NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

In general, professional conferences are heavy on information and light on emotion. But participants at last Friday’s “Mobile Money: Technology to Transform Transactions” conference were treated to as impassioned a debate as you’re likely to see in a roomful of financial services practitioners and academics.

(As a rule, NextBillion does not publish unattributed quotations. However, due to the frank nature of the discussion, and at the request of conference organizers at the onset, the names of specific panelists have been omitted.)

The conflict involved the often-undefined roles of banks and telecommunications companies in financial services delivery, which one participant described as the “two gorillas in the room.” In this case, the “gorillas” were represented by a banker and a telco executive, both of whom offer mobile financial services in a country that shall remain nameless.

As the first panel began, the banker launched into a heated denunciation of the regulatory environment that has allowed the telco company to dominate in mobile money: “I would go as far as to say that the regulatory atmosphere in [our country] is a disaster,” he said. “There is not one law in place that regulates what they do! It’s purely a relationship between [the telco company] and the users. They have been around for years, and there’s still no regulation.

“We’ve been pushing for agent banking for years, and the [government] has regulated all our agents. We even tried a similar model to [the telco company], but we weren’t allowed to do it because the [regulators] couldn’t wrap their heads around any bank not operating through branches and ATMs. Meanwhile, [the telco company] has grown to [tens of thousands of] agents. That’s an unlevel playing field.

“We all know mobile is the crucial channel,” he continued. “We all know that the future is all about mobile channels offering financial services. But we have to be very careful going forward. [The telco company] controls [the vast majority] of telecommunication revenue in [our country]. The other operators are dead or in deep trouble. So we have one telco, and as a bank I have to use them to provide mobile financial services – but they are my biggest competitor. They control the communication space, and the [government] has now allowed them to control mobile payments. So we have a monopoly in both those sectors, which isn’t good for [our country]. We need regulation.”

Meanwhile, the telco executive sat impassively. When his turn came to talk, he said, “Just to be clear, we are regulated by [the government], so there is regulation.” (His opponent folded his arms and shook his head).

“Today [regulators] are quite forward-looking,” he continued. “But it is a rapidly changing environment. Innovation always precedes new regulatory provisions, but the key is engaging the regulator from the beginning, from product design to launch. Which model works best, banks or telcos – or a hybrid, where banks, telcos and third parties do different things? I don’t know. But I believe the agenda is clear: to enable poor people to access financial services. In [our country], financial inclusion is [very high] – but if you remove mobile services, it drops [significantly]. So it’s not about banks or telcos: the key here is how do we transform lives.”

Another panelist from a different sector chimed in: “If mobile network operators [MNOs] want to provide mobile services, that should be its own subsidiary with its own CEO. I believe that MNOs should restrict themselves to infrastructure, and banks, MFIs, insurance companies, etc. can drive their products on this infrastructure. MNOs are sitting on huge amounts of data, and other financial services could tap into that and offer many services. But that’s not happening – banks and MNOs both believe they can do it themselves. People will figure out innovative ways to work around both banks and MNOs if they don’t wake up to this.”

A question on liquidity management brought on a discussion of a key element (and weakness) of mobile money services. According to the telco executive, “Agents provide a key interface in terms of getting knowledge to customers, and getting feedback for product development. But liquidity management for agents is key if you want them to do cash-in/cash-out transactions. And there needs to be monitoring: how many transactions a day, how much money.”

As the banker quickly pointed out, the need to provide mobile money agents with a steady stream of cash makes MNOs’ mobile money services dependent on banks. “[Your company] is successful because banks in [our country] are generally stupid,” he said to the telco rep. “We created an environment that allows you to do what you do. If your agents need cash, they go to a bank to get it. And if that bank runs out of cash in some isolated region, how does the cash get there? We fly it out there, and it’s very expensive. [Your company] is very smart to outsource the movement of cash to banks. We’re very stupid to let them.”

The conversation moved on to topics like data usage and onboarding clients, but the questions raised in the morning’s debate lingered. What’s the proper role for regulation, as MNOs grow increasingly important to financial inclusion efforts? Is there a clear line between “banking” and “mobile money,” and at what point does that line become blurred, as MNOs expand their services to include more than just sending cash? Will we reach a point where mobile networks become so important to the public interest (and to other industries) that it’s dangerous to leave them entirely under the control of a select few companies – especially when those companies expand into other sectors?

Whatever the answers to those questions, one panelist summed up the current situation nicely: “Whatever we say about [the telco company], there was a huge need and they addressed it, and were able to be agile and effective. We each need to find that need, and then we’ll be successful.”