Licensing mobile money remittance providers: Early lessons

Licensing mobile money remittance providers: Early lessons

FEBRUARY 2017

GSMA

Mobile Money

The GSMA represents the interests of mobile operators worldwide, uniting nearly 800 operators with almost 300 companies in the broader mobile ecosystem, including handset and device makers, software companies, equipment providers and internet companies, as well as organisations in adjacent industry sectors. The GSMA also produces industry-leading events such as Mobile World Congress, Mobile World Congress Shanghai, Mobile World Congress Americas and the Mobile 360 Series of conferences.

For more information, please visit the GSMA corporate website at

The GSMA's Mobile Money programme works to accelerate the development of the mobile money ecosystem for the underserved.

For more information, please contact us: Web: mobilemoney Twitter: @gsmammu Email: mobilemoney@

This publication was written by Saad Farooq.

The author would like to acknowledge Nathan Naidoo and Brian Muthiora for their contributions to this publication.

Follow the GSMA on Twitter: @GSMA

THE MOBILE MONEY PROGRAMME IS SUPPORTED BY THE BILL & MELINDA GATES FOUNDATION, THE MASTERCARD FOUNDATION, AND OMIDYAR NETWORK

LICENSING MOBILE MONEY REMITTANCE PROVIDERS: EARLY LESSONS

CONTENTS

INTRODUCTION

4

LICENSING MODELS: INDIRECT TO FULL SERVICE

6

FIRST STEPS: LICENSE APPLICATION PROCEDURES

8

THE SCOPE OF LICENSES: A TWO-WAY STREET

10

REMITTANCE HUBS: COMMERCIAL SCALE, REGULATORY EFFICIENCY

11

RECOMMENDATIONS

12

CONCLUSION

13

RECOMMENDED READINGS

13

APPENDIX A

14

COMMON INTERNATIONAL REMITTANCE LICENSE

FRAMEWORKS AND CONSIDERATIONS

APPENDIX B

18

LICENSE APPLICATION CHECKLIST

Contents | 3

GSMA

Introduction

Mobile money is revolutionising the international remittance industry by lowering prices and expanding access to financial services. This presents significant opportunities for the 250 million1 migrants and their families back home.

In 2015, global remittances totalled USD 581.6 billion,2 of which $431.6 billion, or nearly 75 percent, was sent to the developing world. International remittances play a critical role in the economies of developing countries. In

Liberia and Gambia, remittances represent 24.4 and 22.4 percent of GDP, respectively.3 In some African countries, the flow of migrant remittances is larger than official development assistance.4

In recent years, we have seen a significant shift in the competitive landscape for providers of international remittances, as mobile money providers have expanded from domestic-only services to enabling transactions between 51 countries.5

What are mobile money-enabled international remittances?

Mobile money-enabled remittances are low-value, person-to-person (P2P) international transfers. They are delivered electronically to a financial account held on a mobile phone. The sending channels vary widely and can include (i) brick-and-mortar money transfer operators (MTO), such as Western Union; (ii) webbased MTOs, such as World Remit; or (iii) mobile money accounts hosted by a mobile money provider in the sending country. While the first two channels typically handle North-South remittance flows, the third channel is common for intra-regional remittance flows where there is movement of labour across borders and mobile money offers a low-cost and real-time alternative.

The use of mobile money for international remittances unlocks a range of benefits for all stakeholders.

? First, where mobile money is the sending channel, it is typically cheaper than alternative formal remittance channels. Data collected in August 2016 shows that the average cost of sending $200 using mobile money is 2.7 percent of the sending amount, compared to 6.0 percent when using global MTOs.6

? Mobile money-based international remittances support financial inclusion by encouraging people to use digital financial services that give them access to broader payments services and the ability to store electronic value in a safe and secure digital account.

? Mobile money is also a powerful way to digitise large flows of informal cash transfers, which in

1. The World Bank, 18 December 2015, "International Migration at All-Time High",

2. The World Bank, 13 April 2016, "Remittances to Developing Countries Edge Up Slightly in 2015",

3. IMF, World Bank World Development Indicators and staff estimates: 2015 data 4. European Parliament, 2014, "The Impacts of remittances on Developing Countries", 5. GSMA, 2016, "2015 State of the Industry Report: Mobile Money", 6. GSMA, 2016, "Driving a price revolution: Mobile money in international remittances",



4 | Introduction

LICENSING MOBILE MONEY REMITTANCE PROVIDERS: EARLY LESSONS

turn contributes to the integrity of financial markets. In particular, it reduces the risk of money laundering and the financing of terrorism, since electronic transactions can be monitored and traced more easily than cash.

Recognising these benefits, many regulators have begun supporting mobile money providers in providing international remittance services. Mobile operators in El Salvador, Ghana, Kenya, Mozambique, Pakistan, Philippines, Rwanda, and elsewhere are now competing directly in the international remittance space. Operators are gearing up to pursue ambitious targets to open new mobile money-enabled remittance corridors,7 including through commercial agreements to interconnect their platforms.

Despite the progress these countries have made, regulatory challenges are a significant barrier to entry and scale for mobile money providers. Licensing is the greatest challenge and requires immediate attention.

Based on an assessment of various licensing regimes, we have highlighted some of the early lessons of different regulatory approaches. This paper looks at common licensing models and their scope, application procedures for providers, challenges regulators face in assessing license applications, and the licensing requirements for remittance hubs. Our goal is to provide a starting point for multi-stakeholder cooperation and dialogue, which will be needed to open new market opportunities, reduce the cost of remittances, and achieve global public policy objectives such as the United Nations Sustainable Development Goals (SDGs).

7. A corridor is defined as a unique combination of sending country and receiving country. For example, Kenya to Tanzania and Tanzania to Kenya are two distinct corridors.

Introduction | 5

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