often from migrants who have been saving over several years and sending money back for investments, or if they planned to return to Jordan, rather than the more frequent remittances seen in other corridors. 39 Paving the Way for Digital Financial Services in Jordan

FIGURE 11. Payment Instrument (inbound corridors)

0 UAEGermany QatarSaudi Arabia USA

Bank account transfer Cash Debit/credit card Mobile money Online

Source: Mystery shopping, Q3 2016.

the market grows in comparison to other Similarly, online and card-based services interesting to observe how this segment ofare also available. They offer digital ital is introduced into the domestic market solutions for those remitting to Jordan. payment instruments—particularly as dig These services are provided mainly by Western Union and MoneyGram, who in Jordan (see Figure 11). appear to be the main providers when- up a large proportion of the total cost sending from the United States and Foreign exchange fees appear to make- Germany. Exchange houses were pres ent only in GCC send markets included for inbound corridors. This is partic in the sample, as these are unique to maximumularly the caseforeign in theexchange Germany-Jordan margin of theWith region. digital channels gaining traction in corridor, which has a minimum and

0 percent and 6.11 percent, respectively markets such as the United States, it will be (see Figure 12). FIGURE 12. Foreign Exchange Margin, Minimum and Maximum (inbound corridors)

7% 6.1% 6%

4% 3.3% 2.9% 3% 2.1% 2% 1.5%

1% 0.0% 0.0% 0% 0.5% 0.6% 0.6% UAEGermany QatarSaudi Arabia USA

Source: Mystery shopping, Q3 2016.

40 Paving the Way for Digital Financial Services in Jordan

FIGURE 13. Speed of Service (inbound corridors)

Less than one hour

3-5 days

2-3 days

Next day

Same day

Minutes or 1-2 days

2 days

0510 15 20 25

UAE Germany Qatar Saudi Arabia USA

Source: Mystery shopping, Q3 2016.

A majority of services are very quick: (JOD 140) and US$500 (JOD 350). How beneficiaries of are able to collect funds ever, outbound corridors from Jordan within one hour of the remittance being have proven to be the cheapest markets sent (see Figure 13). across the eight corridors analyzed, for - remittancesboth US$200 market and US$500,relative to illustrating others in As expected, Figure 14 reflects that UAE, competitiveness of Jordan’s outbound Saudi Arabia, and Qatar were the cheap est markets for sending both US$200 the region. FIGURE 14. Cost of Services, % of Send Amount (inbound corridors)

10% 9.9%

8% 7.6% 7.0% 6.3% 6% 5.3% 5.1% 4.8% 5.0%

4% 2.8% 2.8% 2.7%

0% UAEGermany QatarSaudi USAGlobal Arabia Average

USD 200 USD 500

Source: Mystery shopping, Q3 2016.

41 Paving the Way for Digital Financial Services in Jordan

4.4. Outbound Corridors

4.4.1. Jordan-Egypt51 digital channels, particularly mobile payments. The Central Bank of Egypt- tentialhas allowed pilot for inbound digitizing remittances remittances to 1. It is estimated that over 90 percent be received in mobile wallets. A po of formal remittances flows from - Jordan to Egypt move from exchange from Jordan would link JoMoPay with the Egyptian mobile wallet plat withhouses several to corresponding exchange houses banks. offer The- form, allowing for mobile-to-mobile corridor is relatively fragmented- international remittances. ridor specialist appears to dominate 4.4.2. Jordan-Palestine ing their services, however one cor-

the market, with a few smaller hous 1. Like Egypt, it is believed that over

es acting as subagents on its behalf. 90 percent of this corridor is served by bilateral partnerships, in this instance 2. It has been suggested that “netting-- between exchange houses in Jordan off” of balances is the predominant - and their counterparts in Palestine. It business model in this corridor. How - has been suggested that there is min makesever, the reporting actual extent and documentingof this practice a imal movement of funds across bor is difficult to analyze; its very nature ders, with “netting-off” of balances being the preferred operating method.- challenge. 2. Cash-to-cash is the dominant chan 3. IMTOs also offer services, but they nel like many of the other corridors struggle to compete because of their outbound from Jordan. limited coverage in Egypt. the informal remittances market to 3. The market appears to be relatively 4. Anecdotal evidence suggests that opaque with services providers, who are less inclined to discuss business Egypt is significant and potentially models within this corridor. larger than the formal market. While is also exploring the potential for there are close to 140,000 Egyptians 4. The regulatory authority in Palestine- living in Jordan under a regularized- status, at least twice that number is corridordigital payments. depends However,on the appetite opportu of working illegally and cannot use for- nities for establishing a pilot in this gestedmal services that there to send is a money general home. cul- Furthermore, it has also been sug 4.4.3.the Jordan-Philippinestwo central banks.

withture forpeople sending saving money their home remit with- - tancesfriends and and sending family when larger they amounts travel, change houses operate as agents or 1. IMTOs dominate in this corridor; ex- - when someone is traveling home. subagents in the value chain. West ern Union and Express Money ap 5. While cash services dominate, there pear to be in direct competition for is a push in Egypt to transition from market share; however, it is difficult cash-based payments services to to ascertain who the market leader is.-

51 Until the Egyptian pound floated in November 2016, almost all the flows to Egypt were done in U.S. dollars. Customer prefer ence for dollar services was extremely high given the disparity between the official and parallel market for foreign exchange. Egypt had suffered a shortage of dollars in its foreign currency reserve, meaning that many of its partner banks were unable to pay out U.S. dollar remittance receipts on behalf of their exchange house partners. Some exchange houses reported up to a 40 percent decrease in transaction volume because of this, even though services in the Egyptian pound were still operational.

42 Paving the Way for Digital Financial Services in Jordan

- Given the dominance of cash channels - - 2. There are several direct-to-bank ac count services being offered; how within the sample (Palestine, 73 per ever, cash-to-cash services are the cent; Egypt, 94 percent; and Philippines, most prevalent. 80 percent) this is not surprising (see remittances receiving countries in 4.6.Figure Concluding 16). Remarks 3. The Philippines is one of the largest- 4.6.1. Inbound corridors the world. The government has de whichveloped includes a well-structured supporting enablingthe up- market for receiving remittances,- Several of the inbound corridors that Philippinestake and distribution also has ofa strongdigital chanfocus were assessed are significant remittance nels, such as mobile wallets. The corridors, in terms of value of remittances - sent. Also, digital services prevail in the on financial education of overseas send market. These two factors suggest Filipino workers to encourage finan an environment ripe for a digital pilot. - mittances sent in these corridors (par- cial inclusion.Box 8 For these reasons a- However, research also found that re pilotings of in athis focus corridor group woulddiscussion be highly with feasible. presents the find ticularly from GCC countries) tend to be from highly skilled and highly paid Filipino workers in Jordan. 4.5. Comparing the Outbound middle- and high-income workers, and Markets transaction sizes are large. A digital pilot- - in these corridors, therefore, is unlikely to be the best way to leverage remit The cost of sending remittances from Jor- transactiontances to facilitate sizes are digital also payments outside the for dan is low (see Figure 15). This is typical low-income Jordanians. The estimated- for most of the region, with send mar kets such as UAE and Qatar being among current transaction limits for mobile pay the cheapest send markets in the world. ments, although these are under review. Based on the relatively high average For Germany and the United States, send amount estimates provided, most- more research is required to assess the customers within these corridors pay potential of a pilot. It was challenging to 2–3 percent of the value of the transac obtain information on transaction sizes 52 tion. It would cost about US$10–15 (JOD and migration trends from IMTOs. 7–10.5) per transaction to send US$500 (JOD 350) from Jordan. Of the three- Table 10 summarizes the readiness of eigncorridors exchange surveyed, margin for Jordan-Palestine almost all the inbound remittances corridors for a was the most expensive. With no for 4.6.2.digital pilot.Outbound corridors total costs stem from the service fee services surveyed, the relatively high -

only, which was US$7–21 (5–15 JOD or Research on the outbound corridors cov 4–11 percent) for53 sending US$200 (JOD ered in this study shows that transaction- 140 equivalent). Most services can sizes tend to be lower and remittances deliver funds to the beneficiary within sent more frequently than seen with in 24 hours of completing the transaction. bound corridors. Also, those remitting

52 Approximate exchange rate at time of data collection. 53 Approximate exchange rate at time of data collection.

43 Paving the Way for Digital Financial Services in Jordan

BOX 8. Sending Habits of Filipino Staff at a Major Hotel in Amman

The research team held a short focus group with four Filipina waitresses who worked at the Marriott hotel in Amman. The brief discussion resulted in several key findings, including the following:

1. The waitresses were recruited directly from the Philippines by the hotel. When they arrived in Amman, a bank account was set up to receive their wages. They have a two-year work permit, after which they will return to the Philippines.

