Paving the Way for Digital Financial Services in Jordan

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 overseen by CGAP (Nadine Chehade, Mayada El-Zoghbi, Antoine Navarro) and GIZ (Katharina Braun Bot?o 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 of Abbassi Law 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 peer review process. This report was funded by the German Government through GIZ. The project "Improving Access to Remittances and other Financial Services through Digital Solutions in Jordan" (Digi#ances) is part of the special initiative, "Tackling the Root Causes of Displacement, Reintegrating Refugees," initiated by the German Federal Ministry for Economic Cooperation and Development (BMZ) in 2014 as a means to provide short-term support to refugees and their host communities. The Digi#ances project is jointly implemented by GIZ and the Central Bank of Jordan, with whom CGAP partnered to conduct a comprehensive baseline study of digital person-to-person remittances.

TABLE OF CONTENTS

EXECUTIVE SUMMARY............................................................................... xvi INTRODUCTION........................................................................................... 1 PART 1: JORDAN DOMESTIC PAYMENTS MARKET..................................... 2

1. Jordan Domestic Payments Market.................................................................................. 2 1.1. Market Players: Bank and Nonbank Financial Institutions........................ 2 1.1.1. Banks.................................................................................................................. 2 1.1.2. Exchange Houses........................................................................................... 2 1.1.3. Jordan Post Company (JPC) and Jordan Postal Savings fund (JPSF)...................................................................................... 4 1.1.4. Mobile Payments Services Providers.................................................... 4 1.2. Access Points to the Payments Ecosystem in Jordan.................................... 6 1.3. Supporting Payments Infrastructure................................................................... 7 1.4. Ongoing and Future Projects................................................................................... 7 1.4.1. JoMoPay--Software Upgrade................................................................... 7 1.4.2. eFAWATEERcom............................................................................................ 7 1.4.3. Mobile Payments Acceptance................................................................... 7 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 2.3. Protection of Customer Funds..............................................................................12 2.4. Financial Customer Protection.............................................................................13 2.5. Financial Integrity......................................................................................................15 2.6. Concluding Remarks.................................................................................................17

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Paving the Way for Digital Financial Services in Jordan

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

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Paving the Way for Digital Financial Services in Jordan

PART 3: MAIN FINDINGS, REMAINING CHALLENGES, AND RECOMMENDATIONS......................................................................... 49 1. Main Findings..........................................................................................................................49 1.1. Domestic Payments...................................................................................................49 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 issuance in Jordan is sound, proportionate and robust..............49 1.1.4. Consumer protection and transparency present gaps in the regulatory environment for domestic payments..............50 1.2. International Remittances......................................................................................50 1.2.1. While Jordan is a net receive market, it is also a significant send market for international remittances...............50 1.2.2. There is a highly-segmented client base for sending and receiving international remittances...........................................50 1.3. Findings Related to the International Remittance General Principles......................................................................................................50 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: licensed MPSPs become agents of exchange houses.....54 2.3. Scenario Three: MPSPs create their own digital international remittances services, linking into IMTOs or hubs........................................55 2.4. Scenario Four: JoMoPay links directly with international remittances hubs and aggregators......................................................................56 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 1. Regulatory Comparison ? EU Directives and Jordan..............................................61 2. Mystery shopping Methodology......................................................................................71

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