MOBILE MONEY RISKS

 

If you talked publicly about mobile money as often as I do, you'd probably have some sympathy for me. I like talking about how to build it, how people use it, what additional functionality can be built on it, and how it might give people more opportunities to improve their lives. I could be wrong about many of the hopes I raise and ideas I express. But I often find myself side-tracked into slaying ill-articulated fears which, while valid at some level, feel like conversation downers to me. Here are five concerns I wish people didn't lock into quite so quickly.
Doesn't mobile money make money laundering easier? I wish that wasn't the very first question I usually get asked when I talk about how mobile money can help poor people make small payments and save small amounts. Yes, money laundering aspects need to be addressed, but surely we can limit the risk of misuse of mobile money by capping transaction sizes and monitoring when too many small transactions are channeled into one big account. The bigger criminal will always be the guy with the bigger account - or the guy who is opting out of electronic money altogether and keeping it all in cash. Making transactions electronically traceable and making cash suspect should be a help in fighting illicit activities.

How can they possibly understand how it works? The premises are reasonable enough: Many poor people are illiterate, have never dealt with money in other than touchable form, and have seldom used a mobile phone for anything other than making the odd call - and now you want them to type numbers into a phone to transfer money electronically into a virtual account? All I can say is: people do learn, if only you market to them a service that they want to learn about. The real marketing challenge at the base of the pyramid is not so much telling them how to use it but why they should use it. If you have their attention (and for me the litmus test is: does this address one of the 'top 10' practical problems of being poor?), they'll make sure to find out they can use it. They'll pick up the details - not necessarily from the provider but perhaps from a savvy nephew, a friend who came over from the big town, or the corner shop that wants to be your cash merchant. It's worked for mobile phones in general: think of how complicated it is even for you to choose a phone and a tariff plan, and how badly they explain it to you at the mobile phone shop. But you still want one! And it's worked for M-PESA in Kenya, with its 'send money home' marketing mantra.

Aren't you exposing people to potential abuse?  I've come to realize that many people find universal financial access scary, though they would never admit it, least of all to themselves. I often hear about how poor people (and here the word 'poor' subtly shifts from representing lack of means to connoting ignorance and defenselessness) won't be able to keep their PIN secret and will be forced or smooth-talked by fraudsters - and husbands- into giving them all the money in their account. I think there are two fallacies going on here. The first fallacy lies in the fact that mobile money won't grow big until people have learned to trust the system. People won't shift their lifetime savings from under the mattress to the mobile wallet on day one. Instead, they will learn experientially how to make it safely work for them, including the need to keep the PIN secret. The second fallacy is to look at the risks of mobile money in absolute terms rather than in relation to the alternatives (such as hiding cash under the mattress, which is not very safe).
Why not make it more secure with biometrics?  Oh, the seductive appeal of fingerprints: the certainty of knowing who people are, no more issues remembering PINs. Resist it! Let's just be practical: the financial inclusion goal calls for stripping out costs and using infrastructure that already exists. Going biometric means deploying an entirely new infrastructure - you can no longer rely on people's mobile phones or the bank's existing ATMs, because those don't take fingerprints. And biometrics may not be everything live up to the hype. It identifies the person with full certainty only if (i) you recorded the right name against a fingerprint in the first place (and how can you be sure about that, unless there is a biometric national ID system?), and (ii) you apply a rigorous matching standard when you read people's fingerprints (but that will create lots of problems for the provider with all those false rejects, and nobody discloses the degree of match they are willing to accept anyway). Biometrics may just be giving the illusion of security. But for me the bottom line is: if PIN-based authentication is good enough for you and for me with our bulging bank accounts, surely it's good enough for poor people.

It has to be a bank! What's in a name? I often get asked how one can trust mobile operators to safe-keep people's money. A facile answer is, of course, that you do when you buy their prepaid airtime from them. But in any case, the money collected from the public under all mobile money schemes is (let me say: ought to be) safely put away in a bank account. I find it strange how many people who have heard about mobile money enough to have opinions about it still think that Safaricom uses people's M-PESA money to build itself some more base stations. Since the money is always with a bank, the prudential regulation and supervision of banks automatically covers the prudential risks of mobile money. Yes, I'd like banks to be more involved so that they can offer a broader range of financial services to customers, but if banks don't step up to the plate I'm more than happy to let mobile operators give a minimum set of payment and store-of-value services to their customers.
These issues are important and need to be aired and addressed fully. I just wish we gave ourselves a little bit more time upfront to get excited before coming in with all the but's. We have to keep the conversation focused on how to create opportunities to include the 70 - seventy! - percent of the population in developing countries that are not being served by the formal financial system.

Mobile money users risk losing cash sent to unintended recipients if proposed regulations by the Central Bank of Kenya barring reversal of payments are passed into law.

The regulation is an effort to curb a loophole used by dishonest people to stop payments for goods or services they have received.

The rule could lead to a pile up of claims against mobile phone firms for erroneously captured transactions.