2. They travel to 2nd circle (an area of Amman) every month with cash to remit money home, predominately to family members in the Philippines.

3. On average, they were sending US$280–420 (JOD 200–300) per month.

4. In addition to their bank accounts in Amman, three of the four also had savings accounts with Banco de Ora (BDO), which is based in the Philippines, and remitted approximately half of the amount they sent directly into this account.

5. They appeared to prefer Express Money. This preference was driven by Express Money network coverage across the Philippines, particularly outside of Manila, where Western Union was described as having a relatively more limited network.

6. After network coverage in the Philippines, speed of service was a key consideration for choosing a services provider.

7. The consensus was that the fee for sending money home was approximately US$5 (JOD 4) (1–2 percent) across all services providers. Because the pricing was perceived as being the same, price was not a factor in deciding which service to use.

8. Their choice for services was driven by the principal IMTO, and its agent network in the Philippines, as opposed to the exchange house in Jordan.

Openness to Digital

There was a high level of understanding of app-based services, and three of the four women stated that, if the opportunity presented itself, they would prefer to send their remittances via an application on their mobile phone. They cited convenience and safety as the main reasons for using digital instead of cash, if given the option. There was a view, however, that mobile payments coverage across the Philippines was low and beneficiaries would have to be able to collect funds in cash for such a service to work.

corridorare likely value to be underestimateslower income economic the size Egypt), which suggest a much higher migrants. The World Bank’s estimated volume of potential transfers to be high levels of informal migration and captured. of these corridors, partly because of the However, based on interviews and the informal transfers (particularly from mystery shopping exercises, customers 44 Paving the Way for Digital Financial Services in Jordan

FIGURE 15. Cost of Services, % of Send Amount (outbound corridors)

8% 7.6%

7% 6.2% 6%

5% 4.4%

4% 3.2% 3.1% 3% 2.5% 1.8% 2%

0% EgyptPhilippines Palesne Global Average

USD 200 USD 500

Source: Mystery shopping, Q3 2016.

are receiving relatively cheap and fast such as extensive pay-out networks in services for sending money home within the receive market should be provided. - the three outbound corridors included competitivein the study. andIf a digitalconvenient channel as thewere ser to- Table 11 summarizes the readiness of out be launched, it would have to be just as bound remittances corridors for a digital pilot. Table 12 puts both inbound and vices currently offered to achieve scale. outbound corridors into perspective with In addition, specific market features their respective estimated market shares. FIGURE 16. Payment Channel (outbound corridors)

Egypt, 6%

Philippines, 25%

Palestine, 27%

Philippines, 75% Egypt, 94%

Palestine, 73%

Bank account transfer Cash

Source: Mystery shopping, Q3 2016.

45 Paving the Way for Digital Financial Services in Jordan

TABLE 10. Corridor Readiness for a Digital Pilot (inbound corridors) Send Digital Size of Conclusion: country services in remittance Readiness for (to Jordan) send market flow, 2015a digital pilot Summary UAE High US$716 Low A large corridor with regula- million (JOD tors in UAE championing in- 510 million) novation in the remittances market. However, high transaction sizes and the dominance of highly skilled and highly paid workers may not make this a target market for digitization through mobile wallets. Qatar High US$207 Medium One of only two countries in million (JOD this sample to already offer 150 million) a mobile-to-mobile service cross-border. However, as in other GCC countries high transaction sizes and the dominance of white-collar, highly skilled, and highly paid workers may not make the Qatar-Jordan market a target for a pilot. United High US$376 Medium/high A large corridor with online States million (JOD (more research services already offered. 270 million) needed) However, more research is needed on the send side to understand the potential for a digital pilot cross-border. Germany High US$65 million Medium/high Interviews suggest this to (JOD (more research be a growing corridor, par- 46 million) needed) ticularly in terms of Syrian refugees sending money to Jordan. However, more investigation is needed on the send side to understand the potential for a digital cross-border product. Saudi Low US$1,468 Medium Largest corridor inbound, Arabia million (JOD but high transaction sizes 1,000 million) and competitive pricing. Regulation for digital financial products may be a challenge. As in the other GCC countries the dominance of white-collar, highly skilled, and highly paid workers may not make this corridor a target market for a pilot. a. World Bank bilateral remittance database, 2015.

46 Paving the Way for Digital Financial Services in Jordan

TABLE 11. Corridor Readiness for a Digital Pilot (outbound corridors) Digital Receiving services Size of Conclusion: country in receive remittance Readiness for (from Jordan) market flow, 2015a digital pilot Justification: Summary Egypt High US$1,293 High, but The largest outbound million (JOD with several corridor, with relatively 920 million) challenges low transaction sizes and large flow by volume. The Egyptian Central Bank is very open to digital products, and there are active mobile wallets in the market. However, ID/CDD may be an issue for opening a mobile wallet in Jordan for Egyptian migrants, in light of the reported practice of employers keeping passports and the high incidence of irregular migration among this community. Competition from other providers is fierce and pricing is very low. Palestine Medium US$1,074 Medium A large corridor, with mo- million (JOD bile payment services pro- 760 million) viders in Jordan already looking to enter this space. However, the current remittances market is opaque making it difficult to understand the nature of remittances habits and the potential market for a pilot. Also, there is no live MFS in Palestine. Philippines High US$12 High Several mobile money million (JOD services are already op- 9 million) erating, including cross- border. Although it is one of the smallest markets in the sample per World Bank data, research suggests significant volumes and relatively low transaction sizes. Because prices are very low, it would require scale to be interesting for a provider. a. World Bank bilateral remittance database, 2015.

47 Paving the Way for Digital Financial Services in Jordan

TABLE 12. High-level Overview of Value Chains by Relevant Corridor for P2P Transactions and Readiness for a Digital Pilot Exchange Level of House IMTOs Bank to Bank informality Estimated Estimated Estimated in market Readiness market share, market share, market share, (e.g., cash for digital Corridor volume (%) volume (%) volume (%) carrying) (%) pilot Saudi Arabia- 40 20 30 10 Medium Jordan Qatar-Jordan 40 20 30 10 Medium UAE-Jordan 40 20 30 10 Low United States- 1 70 20 10 Medium/ Jordan High Germany- 1 70 20 10 Medium/ Jordan High Jordan- 90 5 5 Unknown Medium Palestine Jordan-Egypt 60 5 5 30a High Jordan- 1 70 10 10 High Philippines a. The level of informality—particularly cash carrying—increased dramatically when banks were no longer able to pay-out U.S. dollars at the beginning of 2016, and would likely have been  60 percent. The 30 percent, however, is an estimate excluding this period.

