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Regulation and financial inclusion

Regulation: The Cornerstone of Financial Inclusion in Africa

The mobile payment sector requires substantial investments, both in terms of infrastructure and equity. A clear regulatory framework is key to attracting new players, who aren’t as numerous in the Maghreb as they are in the rest of the continent, particularly in Sub-Saharan Africa.

The implementation of technical rules and platforms, monitored by central banks and telecommunications regulators, will therefore allow for the development of m-payment (mobile payment) in the African countries where it is least used.

The need to ensure the compliance of old, obsolete infrastructures that are not adapted to the current models, and therefore not favorable to development, may complicate the implementation of regulations. However, Africa has not inherited these complexities and is therefore fertile ground for the implementation of regulatory structures that support financial inclusion.

How do they influence the continent’s economic development?

The rise of m-payment has had positive economic impacts on the continent and its banking industry.  Mobile or not, payments represent the first step towards the increased use of banking services, as the compelling necessity for all to pay and be paid is what drives the widening of the banks’ client base.

M-payment has led to increased financial inclusion in Sub-Saharan Africa, where, according to a World Bank Report published in April 2018, the percentage of individuals above age 15 who have a payment account almost doubled in 6 years (from 23% in 2011 to 43% in 2017).  The GSMA’s 2018 Report evaluates at almost 400 million the number of registered mobile money accounts, that is to say close to 50% of the world’s active accounts.

Enabling previously unaffected populations to access banking services is the first step towards the standardization of the economy, with the emergence of saving and credit products that allow for the acquisition of new consumer goods and wealth creation opportunities.

What are the risks?

As it grows, the African mobile payment services market opens itself to fraud, which causes important financial losses.  In 2018, Airtel Kenya, the second largest national telecommunications service provider, declared a 6.7 million US$ loss, following several instances of internal mobile money theft. That same year, many fraud cases involving SIM swapping were also detected everywhere on the continent.

The central banks and m-payment service providers must therefore take appropriate surveillance measures internally (eg. reinforcing governance structures and verification procedures, raising employees’ awareness regarding security); as well as externally (eg. reinforcing the KYC process, fraud monitoring as per the PSD2 reporting requirements, etc.)

What are the opportunities?

The opportunities to develop mobile banking services in countries where bank account penetration rate is the highest require a sound regulatory framework.  In countries where m-payment is the most widespread, these opportunities lie within the development of a banking offer based on traditional payment solutions and the creation of suitable savings and credit products.  This implies targeting the C2B sector by equipping traders to unite around the proposed new solutions, while reinforcing regulatory compliance in order to ensure the security of the ecosystem.

David Parera, Director Strategy & Operation FSI at Deloitte Consulting

Regulation and financial inclusion
David Parera

Cécile Marc, Strategy & Operations Consultant to Financial Services at Deloitte Consulting

Regulation and financial inclusion
Cécile Marc