The news on the shutdown of Liberty Reserve money transfer raises concerns for the potential knock on impact on legitimate users – of that service, and of new ones like it, that are springing up around the world. What then is the most effective way in which this kind of use of digital money can be segregated from the daily transformative use of Digital Money as a tool for financial inclusion?
As more people in emerging countries gain access to the Internet, a natural transition for mobile wallets and mobile money takes the services into the realms of digital wallets and digital money. Currently the prepaid card acts as a digital wallet and payment instrument that spans multiple jurisdictions and bridges online and offline worlds. In the case of Liberty Reserve, companies such as ePay offered services that used Liberty Reserve as the rails. We see this kind of interdependency is in play across most of the new services and it is increasingly vital for the partners to identify “the weakest link” in order to install appropriate safeguards.
However the Digital Money space has been growing so fast and in so many directions over the last few years that we see a host of confusing terms applied. For the new services to grow, they must support a wider set of services, of which international money transfer is the most important one. Although we continually add new categories and fine-tune our definitions, as we monitor the space on a daily basis, the team often get into deep discussions on specific cases that fall into “grey areas”, and we wonder how to reconcile conflicting terms used by regulators and providers in each part of the world.
The challenge in moving from domestic money transfer to international payments is that in the latter case there are two or more regulatory regimes involved. There could be numerous senders and receivers using these services from all over the world. As money gets digitised at one point and then travels through a number of potential “legs” to be realised through multiple channels, payment instruments and classes of trade, this is creating scenarios that impose a daunting challenge for regulators world-wide. It was the US prosecutors who finally shut down the service, but in addition to Banco Central de Costa Rica (BCCR) and the Costa Rican regulator SUGEF (Superintendencia General De Entidades Financieras), there were regulators from 17 countries involved in the investigation.
Over the last 5 years CGAP, Bill & Melinda Gates Foundation, GSMA, USAID and others have worked untiringly with regulators, service providers and consumer groups to help to create enabling regulatory environments for Branchless Banking and Mobile Money. This has resulted in a number of new services springing up around the world led by the banks, mobile operators and other providers. While M-Pesa Kenya remains the leader, reportedly moving $5 billion in Q1-2013, a number of new services such as UBL Omni in Pakistan and DBBL in Bangladesh are fast gaining traction, growing to a million new customers within increasingly shorter timeframes. A healthy agent network is organically growing to service the account opening and cash in-cash out functions for the services. As the services become increasingly interoperable, and the agent network becomes shared, this question of the “weakest link” becomes increasingly relevant.
So how do regulators and providers identify the weakest link? How do consumers, especially MSMEs safeguard their precious funds as they increasingly seek to do business across countries? It is very important that all parts of the digital money ecosystem clearly understand the difference between each kind of digital money service, the levels of access to be provided and the KYC required for each.
We hope the Digital Money SAGE can help in this process in some small way. This knowledge base tracks the complex relationships between players and initiatives, across 32 services, tracked at country, sub-regional, regional and global levels.