48 Paving the Way for Digital Financial Services in Jordan

PART 3. MAIN FINDINGS, REMAINING CHALLENGES, AND RECOMMENDATIONS The objective of this research was to as- 1.1.2. A concerted drive to transition sess the supply of payments services in away from cash—from both a Jordan to identify the best approach for consumer and services provider digitizing the international and domestic perspective—is required. remittances market. Identifying where an international pilot might be possible This effort to transition away from cash was also an integral part of the research. and a targeted marketing campaign. As a remittances market, Jordan is unique. Partnershipswill need to include will also financial be essential, education par- Its position as both a send and receive en- ticularly with exchange houses, given vironment for migrant remittances pres- their prominent role as both domestic ents both opportunities and challenges and international payments providers. to digitizing the ecosystem. The current approach taken to enabling MFS across the country, if successful, will establish - Finally, specific use cases, including those Jordan as a “best in class” example for ments, NGO, or humanitarian organiza- involving microfinance, government pay how payments systems can be developed tions payments and transport, will need to be targeted. This will be essential to gaining a critical mass of users to support the toSeveral improve critical financial features inclusion in this and market access.- business case for further investment that place should be considered when ex- will ultimately allow MPSPs to reach scale. ploring how best to support the digiti- 1.1.3. In general, Jordan’s regulatory environment for e-money andzation challenges of payment to flowsachieving within, the to,objec and- issuance is sound, proportionate, tivesfrom of Jordan. this project Key findings are addressed and barriers in the and robust following. The licensing process for MPSP is robust. It covers all the critical areas in terms of 1. Main Findings risk management, apart from certain ar- 1.1. Domestic Payments eas of consumer protection. It is also nondiscriminatory, given that any institution 1.1.1. Cash continues to dominate (bank or nonbank) can apply. However, domestic payments challenges that exchange houses face when they apply for an e-money license Although CBJ has shown itself to be suggest that there are still obstacles to committed to continually upgrading and ensuring the licensing framework is supporting the underlying e-payments nondiscriminatory in practice. infrastructure, Jordan remains a highly cash-based society. Findex data in 2014 Although the initial capital requirement indicates that the use of credit cards in Jordan may be perceived as a barrier to by those over 15 was below 2 percent and use of debit cards was 6 percent. CBJ’s requirement for sound risk manage- Demand-side research stemming from mententry forand some, business it can alsodevelopment—and be seen to reflect this project also points to the prevalence thus is not necessarily a nonproportional of cash—only 23 percent of low-income response. However, it is an area to moni- respondents report having an ATM card and 5 percent report having a debit card. inclusion in the long run. tor, particularly if it is to impact financial

49 Paving the Way for Digital Financial Services in Jordan

1.1.4. Consumer protection and were lower for outbound services than transparency present gaps in for inbound services and that the size the regulatory environment for domestic payments probably underestimated. of the outbound remittance flows was Although the Mobile Payments Service 1.2.2. There is a highly segmented client Instructions contains basic consumer base for sending and receiving protection regulation, there are several international remittances gaps, including lack of access to an alternative dispute mechanism for consum- Research strongly suggests that Jorda- ers, lack of data privacy regulation, and nians who receive international remit- risk of consumers losing their funds in tances, in large part, do not have low the event of bank failure. incomes. This is supported by the project’s research that indicates that only Exchange houses that make domestic 4 percent of low-income Jordanians payments are not covered by either the report receiving remittances. Rather, Mobile Payments Service Instructions recipients of remittances are family or the instructions on treating custom- members of middle- to high-income ers fairly and transparently. This creates skilled workers. Typical transaction sizes - of US$1,100–5,600 (JOD 800–4,000) tion and transparency framework. further supports this assertion. Most of significant gaps in the consumer protec those amounts fall outside of the current 1.2. International Remittances mobile wallet transaction and balance limits.54 1.2.1. While Jordan is a net receive market, it is also a significant If low-income groups are to be brought send market for international - remittances aging international remittances as the into the formal financial sector, lever It has been suggested that approximately be from one of the migrant communities 75 percent of the value of formal re- residingaccess point, in Jordan the likely and beneficiary less Jordanian would mittances are directed inbound from remittance receivers themselves. Jordanians who live overseas. The World Bank estimates that Jordan received over US$3.8 billion (JOD 2.7 billion) in 2015. 1.3. Findings Related to the Outbound remittances were estimated International Remittance to be far lower—close to US$500 million General Principles (JOD 360 million) in 2015. However, 1.3.1. Market Structure and research indicates that the actual val- Competition (GP4) ue of outbound remittances is likely far greater than formal estimates suggest. Jordan’s international and domestic remittances market is one of the most Furthermore, research on send markets competitive in the world covered in this study indicates that Jordan is probably a net send market, in terms The pricing for the outbound corridors of the volume of transactions. Research in this study, except for Jordan-Palestine, found that the average transaction sizes is almost half the average global price for

54 In the demand-side survey of this project, low-income Jordanians reported receiving an average remittance of US$334 (240 JOD), which falls within the current limits but does not represent a volume that is large enough to make a business case.

50 Paving the Way for Digital Financial Services in Jordan

sending international remittances. Any cross-border payments through exchange houses bypass the domestic settlements in this market would be competing with system infrastructure entirely. thesedigital low-priced financial service services. to beTo launchedcompete, scale will be critical. Furthermore, from a cross-border stand- point, there is limited interconnectivity of Exchange houses face difficulties payments systems for facilitating trans- when trying to access the domestic actions. There also appears to be limited payments system access to aggregator-based services or hubs that facilitate transactions to Jordan. In Jordan, as in most countries, only The introduction of an ACH may mean banks have direct access to payment that IMTOs will offer more direct-to-bank settlement systems (RTGS-JO and ACH). account services, using the improved Furthermore, as exchange houses get domestic infrastructure. However, as it derisked, their ability to access these stands, these options remain very lim- systems indirectly has become increas- amount and likely bypassing the domes- exchange houses to compete on a level ticited. payments Cash-based system services, entirely, of dominate. significant ingly difficult. This affects the ability of also encourages practices such as net- 1.3.3. Legal and Regulatory ting-offplaying and field, third-party even with settlement each other. (see It Environment (GP3) GP2 “access to payment infrastructure”). While Jordan’s regulatory framework Anti-competitive practices prevail in for international payments is strong Jordan’s remittances market in some areas, there remain considerable gaps Several exchange houses in this study indicated that they were limited in the The licensing regime for international number of partnerships they could undertake because they did not want to lose the specialist nature of RSPs. However, existing partnerships. Apparently, this whenremittances compared is specific with enough other tojurisdic reflect- issue has been raised with the relevant tions, some of the prudential require- ministries within the government, how- ments appear to be disproportionate, ever, no decisions have been made yet to ban exclusive relationships in the market. system by international remittances. given the risk presented to the financial 1.3.2. Payments System Infrastructure The gap between the regulations for the (GP2) two actors of the domestic payments markets, exchange houses, and mobile pay- The use of the domestic payments in- ments providers, including the disconnect frastructure for international remit- between the two supervising departments, tances is low in Jordan is an ongoing concern. Addressing these gaps will likely become a greater challenge Most international remittances trans- should e-money issuers become licensed actions inbound and outbound to/from to make international transfers, particu- Jordan are not processed through stan- larly in terms of supervision and reporting. dard international payments processes (SWIFT and correspondent banking). As for AML/CFT regulations, the 2013 Instead, netting-off processes are often FATF report on the AML/CFT environ- used, with limited settlements processes ment in Jordan provided useful recom- used only as required. Therefore, many mendations to the regulator on where

51 Paving the Way for Digital Financial Services in Jordan

improvements can be made. The recent ■■ Ensuring that a sound, predictable, decision to remove Jordan from the FATF nondiscriminatory, and proportion- - ate regulatory environment is creat- ment of the regulator’s improvements in ed while protecting the security and thismonitoring area. list is a significant endorse credibility of the digital payments infrastructure. 1.3.4. Transparency and Consumer ■■ Protection (GP1) Digitizing the market without erod- ing current positive aspects of the Consumer protection and transpar- remittances market, including low ency are areas of concern in interna- average total costs for international tional remittance money transfers services.

