NB Financial Health

Saturday
June 13
2015

James Militzer

Weekly Roundup – Walter Peck Had a Point: Why regulators and entrepreneurs sometimes have to ‘cross the streams’

Think back to the now 31-year-old movie “Ghostbusters” -– if you’ve been alive for more than about 20 years, it’s a safe bet you’ve seen it. There were plenty of supernatural bad guys in the film, with ghosts that ranged from funny to kind of scary – capped, of course, by the Stay-Puft Marshmallow Man. But the villain you probably despised the most was human: Walter Peck, the overbearing EPA agent who sparred with Bill Murray’s protagonist, Dr. Peter Venkman, over the Ghostbusters’ apparent violations of federal environmental regulations.

Both smarmy and vindictive, Peck was pitted against one of the most likeable film characters, and actors, of all time. Even his name was obnoxious. And of course, he nearly sparked a cinematic Armageddon by forcing the authorities to shut off the power grid that kept New York’s captured ghosts contained. So it’s not surprising that he’s widely hated – in fact, William Atherton, the actor who played him, has reportedly been accosted in bars by people eager to argue – or even physically fight – with his character.

But as many online commentators with too much time on their hands have noted, Walter Peck may have been a jerk, but he was absolutely right. The Ghostbusters were operating multiple unlicensed nuclear-powered devices in the middle of New York City – more than enough reason for the Environmental Protection Agency to demand an inspection of their facilities, and to shut them down if, like Venkman, they refused to comply. If your neighbors’ business involved a mysterious radioactive contraption capable of producing “noxious, possibly hazardous waste chemicals” in their basement, wouldn’t you want the government to intervene?

At this point, you may be wondering what any of this has to do with finance. The answer can be seen in recent events in Uganda.

Earlier this month, the financial inclusion world was shocked by headlines trumpeting some alarming news: a Ugandan judge had declared mobile money services to be illegal within the country. In a suit filed years earlier, Abdul Katuntu, a member of Uganda’s parliament, contended that the country’s mobile money service providers were operating outside the license issued to them by its Communications Commission. The suit argued that in order for them to offer mobile money services, companies must be registered and regulated as financial institutions. And according to early reports, the judge apparently agreed.

But it soon emerged that the truth was far more nuanced than the initial headlines. Though the judge seemed receptive to the plaintiffs’ argument, stating that mobile network operators (MNOs) are indeed providing financial services without the proper license, he went on to dismiss the case on the grounds that it should have been brought before a special telecommunications tribunal, and that his court did not have jurisdiction. So though it’s apparently technically illegal, the country’s mobile money industry is still very much alive.

It’s not clear what the next steps in this drama will be (Katuntu has vowed to appeal the decision), but the response among financial inclusion advocates was fairly uniform. Faced with the sudden death of what many see as one of Africa’s most promising mobile money markets – an industry that serves over 18 million customers and processes around USD $6 billion in transactions each year – many reacted with dismay and consternation.

This response is not surprising: the ruling did seem harsh, especially as it was first reported. But there may have been a deeper mentality behind the reaction. Every industry tends to see regulators as adversaries – uptight Walter Pecks forcing their bureaucratic rigidity on freewheeling Pete Venkman-style entrepreneurs – and mobile money is no exception. Take M-PESA, the industry’s flagship product: it owes much of its success to the hands-off approach of Kenyan regulators, who allowed Safaricom to offer financial products without complying with the same requirements as banks. That country’s “Peck” was sidelined, “Venkman” won, and the result was probably the biggest success story in the history of BoP business. It’s natural that many hope for a similar regulatory approach in other countries.

But it’s not clear that other countries could, or should, emulate Kenya’s example. Lenient Kenyan regulations allowed M-PESA to scale quickly – an important factor in making mobile money services viable. But they also helped Safaricom acquire monopoly power in the market – a situation that has only recently begun to change. And many analysts have blamed the recent high-profile fraud cases that have rocked the industry in Uganda and other countries on lack of regulatory oversight. Though excessive regulation has also been blamed for mobile money’s failure to take off in countries like Nigeria and South Africa, cases like Uganda’s show that it’s possible to stray too far toward the other extreme.

That’s why I think the Ugandan industry’s near-death experience could actually be a good thing. It’s exciting to see mobile money grow in markets around the world, and flexible regulation can enable that growth. But in a market that has been described as a playground for fraudsters, it’s good for regulators to occasionally make their presence known – even if, as in the current case, they decline to intervene. And as the failed Ugandan lawsuit centers on the ambiguity that makes mobile money such a challenging sector to regulate (is it finance or telecommunications?), it could add a new sense of urgency to efforts to find some clarity.

Regulators don’t always get it right, and they’ll never be as likeable as the groundbreaking companies they oversee. But when those companies’ customers include some of the most financially vulnerable people on the planet, it’s comforting to know that Walter Peck is on the job.

James Militzer is the editor of NextBillion Financial Innovation.

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banking, digital payments, financial inclusion, financial services, government, mobile banking, mobile finance, mobile money, regulations