Ignacio Mas

Free the Cash Networks!: How one small regulatory change could have a huge positive impact on mobile money’s development

Consider for a moment three hypothetical missed business opportunities.

1. You are an experienced, confident entrepreneur with a cool new idea for an electronic financial product that you are sure will catch the interest of the mass of poor people who are still unconvinced about banking. You get an e-money license from the central bank, and that gives you license to form your own cash in/out agent network. But you see yourself as a digital venture, and as a start-up you know you are too small to develop your very own dense, reliable network of stores. The other licensed players out there will not let you use theirs. Why should they? You are a competitor. Sure, you could sign up the same stores in their networks as your own agents, which would make it easier – but you want to spend your time creating great digital experiences, not cajoling shopkeepers. You figure it´s just too hard, so you don´t enter the market.

2. You come from the fast-moving consumer goods (FMCG) industry, and you have years of experience building retail channels. You see an opportunity in managing the cash in/out requirements for all bank and mobile money issuers. You are thinking of creating a shared agent network; surely those companies will all jump at the opportunity to outsource that irksome function to you? You have no trouble signing up all the desperate, small players who know they can´t make it work on their own. You also sign up some bigger banks that don’t really have much interest in financial inclusion anyway, but want to report large agent numbers because it makes them look good. But the big fish — those that can bring the transaction volume that you need — avoid you like the plague. After all, your value proposition to them is to dilute their competitive advantage. You can´t get over the irony that mobile operators — native corporate children of the digital age — insist on competing on the basis of who has the biggest physical cash network. You realize it´ll take years of going up the issuer food chain, to convince the bigger guys that they need you more than you need them. So you give up and go back to distributing soft drinks.

3. You are a local entrepreneurial shopkeeper, and you see that you can extend your product range virtually and become the interface for your clients to do all their cashing in and cashing out. But then you learn that you need to sign a contract with each bank and mobile money issuer in sight. After you sign up some, others don’t want to give you a contract at all, because you are tainted as being with one of their dreaded competitors. Now you can no longer aim to serve all your customers, which doesn’t sound like good business to you. And those that do give you a contract expect you to have a separate pool of money dedicated to them. Each wants you to put all their signage on your storefront. Each has a different system that your employees need to learn. Each sends someone to supervise you; who are these nosy busybodies? This feels crazy: You want one system that helps you serve all customers from one inventory. Forget it, you shelve these plans.

Given these stories — all of which are based on very real impediments facing would-be entrepreneurs around the world — are you surprised that most agent networks are struggling, except perhaps for those of the biggest telcos and banks in the land? And the consequences of these struggles reverberate far beyond the agent networks themselves. In fact, there isn’t a competitive supply of digital financial services because few find a way to overcome the tough realities of cash distribution.

It does not need to be like this. Just one regulatory change — creating a new license category for cash in/cash out agent network managers who are authorized to operate independently of account issuers — would go a long way to eliminating the barriers to entry, operational pain and duplication of efforts that we suffer from today. (Read this paper for a fuller articulation of this proposal.)

Would this change give a second chance to our three hypothetical entrepreneurs? Consider these alternate scenarios:

The entrepreneurial FMCG guy gets this license from the central bank, then starts facilitating cash in/out for any and all banks and mobile money operators simply by opening a corporate customer account with each. Once he´s got his own money in their system and has access to their mobile or online banking interface, he can then exchange it for his cash. Now the situation is flipped: he chooses whom he wishes to do cash in/out for, and the banks and mobile money issuers have no say in the matter. (Just like if I have money in a bank account, the bank can´t tell me how I can and cannot use it.)

The entrepreneurial FMCG guy then approaches the entrepreneurial shopkeeper. Love at first sight: with one contract and one system, the shopkeeper can serve all of his clients. There’s no need to seek out anyone else.

Then the entrepreneurial digital financial product guy comes along with his cool product idea and convinces the (now licensed) FMCG guy to open an account with him; he might even give the FMCG guy a small monetary incentive for the trouble. Now he can boast the same agent coverage as everyone else. Overnight. He can finally start proving that his digital product idea is really as good as he thinks.

One regulatory change, three dramatically changed stories. Note that the nature and content of agent regulations (on publicizing a customer care line, pricing transparency, documentation requirements on retail outlets, etc.) need not change at all; the only thing that would change is the party that is responsible for them. All we´ve done is to shift the locus of some of the regulatory provisions from licensed issuers to the new category of licensed agent network managers.

That will bring branded competition to agent networks, and therefore, to digital services as well – a big payoff for such a simple change.

Ignacio Mas is a freelance consultant focused on mobile money technology and policy.

financial inclusion, mobile finance