Technical note exploring regulatory options for protecting consumers' mobile money
The proliferation of nonbank electronic money issuers (EMIs) presents opportunities for financial inclusion for poor people by expanding the reach of financial services and enabling poor customers to participate in their country’s economy. However, with these benefits come important risks, including loss of customer funds and unavailability of customer funds upon demand. Inability to access funds upon demand may be due to insufficient liquidity or operational failures, while loss of customer funds may be due to loss of the e-float resulting from imprudent investment or insolvency of (i) the EMI or another fiduciary party such as a trustee holding the funds on behalf of the customers or (ii) a bank that holds part or all of the e-float.
This Technical Note takes a deep dive into safeguarding customer funds held by EMIs. It addresses regulatory requirements of fund safeguarding that are meant to protect customer funds. These requirements fundamentally aim to ensure that e-float is sufficient, safe, and liquid to meet customers’ demand for converting electronic money into cash and may include maintaining funds in bank accounts, spreading them across several banks to reduce the concentration risk, and/or investing them in other safe, liquid assets such as government securities. The paper details how some regulations address the concentration risk for the EMI and the bank holding the e-float, identifies the pros and cons of several regulatory options for fund safeguarding, and references countries that use the options. These countries include Bangladesh, Brazil, Colombia, El Salvador, Ghana, India, Indonesia, Jamaica, Kenya, Lesotho, Liberia, Malawi, Malaysia, Myanmar, Namibia, the Philippines, Rwanda, Sri Lanka, Tanzania, Turkey, and Zambia and the countries in WAEMU.