As with domestic payments, consumer ■■ Adhering to the general principles protection and transparency are areas of international remittances, with of concern. General legislation focused - petitive market structure while also services is required in Jordan. achievinga specific scale. focus on ensuring a com on consumer protection across financial Exchange houses are not covered by Results from the assessment suggest that, the provisions for consumer protec- in terms of volume of remittances, Jordan tion contained in the 2012 Instructions - on Dealing with Customers Fairly mittances have large average transaction and Transparently, which only covers sizes,is a significant are usually send made market. by white-collarInbound re workers, and are often sent through risk of fraud, lack of alternative dispute bank accounts in the send market. How- mechanism,banked clients. risk Specificof consumer’s risks includeprivate ever, outbound remittances tend to have data being improperly released, and a lower average value and be made in lack of regulation around disclosure of cash through exchange houses. For these fees and terms and conditions. There reasons, the scenarios are based on the are also concerns about multiple risks to objective of digitizing outbound P2P pay- safeguarding customer funds. ments—where this report has found the potential and need to be greater. They 2. Scenarios for Connecting International Remittances to These scenarios describe the operation- the Domestic Digital Payments are not ranked in any specific order. al process for digitizing international Infrastructure remittances. The user experience would This section outlines four potential sce- be a much simpler process, with con- narios for digitizing international re- sumers simply initiating the transaction mittances in the Jordanian market. The on a mobile money app, in a similar way scenarios focus on several critical areas, to if they were initiating a domestic mobile money transfer. supply-side assessment: based on key findings from the study’s 2.1. Scenario 1: Exchange Houses ■■ Linking the current international Become Licensed as MPSPs remittances market, which is dominated by exchange houses and is This scenario focuses on assessing the vi- cash-based, into the domestic pay- ability of digitizing remittances through ments infrastructure. exchange houses by establishing new

52 Paving the Way for Digital Financial Services in Jordan

legal entities that are licensed MPSPs ii. A direct partnership with that can issue e-money. an IMTO. Here the exchange house will settle funds into Overview the allocated bank account of The new entity can create its own brand- the IMTO. ed mobile wallet and connect to JoMo- 3. The third or last mile of the transac- Pay to offer international remittances tion will be paid out via the chosen services. A service agreement between payment instrument, cash, mobile the original exchange house and the wallet, bank account, card, or any new legal entity would have to be cre- other instrument able to receive re- ated so that the new entity can leverage mittances in the country in question. the partnerships and experience of the The pay-out partner will do this. original exchange house. Where exchange houses can meet the Main features minimum requirements for becoming an MPSP, the licensing application pro- would be handled by the new entity cess will take time. This is therefore a 1. asThe a domestic first mile transaction. of the transaction medium- to long-term solution. a. The payment would be initiated Advantages by consumers through their mo- ■■ Exchange houses are currently al- bile wallet. lowed to apply to set up new legal b. The transaction would pass entities to become MPSPs and so no through JoMoPay to be received change in regulation would be re- by the exchange house from the quired. new entity into its own mobile ■■ Consumers would be able to access wallet or bank account, as a P2B the services of the exchange house’s transaction. new entity through their mobile 2. The second mile of the transaction phones, with exchange house’s often would be handled as a traditional well-known and trusted brand ap- money transfer. pearing on the app. a. The transaction is facilitated by ■■ A well-trusted brand that offers mo- a bilateral relationship with an bile payments may increase scale and IMTO or through a direct part- uptake of mobile payments general- nership with a receive network ly, but will increase the likelihood of in the recipient’s country. digitizing international remittances, b. The exchange house will settle and clear the transaction via: ■■ specifically.The market structure created would be both competitive and nondiscrim- i. A direct partnership with a inatory, with exchange houses able pay-out network in the receive to compete directly with MPSPs, par- countries. In such cases, the ticularly if implemented in conjunc- exchange house will usually tion with Scenario 3. prefund the anticipated volume of remittances to be paid ■■ The security and credibility of JoMo- out in the receive market over Pay will not be jeopardized, because a given period. each exchange house would have

53 Paving the Way for Digital Financial Services in Jordan

to meet the minimum licensing re- 2.2. Scenario 2: Licensed MPSPs quirements to become an e-money Become Agents of Exchange issuer. Also, the international part Houses of the transaction would not pass through the JoMoPay switch. Rather than exchange houses becoming licensed MPSPs, MPSPs would become Areas of potential concern an agent of an exchange house.

■■ Exchange houses will need to meet Overview licensing requirements to become an MPSP in Jordan, including minimum The main tenets of the value chain capital requirements. While this en- would be as is outlined in Scenario 1, sures the credibility of JoMoPay, it with the only difference being an addi- will mean that only a few exchange tional stakeholder (the MPSP), who is

strength to apply. of the transaction through the JoMoPay houses will have the financial system.responsible for facilitating the first mile ■■ Smaller and niche exchange houses, which dominate certain corridors, Advantages would almost certainly be excluded from the process. This could result ■■ As with Scenario 1, there would be in only particular corridors having no regulatory changes required to a digital option for international operationalize this scenario. remittances. ■■ Consumers will be able to access the Actions needed from the Central Bank exchange houses and their interna- of Jordan tional and domestic pay-out locations through their mobile phone, ■■ Ensure exchange houses are aware with a known and trusted brand they can apply for a license to be- appearing on the app. This could come an MPSP. increase scale and uptake for digital international remittances, thus ■■ Clarify whether this scenario is pos- rapidly leveraging trust already built sible under existing regulations, between consumers and exchange and release instructions detailing houses. the process, including whether the domestic part of the transaction ■■ Shorter time frame than Scenario 1. Exchange houses will not be required as this will affect transaction limits to apply for a license and meet the applied.would be classified as P2B or P2P, minimum standards for an MPSP.

■■ Close coordination between the Ex- ■■ Smaller exchange houses could par- change House Department and the ticipate, thus increasing competition Payments System Department, in- and widening the scope for outbound cluding clear guidance and instruc- corridors, particularly with smaller, tions in areas such as transaction niche exchange houses. sizes, AML/CFT, and monitoring and reporting for international pay- Areas of potential concern ments. This guidance should be required for all MPSPs that want ■■ Creates an additional stakeholder in to make international payments the value chain, which could increase (Scenario 3). costs to consumers.

54 Paving the Way for Digital Financial Services in Jordan

■■ Multiple wallets could be confus- reduced by enabling mobile wallets to ing for consumers and may also be facilitate international remittances. costly for MPSPs. These costs include travel time, risk of loss or theft of funds. Actions needed from the Central Bank of Jordan ■■ If done in conjunction with scenarios 1 and 2, this scenario would create ■■ a competitive and neutral market under existing regulations. structure that allows MPSPs to com- Confirm that this scenario is possible pete with exchange houses in the in- ■■ Like Scenario 1, release instruc- ternational remittance market, while tions detailing the process, includ- also working with them, where it is ing whether the domestic part of the

P2B or P2P. Areasto their of potential benefit. concern transaction would be classified as ■■ Close coordination between the Ex- ■■ This scenario could perpetuate the change House Department and the disconnect between the digital pay- Payments System Department would ments infrastructure and the in- be required, particularly in terms of ternational remittances market. As supervision and monitoring. this research has demonstrated, exchange houses play a dominant 2.3. Scenario 3: MPSPs Create Their role in the international remittances Own Digital International market in Jordan, particularly for Remittances Services, Linking outbound payments. While en- into IMTOs or Hubs abling MPSPs to offer international remittance services will invariably Overview increase choice, it might not go far

Licensed MPSPs create their own bilateral relationships with pay-out beingenough trusted in digitizing by consumers, current of flows.offer- networks in receive markets, and/or ingExchange cheap housesand fast have money the benefit transfer of become IMTO agents, and/or connect to services. Thus, to truly digitize the payments hubs to offer their own inter- consumer base, it is our view that national remittances services from their the predominant service provider existing wallets. must be digitized also.

Advantages ■■ As mentioned, excluding exchange houses would make achieving scale ■■ Increase the number of service provider types that offer international remittances, which are handled by remittances services so that con- exchangedifficult, givenhouses, both and the the volumetrust con of- sumers have more choice. As men- sumers have in them. tioned, currently, there are limited payments options for international Actions needed from the Central Bank remittances outbound from Jordan, of Jordan with services almost exclusively offered by exchange houses, and banks ■■ The Payments Systems Department playing a small role. will need to allow MPSPs to make international remittances transac- ■■ The indirect costs of internation- tions, under their existing licenses. The department would need to issue

al remittances can be significantly 55 Paving the Way for Digital Financial Services in Jordan

an instruction that should also in- Advantages

as transaction sizes, AML/CFT and ■■ The Payments System Department monitoringclude clarification and reporting on issues for inter such- could potentially monitor all international payments for MPSPs. national transactions through the JoMoPay System.