“A payer may not revoke a retail transfer instruction once it has been received by the payee’s payment service provider,” reads one of the proposed CBK guidelines.

CBK has also made it mandatory for payment service providers to ensure that amount being transferred on their platform are credited to the payee’s payment account by the end of the third business day after the receipt of instruction from the payer.

This will put pressure on banks with some of them indicating that electronic fund transfers, commonly referred to as EFT and which is different from real time gross settlement, takes four working days to be effected.

Telecoms companies have stated that they are consulting with the regulator on the issue but declined to give details.

“We are making our written submissions on the issues, consultations with the Central Bank and other policy makers are still in progress,” said Safaricom corporate affairs director Nzioka Waita.

Safaricom, operators of the widely used M-Pesa, have made efforts to deal with the issue of sending cash to the wrong number by issuing SIM cards that allow users to fetch the details of the recipient from saved contacts.

This was expected to limit errors while sending out money, but has not eliminated problem. The mobile operator also usually contacts the recipient in order to verify the payment was not targeted as debt clearance.

There have been instances where businessmen who have been supplied with goods and settled the amount through M-Pesa later revoke the transaction exposing sellers to losses. Landlords and other service providers have been exposed to such schemes.

Some M-Pesa agents interviewed Tuesday said that the transactions were usually logged with the service provider and a statement request from the recipient would show that the money was reversed to show it is outstanding.

“There are some people who try such tricks but if the recipient is enlightened he would follow up and it will be discovered as it will send a message stating the reversal,” said Richard Mutua, an M-Pesa agent in Nairobi.

Apart from mobile money services, the guidelines will also affect electronic payment services offered by banks such as RTGS, EFT, standing orders, direct debits and those of e-commerce companies such as Jambopay.

Sifting through the mobile jargon 

Mobile transactions fall into two broad categories: mobile banking, and mobile payments. ‘Mobile banking’ refers to the platforms that allow consumers to access banking services from a mobile device such as checking a bank account balance, transferring money and paying bills using an app. On the other hand, ‘mobile payments’ refers to the process of paying for goods and services using a mobile device app such as ANZ’s goMoney or CBA’s Kaching, as well as ‘near field communications’, which is going into a store and swiping a smartphone to make a payment. “It’s worth noting that near field communications are starting to gain traction in Australia,” says Houseman. 

What is driving mobile change? 

According to most experts, it’s consumers, rather than the business world, that are leading the mobile transaction charge. 

According to Deloitte’s 2012 white paper The Future of Exchanging Value, “Consumers are making their purchases when and where they discover their need, rather than engaging in a traditional shopping mission to seek out the goods, and often bypassing conventional payment solutions in the process.” Tommy Viljoen, national lead partner, security and resilience, Deloitte, offers: “The introduction of the iPad has a lot to do with user expectations and usability, and people don’t want to go home and switch on their PC to conduct a transaction anymore.” 

Deloitte’s Wilson chips in, “Around 13 to 15 per cent of all internet traffic originates from mobile devices now. For example, people are sitting on the couch watching TV at home and they are using their mobile to research a product they’ve just seen on TV or downloading information about a movie and the reviews. Obviously you can’t do that with the hardwired PC up in the study. So the PC is becoming a destination to do something specific on, but if I’ve got my mobile or tablet on me, I now have mobility.” 

Viljoen argues that the concept of mobility is focused on finalising “a transaction, wherever you are, whenever you want and the businesses that can’t deliver that are going to lose out.” 

Managing the mobile security risks 

Wilson affirms that financial institutions take mobile app security extremely seriously. He says: “Mobile security is one of the biggest issues we talk to the banks about”. There is an inventory of security checks the banks must meet, including compliance with the data security standards and PCI security standards. “Mobile security is not being taken any less seriously,” asserts Wilson. “If a smartphone is lost it’s more an inconvenience than a security risk.” 

A more significant threat, warns Wilson, is the mountain of data regularly stored on a missing tablet or smart phone. “Many customers keep files on their phone such as emails that provide account information or passwords but the banks very clearly warn their customers that this is not good practice,” says Wilson. “You don’t keep those details on your PC at home, so you shouldn’t keep them on your phone.” 

On the issue of defending a smartphone or tablet from a cyber attack, Viljoen says mobile phones offer users regular upgrades and updates for the mobile’s system, which are aimed at improving security. “I know a lot of people who haven’t upgraded their phones to the latest version or update – perhaps because not all upgrades have worked as they should in the past – but it’s also important to understand the importance of those upgrades in making sure that the latest security protection is included in the operating system on the device,” cautions Viljoen. 

The business challenges with mobility 

Peter McNally, technology risk consultant at KPMG, says that banks and businesses are looking at mobility in terms of how it can improve sales and reduce costs. “In other words, if we can do things faster, we can get cost savings from that. And anything which removes paper out of the transaction, anything that removes delays from the transaction, ultimately results in a cost reduction,” says McNally. 

