Arguments
Arguments for Requiring Distribution of Interest to E-money Customers (including agents)
Customer Benefit
Since the value of pooled accounts is based upon outstanding e-money liabilities, customers should benefit from any interest earned these accounts.
Incentivizing Adoption
Paying interest could boost e-money adoption by encouraging customers to keep more funds on the account and agents to maintain more e-money float.
Legal Compliance
Some financial authorities have concluded that distributing interest is not engaging in “banking business,” as e-money issuers are merely distributing interest earned on a single pooled account, not offering individual interest-based accounts.
Arguments for Allowing E-money Issuers to Decide What to Do With Interest
Market Efficiency
In a competitive market, alternate uses of funds may be more beneficial to customers than direct distribution of interest. For example, interest can help to defray costs of administering pooled accounts and offering e-money services, which can help reduce cost of services to customers.
Arguments for Prohibiting Distribution of Interest to Issuers or Customers
Legal Compliance
Depending upon the country’s legal framework, collecting funds from customers and then distributing interest earned from the pooled account could be deemed “banking business,” which would be prohibited for non-banks.
Country Examples
| Approach | Country examples |
|---|---|
| May not pay interest to customers | Distinguish from banking business but
|
| Must benefit customers without mandating distribution | Providing some flexibility while ensuring customers benefit (Myanmar, Tanzania, Zambia) |
| Must distribute a minimum percentage of interest to customers | Ensuring that most of funds are passed on to customers. Require EMIs to distribute
|
| Issuer decides how to use interest | Give issuers flexibility over use of float interest (India, Sri Lanka) |
Considerations
- Financial authorities will first need to determine whether local banking law permits e-money issuers to
- Open interest-bearing settlement accounts.
- Distribute the interest earned on such accounts to their customers.
- If financial authorities determine that this is permissible, they would then need to decide whether to require e-money issuers to distribute some or all of the interest earned on the settlement accounts to their customers.
- Requiring e-money issuers to distribute interest to their customers could incentivize DFS adoption and encourage customers and agents to actively use e-money accounts.
- Allowing e-money issuers to decide whether to distribute interest could help promote competition, as some might distribute interest to incentivize uptake, others might use these funds to invest in better infrastructure and others might reduce fees for using the service.
- Requiring e-money issuers to distribute (a minimum percentage of) interest to their customers could lead supervisors to face costs as they need to assess compliance with the float distribution rules and in some cases, authorize such distributions.
- Also, in case of requiring e-money issuers to distribute interest, as float interest distribution becomes a cost of doing business, it could act as an entry barrier for new e-money issuers, effectively protecting incumbents with an already established level of operations. This could pose a challenge for higher levels of competition in the market.