2.4. Scenario 4: JoMoPay Links ■■ Each licensed MPSP would have Directly with International equal access to hubs, and therefore Remittances Hubs and to the hubs’ international pay-out Aggregators networks.

Overview ■■ It would be easy to “switch on” JoMoPay would link directly to a se- Jordan for inbound remittances and lect number of hubs (e.g., TerraPay, transmit lower-value transactions HomeSend, TransferTo etc.) that meet directly into a wallet. minimum reporting, supervision, and Areas of potential concern technical standards. This would be the - ■■ If this scenario is not done in con- ments switch integrating with a pri- junction with scenarios 1 and 2, vatefirst exampleinternational of a national remittances mobile hub,pay exchange houses would be exclud- to facilitate international remittances ed from the digital payments eco- transactions. system, which would minimize the percentage of remittance volumes Main features of the scenario migrating to a digital channel.

■■ ■■ If JoMoPay links with a limited num- would be initiated on any interna- ber of hubs, it would be easier to tionalThe first remittances mile of theenabled transaction wallet, monitor; however, this would effec- passing from the MPSP to JoMoPay. tively create a monopoly or oligopoly, whereby only one or two hubs control ■■ JoMoPay would settle with the hub access to JoMoPay and MPSP wallets. directly at the second mile of the transaction. It is likely that JoMoPay Actions needed from the Central Bank would have to prefund its settlement of Jordan account with the hub, anticipating ■■ estimated total transaction value over a set period. actions by CBJ (or private owner of JoMoPay),This scenario including requires forming significant part- ■■ While on an aggregate level prefund- nerships with hubs (e.g., setting min- ing the hubs would be done via Jo- imum standards for integration) and MoPay, funds would be provided by developing the technical interface the individual MPSPs that choose itself (usually done through an appli- to offer international remittances cation program interface). services. 2.5. Concluding Remarks ■■ The hub will be responsible for clearing and settling the transaction with Each of these scenarios is not exclusive. the appropriate pay-out network Different scenarios need to take place integrated at the third mile of the at the same time to create and maintain transaction, for funds to be collected an open and competitive marketplace. Giving exchange houses the chance to

by the beneficiary in the last mile. 56 Paving the Way for Digital Financial Services in Jordan

become MPSPs, where possible (and 3. Challenges and agents where not), and allowing MPSPs Recommendations the opportunity to create their own networks would create a competitive and While there is a clear opportunity for nondiscriminatory market structure. digitizing domestic and international - remittances several barriers need to ers, not just through a lower price, but be overcome. The following addresses alsoThis through in turn the would use of benefit the network consum of some of these challenges and provides exchange houses, which offers a large, recommendations for each. trusted, and known brand for pay-out For each recommendation, an approx- options internationally. imate timeline has been provided, as However, these scenarios have limita- shown in the following: tions. Regulating and supervising ex- Level 1—Short (,12 months to change houses as MPSPs and agents of implement) MPSPs will require close cooperation between the Exchange House Department Level 2—Medium (1–3 years to and the Payments Systems Department. implement) Careful consideration will need to be given to how best this could be executed. Level 3—Long (.3 years to implement)

3.1. Challenges to Digitizing Domestic Payments

Challenge 1: Addressing Demand-Side Challenges and the Continuing Cash Culture The ongoing preference, and culture, of cash and limited trust in financial services is a real barrier to introducing new nonbank, nonexchange house financial institutions into the market. It continues to create a gap between innovative new payments infrastructures and how payments are actually being made. Recommendations Conduct above- and below-the-line marketing campaigns Timeframe: Medium There needs to be a national marketing campaign for JoMoPay, and for digital payments in general. Marketing will be critical. The marketing message about DFS’s role in the marketplace should emphasize the innovative approach to “small payments for all and not just for the poor or excluded.” In addition, more targeted financial literacy campaigns should be launched. These should focus on using DFS and its benefits, should target specific market segments, particularly low-income Jordanians, Syrian refugees, and other migrant groups. Support the digitization of large-volume transactions Timeframe: Short It is important to encourage and support digitization and use of high-volume payments (e.g., transport, NGO, government, MFI) to drive volume in mobile payments. Key institutions need to be made aware of the benefits of mobile wallets and value-added services, such as eFAWATEERcom, need to be seamlessly integrated into the marketplace. Support the development of an acceptance network Timeframe: Medium Building acceptance of DFS for the purchase of goods and services throughout Jordan is a significant milestone that must be achieved for uptake to reach its full potential. However, to create a fully digital ecosystem, and to reduce the use of cash, investments in expanding and enabling the acceptance network for mobile payments is required.

57 Paving the Way for Digital Financial Services in Jordan

Challenge 2: Developing an agent network with significant national coverage In view of the relatively new nature of MFS, developing and supporting an extensive agent network and agent training will be critical. The problem agents face in maintaining liquidity during the launch of a new MFS product needs to be solved, because agent liquidity is closely connected to consumer trust in and use of a service. Recommendations Supporting ATM network upgrades Timeframe: Medium In Jordan, access to ATM networks for cash-in and cash-out will be an innovative way to manage liquidity in the ecosystem. However, this requires significant investments from banks, which is unlikely unless there is a compelling business case for how this will positively impact their bottom-line. Therefore, short-term donor funding may be needed to launch the Jo-Net (the ATM network) and JoMoPay connection. Involving exchange houses in the domestic digital Timeframe: Short/Medium payments ecosystem Exchange houses have a network of 256 branches throughout Jordan. The network facilitates a significant amount of domestic P2P and trade-related payments. However, the exchange houses (neither as agents nor licensed MPSPs) are not part of the new digital ecosystem, and they continue to largely operate in cash. Ensur- ing that exchange houses are able to become agents to MPSPs in practice (and, in the long run, licensed as MPSPs themselves, where possible) will help to create a larger and trusted agent network, and will help to bridge the gap between the number of current payments made in cash, and the new digital ecosystem that is being created.

Challenge 3: Enacting consumer protection regulation for domestic e-money issuance Although the JoMoPay Service Instruction contains basic consumer protection rules, these lack the depth required to ensure consumer protection in complex situations, particularly if significant uptake is achieved. Gaps include mandating transparency, ensuring data protection, and mitigating risks over the loss of customer funds in the event of bank failure. Recommendations Supporting CBJ to ensure effective legislation is developed in Timeframe: Short the short term Consumers need to be protected as soon as possible; market standards and detailed practices need to be developed. This is particularly important given the ambitious plans to scale services quickly and the reticence and lack of trust observed among the consumer base for digital payments.

58 Paving the Way for Digital Financial Services in Jordan

3.2. Challenges to Digitizing International Payments

Challenge 1: Both the inbound and outbound remittance market are almost exclusively cash-based, with limited digital options. The remittances market in Jordan is highly cash-based, and has limited digital options for both inbound and outbound services. As with domestic payments, this is creating a gap between the payments infrastructure and how payments are actually being made. Exchange houses, which make up a large proportion of the market for international remittances, offer almost exclusively cash-to-cash services (although some larger ones offer a SWIFT direct to bank service). The introduction of the ACH may mean that IMTOs offer more direct-to-bank account services, using the improved domestic infrastructure. However, exchange houses, particularly smaller and niche ones operating in certain corridors, may struggle to access this service because of the derisking environment and the loss of bank account access. Recommendations Connect international remittances to the JoMoPay Timeframe: Medium/Long system Given the unique, innovative, and interoperable JoMoPay system, international remittances should be digitized and integrated into the JoMoPay system. CBJ would like this to happen once there is evidence of domestic uptake. Given that the focus of this research is on facilitating financial inclusion for low-income groups and based on the analyses of customer segments, the scenarios that were developed emphasized the outbound market. As noted, several scenarios are possible. Allow- ing different scenarios to happen at the same time would create a competitive and nondiscriminatory market structure, in line with the General Principle of International Remittances.a Conduct further research into partnerships in pilot Timeframe: Short receive markets The two markets suggested for a pilot based on market scoping are the Philippines and Egypt. Both could have a complete digital solution, but further investigation into potential partnerships, costs, and consumers in the Philippines and Egypt, including an analysis of the scenarios mentioned and their impact, would be required to develop a product that best meets customer’s needs. Encourage cooperation between the Payments Sys- Timeframe: Short tem Department and Exchange Houses Department The Payments System Department and Exchange Houses Department exist as two separate departments, with limited cooperation between them. An attempt to bridge this gap and to encourage cooperation, particularly in terms of licensing and supervision, would allow for a more streamlined payments system in Jordan, and would facilitate the possibility of exchange houses becoming part of the digital payments ecosystem, both for domestic and international payments.

a. See http://www.bis.org/cpmi/publ/d76.pdf.

