Articulating service benefits to end users is an area where government support can add credibility.
Given the different entities, contrasting motivations and unique technological issues involved, government support will play a vital role in establishing new mobile payment channels.
The importance of state backing
Instances of direct funding can help build scale credentials into NFC services, since many trials so far have been local. The market is also encouraged by the public sector, as it is a leading customer of mobile contactless solutions. Articulating service benefits to end users is also an area where government support can add credibility.
State backing can play a role in incentivizing different parts of the value chain. UK figures show that accepting payment by debit card costs a retailer four times more than when customers use cash.
The role of incentivizing
Retailers need greater incentives and consumers need new types of protection:
- In the US, Consumers Union, publisher of Consumer Reports, called on the Government to tackle the risk of fraud. It has highlighted the fragmented nature of existing safeguards and has suggested that mobile payment providers give voluntary “zero liability” assurance to consumers without loopholes.
- In the UK, the Government has been working with mobile operators and card issuers on a set of guidelines that aims to prevent criminal activity in NFC.
- In emerging markets, overseas government agencies also have a role to play, with both the United States Agency for International Development (USAID) and the UK Department for International Development (DFID) directly funding mobile money projects in recent years.
Long-term success requires regulatory certainty
Many early successes in mobile money transfer services have occurred due to an absence of regulation. Going forward, regulation will be a key facilitator of a successful transition to new payment channels, providing clarity for service providers and end users. However, clear policy roadmaps are complicated by competing regulatory concerns.
Following the financial crisis, greater stability is an imperative for banking regulators, yet a fast-growing mobile channel for remittances in countries with a lack of banking infrastructure brings challenges in terms of customer protection and regulatory oversight.
In this light, demands for greater financial stability and greater financial inclusion could work against each other. The need for openness to allow mobile payment to flourish must be balanced against security for payment providers and end users.
Country guidelines around e-money
Many countries are taking steps to improve guidelines around e-money:
- China has voiced concerns that the move to e-money could accelerate inflation due to the increased velocity of transactions
- The Philippines has laid down maximum monthly load limits and extended the stipulations of its Anti-Money Laundering (AML) Law accordingly in 2009.
- In the UK, HM Treasury issued a consultation document on how it should regulate e-money institutions and what level of guarantees should apply.
- In South Africa, e-money issuance is restricted to banks only.
Virtual currency represents challenges
Regulatory issues in
mobile money services
Regulatory issues will likely become more complex. For example, telecoms regulators usually mandate that operators ensure competing networks are interconnected, but this is not the case for payment systems regulators. Virtual currency represents a unique challenge all of its own.
As virtual currency issuers allow users to redeem it with third-party vendors and offer full cash redemption — in short, becoming an accepted proxy for real-world money — so the regulatory burden can be expected to rise.
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