Overview
The basic enablers are as follows:
- Nonbank E-Money Issuance. A basic requirement is to create a specialized licensing window for nonbank DFS providers—EMIs—to issue e-money accounts (also called prepaid or stored-value accounts) without being subject to the full range of prudential rules applicable to commercial banks and without being permitted to intermediate funds.
- Use of Agents. DFS providers—both banks and nonbanks—are permitted to use third-party agents such as retail shops to provide customers access to their services.
- Risk-Based Customer Due Diligence (CDD). A proportionate anti-money laundering framework is adopted, allowing simplified CDD for lower-risk accounts and transactions. The latter may include opening and using e-money accounts and conducting over-the-counter (OTC) transactions with DFS providers.
- Consumer Protection. Consumer protection rules are tailored to the full range of DFS providers and products—providing a necessary margin of safety and confidence.
Considerations
The overarching legal frameworks for payment system and banking regulation impact the permissible legal models for e-money and similar DFS. The absence of clear, enabling legal frameworks typically limits innovation.
Key issues to consider
- Non-bank E-Money Issuance:
- Permissibility of e-money issuance by non-banks: Can non-banks legally offer e-money and similar DFS?
- Mechanisms for licensing e-money issuers (EMIs): How can regulators license provision of e-money and similar DFS by non-banks?
- Use of Agents: Can banks and non-banks use agents to provide access to DFS?
- Risk-Based Customer Due Diligence (CDD): Is there a risk proportionate anti-money laundering framework in place?
- Financial Consumer Protection: Are consumer protection rules tailored to the full range of DFS providers and products?
Country examples
The Banks Act, 2007 limits deposit-taking to banks and includes a broad definition of “deposit-taking” that would appear to encompass cash-in activities. The South African Reserve Bank has interpreted the Banks Act to limit e-money issuance to banks.
19% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
While the Banking Institutions Act, 1998 also limits deposit-taking to banks and includes a broad definition of “deposit-taking”, the Bank of Namibia permitted non-bank e-money issuance by treating cash-in as an advance payment for services to be rendered. The Determination on Issuing of Electronic Money expressly states that e-money funds are not deposits.
42% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
Prior to passage of National Payments Systems Act, 2020, and National Payments Systems Regulation, 2021, Bank of Uganda granted “no objection” to licensed partner banks a bank product provided in partnership with non-bank “mobile money service providers”, under Mobile Money Guidelines, 2013. Since 2021, non-banks are licensed directly as e-money issuers under NPS Regulations, 2021.
Prior to passage of National Payment Systems Act, 2015, Bank of Tanzania provided “letter of no objection” to partner bank and MNO partners. Since 2015, non-banks are licensed directly as e-money issuers under
E-Money Regulations, 2015.
Prior to passage of National Payment System Act, 2011 and National Payment System Regulations, 2014, Central Bank of Kenya provided “letter of no objection” directly to MNO to offer e-money services. Since 2014, non-banks are licensed directly as e-money issuers under NPS Regulations, 2014.
2021 ML Notes
The Law on Credit Institutions states that only licensed credit institutions may conduct banking operations. The State Bank of Viet Nam has interpreted this to mean that banks are prohibited from offering cash-in and other services through agents.
23% made or received digital payment, 2021 (% age 15+)
While the Banking and Financial Institutions Act, 1995 contained similar language limiting the conduct of banking services to licensed banks, the Bank of Zambia concluded that this did not prevent a bank from using agents to accept deposits and other services on the bank’s behalf. The National Payment Systems Directives on Electronic Money Issuance, issued 2015 and updated in 2018 allowed for providers other than commercial banks to offer services issuing e-money and distributing or redeeming e-money through a distributor or agent.
46% made or received digital payment, 2021 (% age 15+)
2021 ML Notes
Regulations permit simplification of some elements of CDD for “special” or basic banking accounts, subject to quantitative caps (e.g., balance limit of US$750). Here, customer identification and verification (CIV) can be based on information provided by government programs or on provisional identification using the social insurance number—with a delay of up to six months to complete CIV.
1% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
Taking a principles-based approach, the central bank regulations define the procedures and documentation requirements for full CDD, and simplified CDD (SDD) processes are largely left to the discretion of the provider (as are risk classification methods). The SDD procedures may be used in lower-risk scenarios, including identity verification after the business relationship, such as an account, is established.
19% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
Money Laundering and Terrorist Financing Risk Assessment Guidelines for Banking Sector,
Managing Core Risks in Banking: Guidance Notes on Prevention of Money Laundering
Applies its Financial Consumer Protection Guidelines to all types of regulated financial services providers and their agents, and additional FCP provisions are incorporated into its Mobile Money Guidelines.
47% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
Does not have a general FCP law, but DFS-specific FCP rules are incorporated in the regulations on EMIs (2016).
33% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
Disparate consumer protection rules are embedded in banking, microfinance, payments, e-money, and e-commerce legislation. The same agent may handle mobile money accounts (for bank and non-bank issuers), bill payments (for PSPs), and OTC transfers (for banks)— each of which is subject to different FCP rules.
38% sent or received domestic remittance via mobile phone, 2017 (% age 15+)