59 Paving the Way for Digital Financial Services in Jordan

Challenge 2: There remain areas of concern for the protection of consumers in international payments, particularly the safeguarding of funds There remain some gaps in the regulatory environment for international remittances in Jordan, particularly relating to safeguarding of customer funds. This could be an area of particular concern in terms of digitizing the value chain if exchange houses become agents of IMTOs (Scenario 2). In this case, the international part of the transaction may still fall under money exchange laws, rather than JoMoPay instructions. Recommendations Assist with the introduction of consumer protection laws for Timeframe: Short money exchange businesses, with a focus on safeguarding customer funds As with domestic e-money issuance, consumers need to be protected as soon as possible and a market standard and detailed practice needs to be developed for international remittances made under the money exchange law.

Recommendation: Outlaw exclusivity in international remittance contracts The Ministry of Industry and Trade should take steps to outlaw exclusivity clauses in international remittances contracts, allowing agents of IMTOs the opportunity to partner with multiple institutions should they wish. Such a change would be in line with international standards for international remittances markets, including, the General Principles for International Remittances.

60 Paving the Way for Digital Financial Services in Jordan

ANNEXES

1. Regulatory Comparison— issuance and payment services, includ- EU Directives and Jordan ing international remittances in Europe and Jordan Regulatory Environment The tables A-1 through A-9 provide a for eMoney issuance and international detailed overview of a comparison of remittances EU directives that regulate the eMoney

TABLE A-1. Overview of the Initial Capital Requirements for E-Money Issuance in Jordan and within EEA Jordan EEA Extracted from Mobile Extracted from Electronic Payment Service Money Directive (EMD) Instructions (2009/110/EC) Institution Type Third-party payments Third-party e-Money services providers (PSPs) Issuers (EMIs) Number of licenses issued 5 UK: 60 (as of 2016) EU: .100 Initial capital Requirements JOD 1.5 million EUR 350,000 (approximately (approximately US$2.1 million)a US$370,000)b On-going capital No specific on-going Must maintain at all times requirements (own funds) capital requirements, aside own funds equal to initial from initial paid-up capital capital requirements of JOD 1.5 million, which (EUR 350,000), or 2% must be kept as capital of the value of average on the balance sheet, but outstanding e-money, does not need to be held whichever is greaterc in cash. a. Article (4) Mobile Payments Services Instructions. b. Article (4) directive 2009/110/EC of the European Parliament and of the Council (2009). c. Article (5) directive 2009/110/EC of the European Parliament and of the Council (2009).

61 Paving the Way for Digital Financial Services in Jordan b EEA Description of operation Evidence of initial capital Description of the procedure in place to monitor, handle, in place to monitor, Description of the procedure and follow up a security incident Process to file, monitor, track, and restrict access to track, and to file, monitor, Process sensitive data Description of business continuity arrangements Details of the collection statistical data on performance, transactions, and fraud Detailed risk assessment Money laundering and financial crime controls including agents and branches Structural organization, Details of statutory auditors and audit firms legal status The applicant’s of head office The address Description of measures for safeguarding customer funds for safeguarding Description of measures Governance arrangements and internal control mechanisms Governance arrangements and internal control 1. 2. Business plan 3. 6. 7. 8. 9. 4. 5. An application is made to the home member state financial should include: The process regulator.

10. 11. 12. 13. 14. 15. Extracted from Payment Services Directive 2 (PSD2); Payment Services Directive Extracted from (EU) 2015/2366) (Directive All agents must be vetted for governance and compliance and by the local regulator approved purposes. They are published on a register. a Jordan Name, proposed memorandum and article of association, Name, proposed headquarters and the company’s The qualifications of the members of the board of The qualifications of the members board management committee, internal auditors, and directors, external auditors The settlement bank that will be contracted by CBJ as deemed appropriate Any other requirements The AML/CFT policy The company’s policy for handling customer service and The company’s customer complaints Information security and protection policy Information security and protection The company’s business plan and the contractual terms it The company’s will adopt with its agents A description of the nature of the services to be provided of the services to be provided A description of the nature by the company and technology it will use The company’s authorized capital The company’s Names and nationality of each its founders/shareholders, of their activities, and the amount percentage the nature capital in the company’s share or indirect of their direct 1. 9. 8. 7. 6. 5. 4. 3. 2. The license should include: Extracted from Mobile Payment Service Instructions Extracted from 10. 11.

the relationship to regulate The e-money issuer is required that written agreements between it and its agents through of each party under the and responsibilities indicate the roles guidelines issued by CBJ agent’s CBJ with to provide The e-money issuer is also required information on its agents Comparison of Licensing Process and Agent Regulation, EEA Jordan Comparison of Licensing Process Article (5) Mobile Payments Services Instructions. (EU) 2015/2366). 2 (PSD2) (Directive Article (5) Payments Services Directive Licensing process Regulations to relating agents TABLE A-2. TABLE a. b.

62 Paving the Way for Digital Financial Services in Jordan b EEA investing the relevant funds in secure, liquid, funds in secure, investing the relevant assets) and place low-risk assets (relevant those assets in a separate account with an authorized custodian. or an authorized insurer; a guarantee from placing them in a separate account that it institution; holds with an authorized credit an insurance policy with authorized insurer; a guarantee from an authorized credit an authorized credit a guarantee from of any such institution; and the proceeds insurance policy or guarantee must be payable upon an insolvency event into a sepa - rate account held by the e-money issuer. (a) (b) (a) (b) (c) keep relevant funds segregated from any other from funds segregated keep relevant funds that it holds, by: by: covered funds are that any relevant ensure Extracted from Electronic Money Directive (EMD) Money Directive Electronic Extracted from 2009/110/EC) and Payment Services (Directive 2015/2366/EC) (PSD2) (Directive Directive E-money institutions must safeguard funds that have E-money institutions must safeguard in exchange for e-money that has been received EUR been issued to the value of EUR 1:1 Electronic currency). (or relevant An EMI can either: options apply. safeguarding Two (1) Or (2) Jordan This was intended to cover the a a Previously, nonbank MPSPs were also required to also required nonbank MPSPs were Previously, obtain a bank guarantee for the amount of e-money they plan to issue. Extracted from Mobile Payment Service Instructions Extracted from the The Mobile Payment Service Instructions ensures MPSPs of consumer funds by requiring protection to deposit 100% of e-money issued into a pooled account (settlement account) held at a licensed bank. risk of loss customer funds in the event an insolvency. MPSP’s following amendments to Article (50) However, and the issuance of CBJ’s of the CBJ Law, for a bank instructions of 2017 the requirement Customer funds are guarantee has been revoked. when creditors from now automatically protected at the settlement account. The bal - placed in escrow to always be account is required ance of the escrow equal to or exceed the e-money issued, and it is not subject to liquidation under PSP bankruptcy. Comparison of Protection of Customer Funds, EEA and Jordan Comparison of Protection Article (8) Mobile Payments Services Instructions (EU) 2015/2366/) 2 (PSD2) (Directive Article (10) Payments Services Directive Safeguarding consumer funds Safeguarding a. b. TABLE A-3. TABLE

63 Paving the Way for Digital Financial Services in Jordan EEA information, including costs, account All relevant matters, must be made and other relevant charges, transactions. Consumers have strong available before rights. Jordan - to consumer protec is no general law relating There pro - and no specific financial consumer tion in Jordan, besides the 2012 Instructions on tection regulations, These Dealing with Customers Fairly and Transparently. cover only customers with bank instructions, however, also cov - rules are accounts. Basic consumer protection in the mobile payments services instructions. CBJ ered a by-law for e-payments that would is working to create resolution, dispute man - include issues such as conflict and redress. agement, fraud protection, Comparison of Consumer Protection Regulation, Jordan and EEA Regulation, Jordan Comparison of Consumer Protection Consumer protection TABLE A-4. TABLE