Deloitte’s Wilson says that for traditional businesses – such as banks, retailers and utilities – mobility represents a major digital disruption. “So businesses have become more valuable by providing better services to their clients and that’s all honing in on channels such as digital – be it online or mobile – to provide those services to them,” advises Wilson. Take the banks, where mobility is delivering the opportunity to put lower-cost platforms in place. “If a bank can begin to take some of the lower-value transactions, which may be of a higher volume, out of the branches and call centres, and put them onto a very simple tool such as ANZ’s goMoney mobile app, it improves customer convenience, and lowers business cost,” says Wilson. “There are nearly 20,000 bills paid every day on the goMoney platform and about $2.5 billion of transactions monthly.” He adds, “In the bank’s eyes, these aren’t necessarily the ‘value-add’ transactions, so they’ve been taken out of the more costly channels – like the branches and phone banking – and put into digital channels such as a mobile device,” says Wilson. “Now the banks can start focusing on making those other channels more valuable for themselves and their customers.” 

Mobile technology will also, in theory, enable smart businesses to turn opportunities into stronger revenues. “In other words, if you’ve got the technology in your sales force to give the customer what they need at the time, while the salesperson is standing in front of them, you are more likely to secure that sale than if you have to wait for a response,” says McNally. 

Wilson agrees that mobility can allow more people to enter through the sales process. “This is great if you have a good proposition, be it price or whatever,” says Wilson. 

“More customers indicate that a business is doing things right at the front end. But where businesses also need to have conversations is in relation to their supply-chain management and other back-end processes of their business, so that the actual fulfilment process is embracing and engaging some of these digital technologies.” 

Take the banking sector, for example, where currently the transfer of funds from one bank to another can take several days to clear. This is an eternity in the new age of mobility and as such, the Reserve Bank of Australia is pushing the financial services sector to adopt real-time funds transfer between financial institutions by 2016. The plan was recently approved by the Payment System Board and, according to KPMG’s Houseman, the banks, building societies and credit unions have to build ‘real-time payments infrastructure’. “This will lift customer expectations as users become more used to it,” says Houseman. “It will then mean that many back-end processes will need to change to either accept or make those transactions. It will not be limited to mobile transactions, but mobile will be one of the key beneficiaries of this new infrastructure.” For instance, retailers will receive funds almost instantaneously, rather than waiting for ‘end of day’ payments. 

While Houseman says that real-time payments will initially impact the banking sector, other industries will also need to adapt their processes. “Utility companies will need to be able to accept bill payments at all hours of the night and then be able to go and update customer balances straight away to make sure they are not charged late fees.” Likewise, insurance companies will also need to adjust to real-time payments to accept policy renewals received before the exact expiry time. Viljoen from Deloitte agrees: “Mobility represents a different model that introduces new risks and you’ve got to have the resources to manage those risks. Everyone thinks it’s just a one-way street and that digital will improve everyone’s lot, but it’s a matter of risk management and seeing where you are going to have to spend additional money managing social media and online branding, security and any other risks to your new operating model.” 

Viljoen cites the example of one organisation that is successfully using social media to execute any sales enquiry delivered via Twitter. “However, if you try and phone their call centre, you could be on the line for 40 minutes and the response from the call centre is ‘I’ll get back to you in 48 hours.’” This business, according to Viljoen, has its fulfilment processes skewed to social media to the detriment of traditional channels. “You can imagine what that is doing to their customer base and response rate,” he adds. 

In other words, don’t ignore customers who still prefer to do business via traditional channels; the Nielsen research mentioned earlier shows that 69 per cent of Australians are yet to use a smartphone or tablet to pay a bill, buy a ticket or send a loved one flowers. Wilson advises, “Organisations must get a clear handle on how their customers prefer to make a purchase – whether it’s in-store, online or via a digital channel – to compete in the digital age.” 

What are the challenges for accountants? 

Businesses have typically relied on their accounting staff, or their accounting advisers, to keep them abreast of change, such as regulation amendments and shifting marketplace conditions. The penetration of digital mobility is no different. McNally says, “From the accountant’s perspective, mobility is not going to necessarily make transacting easier or better, but it’s going to make it different – and it will vary a lot by industry, by business and by geography.” 

He adds that accountants working with the finance divisions of businesses selling goods and services online will be required to run a check on how mobility affects traditional back-end processes, cashflow management, inventory, stock control, and so on. “All back-end systems are potentially impacted by the growth of mobile payments, and accountants need to have control of these situations,” says McNally. “They need to be thinking about these potential changes in their businesses or clients.” Deloitte’s Wilson adds: “The advice accountants need to give to their clients is that mobility represents a competitive threat right now, and it’s often being played at a price-point level.” 

Finally, McNally advises that accountants don’t need to become technology boffins overnight to ensure their clients and businesses are mobileready. “Accountants need to understand the business, regulatory and control shifts presented by mobile transactions and develop strategies that respond directly and successfully to these disruptions.”