64 Paving the Way for Digital Financial Services in Jordan EEA Some countries introduced Some countries introduced b lower limits. EU-wide KYC/AML rules for financial services (includ - (EU) by Directive covered are ing e-money products) of the use financial 2015/849 “on the prevention use of the financial system for purposes money financing.” Under this directive, laundering or terrorist enhanced due diligence must be taken for all trans - actions over EUR 1,000 (US$1,100) and cumulative of EUR 15,000 (US$16,000). No upper limit; however, enhanced KYC requirements enhanced KYC requirements No upper limit; however, apply for various transaction amounts. Extracted from Directive (EU) 2015/849 of the Directive Extracted from Parliament and of the Council European Jordan Limits are being revised. Limits are a Nationally issued ID for Jordanians, passport for Nationally issued ID for Jordanians, plans to accept the UNHCR are There non-Jordanians. to open mobile wallets. card The Anti-Money Laundering and Counter Terrorist Financing Law (46/2007), which established the Financing Anti-Money Laundering and Counter Terrorist no specific instruc - However, Unit, also applies to MPSP. tions have been issued. Upper limit depends on type of transfer. For exam - Upper limit depends on type of transfer. ple, P2P maximum transfer is JOD 200 (US$280) for a banked client and JOD 100 (US$140) for an un - banked client, while G2P maximum transfer is JOD 700 (US$990) for both banked and unbanked clients. The monthly transactions limit is JOD 2,000 (US$2,820) and the monthly balance limit for an unbanked client is JOD 1,000 (US$1,400). Extracted from Mobile Payment Service Operational Extracted from Framework Comparison of Transaction Limits and AML/CFT Requirements, Jordan and EEA Jordan Limits and AML/CFT Requirements, Comparison of Transaction Section (7) Mobile Payments Services Operational Framework. Parliament and of the Council. (EU) 2015/849 of the European Article (2). Directive AML/CFT requirements Transaction limits Transaction TABLE A-5. TABLE a. b.

65 Paving the Way for Digital Financial Services in Jordan - Provid e (Continued) EEA While not enhanced CDD, some countries c Member states are required to ensure that PSPs have to ensure required Member states are to mitigate and procedures in place policies, controls, and manage the risks of money laundering terrorist include model risk and procedures financing. Controls record-keeping, management practices, CDD, reporting, compliance management (including, internal control, possible, the appointment of a compliance officer where at management level), and employee screening. Extracted from Directive (EU) 2015/849 and Directive Extracted from Regulation (EC) no. 1889/2005 Under EU wide AML/CFT legislation, enhanced due diligence must be taken for all transactions over EUR 1,000 (US$1,100) and cumulative of 15,000 (US$16,000). have introduced lower limits e.g. the Netherlands, have introduced for all international that ID be presented who require of the amount transactions, irrespective remittances ID of requiring appears to be a trend being sent. There of amount. transaction irrespective for all remittance within remittances for receiving Similar requirements mainly sending markets for low EEA (however these are value P2P transactions). ing information on a company’s internal controls related related internal controls ing information on a company’s to AML/CFT is also part of the licensing procedure. - b However, providing providing However, d Jordan a information on a company’s internal controls related to AML/ related internal controls information on a company’s licensing process. CFT is not part of the official For banks, CDD is required if the value of a transaction or num For banks, CDD is required exceed JOD 10,000 ber of transactions that seem to be related and for currency in foreign (US$14,000) or the equivalent thereof of the value. transfer transaction regardless any electronic Extracted from Anti Money Laundering and Counter Extracted from to Money Exchange Financing Regulation related Terrorism Companies, no. 2/2010 For exchange houses when transfers exceed JOD 700 (US$987), a passport number is needed for non-Jordanians, as well a permanent and an ID number for Jordanians, if one Due diligence is also required of residence. address exchange transaction—or several transactions that appear to be linked—exceed JOD 10,000 (US$14,000). Enhanced due countries that on customers from diligence is also required customers AML/CFT requirements, do not have appropriate politically exposed persons, in Jordan, not residents who are the (e.g., through dealt with indirectly and customers who are internet or mobile phone) All exchange houses are required to establish a proper internal to establish a proper required All exchange houses are system that includes written guidance to detect and prevent also they are to AML/CFT, suspicious transactions related to establish an automatic system link transactions required and give indicators of suspicious transactions, to conduct AML/CFT. employee training regarding Comparison between Jordanian Regulations on Transaction Limits and AML/CFT Requirements in EEA Limits and AML/CFT Requirements Regulations on Transaction Comparison between Jordanian CDD requirements Internal controls TABLE A-6. TABLE

66 Paving the Way for Digital Financial Services in Jordan EEA i g Provide the relevant unit in country, directly directly unit in country, the relevant Provide with all necessary at its request, or indirectly, information. Inform the relevant unit in country, on their own unit in country, Inform the relevant they suspect AML/CFT violations, initiative, where of the amount. regardless Extracted from Directive (EU) 2015/849 and Directive Extracted from Regulation (EC) no. 1889/2005 All PSPs are required to required All PSPs are (a) (b) For those entering and leaving the EU, maximum limit of funds that can be carried as cash and does the holder to submit a declaration form is not require EUR 10,000 (US$11,000). h f Jordan For those entering Jordan, the maximum limit of funds that can For those entering Jordan, the holder to submit a be carried as cash and does not require is there declaration form is JOD 15,000 (US$21,000). However, no limit on the transfer of cash leaving Jordan. Extracted from Anti Money Laundering and Counter Extracted from to Money Exchange Financing Regulation related Terrorism Companies, no. 2/2010 All exchange houses are required to prepare files for suspicious to prepare required All exchange houses are to AML/CFT and hold these records transactions related for at least five years. All exchange houses must designate an suspicious of reporting employee to assume the responsibility Should this person learn of to AML/CFT. transactions related any transaction suspected of AML/CFT violations, the person is to immediately notify the unit. required Comparison between Jordanian Regulations on Transaction Limits and AML/CFT Requirements in EEA (Continued) Limits and AML/CFT Requirements Regulations on Transaction Comparison between Jordanian Article (3), (4) and (5) Regulation Anti Money Laundering and Counter Terrorism Financing Regulation related to Money Exchange Companies no. 2/2010. Financing Regulation related Article (3), (4) and (5) Regulation Anti Money Laundering Counter Terrorism Financing Instructions no. 51/2010. Article (3) Anti Money Laundering and Counter Terrorist (EU) 2015/849. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L0849&from=EN Article (10)-(24) Directive to Money Exchange Companies no. 2/2010. http://www.amlu.gov.jo/ Financing Regulation related Article (6) Regulation Anti Money Laundering and Counter Terrorism Portals/0/English/03%20Anti%20Money%20Laundering%20and%20Counter.pdf (EU) 2015/849. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L0849&from=EN Articles (45) and (46) Directive to Money Exchange Companies no. 2/2010. http://www.amlu.gov.jo/ Financing Regulation related Article (8) Regulation Anti Money Laundering and Counter Terrorism Portals/0/English/03%20Anti%20Money%20Laundering%20and%20Counter.pdf (EU) 2015/849. http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L0849&from=EN Articles (33), (34), and (35) Directive Moveable Money Declaration Instructions no. 4/2011. Article (3) The Cross-border http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV%3Al25069 of cash entering or leaving the community. Regulation (EC) no. 1889/2005 on controls Cash carrying Reporting requirements TABLE A-6. TABLE a. b. c. d. e. f. g. h. i.

67 Paving the Way for Digital Financial Services in Jordan b EEA Description of operation Business plan Initial capital, details Governance arrangements Risk management Internal controls Money laundering and financial crime controls Organization structure Organization testing forms for Qualifying holding including fit and proper business management and management Directors Auditors and audit arrangements Close links, i.e., associated businesses 1. 2. 3. 4. Safeguarding 5. 6. 7. 8. 9. Extracted from the Directive on Payment Services in the the Directive Extracted from 2015/2366/EC) Internal Market (Directive A relatively straightforward application is made to the home straightforward A relatively The application includes: regulator. member state financial

10. Outsourcing 11. 12. 13. 14. Location 15. Jordan a Licensing Requirements under the Exchange House Law in Jordan and PSD for EEA under the Exchange House Law in Jordan Licensing Requirements The type and location of company The amount of capital and the way it is paid The names and nationalities of the founding partners, stating whether any of the founding partners is an ally to another founding partner Any additional information CBJ considers necessary The articles of associations and statutes the company and business plan of the structure The organizational company years of budget for the first three projected The proposed operations and the criteria adopted for its the company’s preparation Any other requirement Extracted from the Money Exchange Business Law Extracted from (no 44/2015) The license should include: 1. 2. 3. 4. 5. 6. 7. 8. Article (6) the Money Exchange Business Law (no. 44/2015). 2015/2366/EC). http://eur-lex.europa.eu/legalcontent/EN/TXT/? on Payments Services in the Internal Market (Directive Article (5) Directive uri=uriserv:OJ.L_.2015.337.01.0035.01.ENG&toc=OJ:L:2015:337:TOC TABLE A-7. TABLE a. b.

68 Paving the Way for Digital Financial Services in Jordan EEA b other operating income commissions and fees received interest expenses interest interest income interest 2.5% of the slice PV above EUR 5 million up to 10 million; plus 0.5% of the slice PV above EUR 100 million up to 250 million; plus 0.25% of the slice PV above EUR 250 million. 4.0% of the slice payment volume (PV) up to EUR 5 million; plus indicator is the sum of following: The relevant (i) (ii) (iii) (iv) 1% of the slice PV above EUR 10 million up to 100 million; plus At least 10% of PSPs’ fixed overhead costs of the preceding year. At least 10% of PSPs’ fixed overhead costs the preceding - At least the sum of following element, multiplied by 0.5 for firms pro services: viding only money remittance indicator (defined below) multiplied by a multiplication At least the relevant indicator of the firm, and by 0.5 factor based on the value of relevant remittances services. just money for firms providing (a) (b) (c) (d) (e) (a) Extracted from the Directive on Payment Services in the Internal Market the Directive Extracted from 2015/2366/EC) (Directive To provide a money remittance service, a PSP must provide initial capital of service, a PSP must provide a money remittance provide To EUR 20,000 (US$21,000). or the costs is used based on either the level of profit A scaled approach provided: options are Three as well type of services provided. revenues, 1. 2. 3. depending on the location a c Jordan Extracted from the Money Exchange Business law Extracted from (no. 26/1992) Initial capital requirements for Money Exchange Initial capital requirements between JOD 100,000 and 1 million Companies are (US$1400,000–1.4 million), based on the new of the exchange house. However, plans are Money Exchange Business Law of 2015, there to change this between JOD 300,000 and 3 million (US$420,000–4.2 million), with exchange houses being with their minimum start-up categorized in accordance accordingly. capital and their activities restricted For money exchange companies, a cash deposit of no less than 30% of the paid–up capital, or a bank guarantee of JOD 100,000 (US$140,000), whichever is It is not clear whether this will be is required. greater, changed in the new law. Prudential Requirements for RSPs in EEA under PSD and Jordan under the Money Exchange Business Law for RSPs in EEA under PSD and Jordan Prudential Requirements ) Money Exchange Business Law (no. 26/1992). http://www.cbj.gov.jo/pages.php?menu_id=121 (7) Money Exchange Business law (no. 26/1992). http://www.cbj.gov.jo/pages.php?menu_id=121 Article 2015/2366/EC). h ttp://eur-lex.europa.eu/legalcontent/EN/TXT/? on Payments Services in the Internal Market (Directive Article (7) Directive uri=uriserv:OJ.L_.2015.337.01.0035.01.ENG&toc=OJ:L:2015:337:TOL Article (8

Initial capital Requirements On-going capital requirements b. c. TABLE A-8. TABLE a.

69 Paving the Way for Digital Financial Services in Jordan - a EEA funds shall be covered by an insurance policy or some other funds shall be covered an insurance company or a credit comparable guarantee from as the payment institution, which does not belong to the same group institution itself, for an amount equivalent to that which would have in the absence of insurance policy or other been segregated comparable guarantee, payable in the event that payment institution is unable to meet its financial obligations.” funds shall not be commingled at any time with the of natu - ral or legal person other than payment service users on whose behalf still held by the payment they are held and, where the funds are to anoth - to the payee or transferred institution and not yet delivered by the end of business day following er payment service provider they shall be deposited the day when funds have been received, liquid institution or invested in secure, in a separate account credit low-risk assets as defined by the competent authorities of home with national Member State; and they shall be insulated in accordance of the payment service users against claims law in the interest of the payment institution, in particular event other creditors insolvency; (b) Extracted from the Directive on Payment Services in the Internal Mar the Directive Extracted from 2015/2366/EC) ket (Directive - and other rele Relevant information, including costs, account charges, conducted. transactions are vant matters, must be made available before should be in rights. Internal complaints procedures Consumers have strong mandated as part of the licensing process. place and are Customer funds are required to be segregated at all times in either of the to be segregated required Customer funds are following ways: “(a) Jordan Extracted from the Money Exchange Extracted from Business Law (no. 26/1992) The safeguarded funds (cash deposit of The safeguarded no less than 30% of the paid-up capital, or con - are JOD 10,000, whichever is greater) adequate for consumer protection. sidered Safeguarded funds are included in the funds are Safeguarded cash deposit of no less than 30% the paid–up capital, or the bank guarantee of JOD 100,000. stipulating customer no regulations are There account funds must be held in a segregated at any point in a transaction. Safeguarding of Customer Funds under the Money Exchange Business Law in Jordan and PSD in EEA of Customer Funds under the Money Exchange Business Law in Jordan Safeguarding Article (10) Directive on Payments Services in the Internal Market (Directive 2015/2366/EC). http://eur-lex.europa.eu/legalcontent/EN/ on Payments Services in the Internal Market (Directive Article (10) Directive TXT/?uri=uriserv:OJ.L_.2015.337.01.0035.01.ENG&toc=OJ:L:2015:337:TOC Consumer protection Safeguarding Safeguarding consumer funds TABLE A-9. TABLE a.

70 Paving the Way for Digital Financial Services in Jordan

2. Mystery Shopping rate margins). Additional costs, such as Methodology commission rates etc., were added to the fee displayed to produce an accurate Data collection on fees, exchange rate true cost percentage. applied, pick-up location/method, transfer speed, and product/services was Exchange rate applied: The exchange undertaken using mystery shopping rate that is offered by the relevant RSP techniques. Where this technique is was collected and measured against the collection day’s interbank exchange rate represent 80 percent of the market for (gathered at www.XE.com) for the rele- totalspecified remittance in the value. report, Depending the data aimon the to vant send and receive currencies, to pro- nature of the service(s) being offered by duce a foreign exchange cost margin. The each RSP, the local researchers posed as researchers were briefed on the impor- customers and gathered the relevant in- tance of measuring all participants in a formation via a phone or a visit to the single corridor on the same day to ensure location. It is believed that this approach that RSP exchange rate margins were is the only way to obtain a true picture compared accurately and consistently. of the services on offer. The only cases where online research was undertaken is Payment instrument: The remit- for online remittance products. tance product (service) offered to the consumer at the point of remittance (e.g., a cash, bank account, online service).

DefinitionsDate of collection: for the data Information as follows: for each Speed of service: The standardized RSP transfer speed categories developed for same day and within as narrow a time- the World Bank RPW database (less than specific corridor was gathered on the frame as possible to ensure the compa- one hour; same day; next day; 2 days; rable accuracy and consistency of the 3–5 days; 6 days or more) were used. data gathered—especially in relation to exchange rate margins. Data for a single Total cost corridor were collected within a single and the exchange rate applied. day. All data for the eight corridors were : Includes both the fee charged collected over one week. The data for each corridor were collected twice (Q2 and Q3 2016) to ensure the Fee charged: The initial fee charged data’s validity. at the send point (excluding exchange