The full report is at http://www.finmark.org.za/wp-c...

The following extracts are comments of particular importance. For context and full detail, see the report.

The services able to be offered through mobile money, including remittance and mobile payments (bill payments and merchant payments) are constrained in South Africa through regulation primarily due to the stipulation that e-money can only be issued by a bank and the definition of deposit limits the ability to offer mobile payments without a partnership with a bank.

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The structure of the national payments system creates barriers for non-bank participants to participate in clearing services and adds cost to participation in payment services. The effect of these barriers is that the ability to launch payment mechanisms that are able to compete with the established mechanisms in cost, acceptance and interoperability is limited.

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In markets where mobile money has been successful, one of the cornerstone services that has driven adoption and profitability is domestic remittance. The competitors in the formal sector for this service in South Africa are well established with significant market share combined with convenience, trust of the provider and accessible agent networks. The retailers dominate the formal domestic transfer market with limited price differentiation.

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The South African end user environment has marked differences to those countries where Mobile Money has been successful, including high financial inclusion, easy access to ATM and retail branch networks and access to banking services through mobile channels. There is a propensity for individuals to withdraw the majority of their deposits into cash that challenges the substance of the banked statistics, further research is required to fully understand the reasons. The behaviour highlights that the benefits of financial inclusion are not being realised by these individuals.

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Additional factors that influenced the lack of sustainability include:
• Agent network challenges, including cash float, aggregation, trust and value
proposition;
• Poor technology choices for the implementation of the services

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it is clear to see that while both M-PESA and MTN Mobile Money were technically feasible (they had their challenges, but none were insurmountable), and the customer desirability was high, the primary causes for failure lie within the business viability lens; that is, the business models were constrained by the institutional environment that limited the product offering, a highly competitive domestic remittance market and an end user market with high financial inclusion.

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It is evident from the withdrawal behaviour of consumers that a large portion of the South African banked population are not experiencing the benefits of financial inclusion. Cash is still the primary transacting mechanism, with the associated risk of safe storage and transport, and access to affordable credit is constrained through limited behavioural information. Incorporating the unbanked into formal financial services in a sustainable way will not only benefit the individual and help propel socio-economic development, it will provide a new market opportunities and overall commercial efficiency for the private sector and greater regulatory and tax efficiency ultimately contributing to the GDP.

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The introduction of new mobile money financial products will be critical in allowing the poor to access saving, credit, and insurance products. Most adults use mobile money to buy airtime and make remittances which constitute a fraction of financial products needed by people. Therefore, the introduction of new mobile financial services such as savings, credit, insurance, and investment products should be introduced to allow people to access various alternative financial products.

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MFS offerings have the potential to provide a viable alternative to traditional banking and established remittance offerings, thereby increasing real financial inclusion with all the associated benefits. Fundamental to achieving this potential is a regulatory environment that enables innovation, encourages competition, ensures interoperability and provides fiscal stability and consumer protection. Changes to regulation can increase the range quality and suitability of financial products and services to low income consumers – thereby increasing financial inclusion.

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The following is recommended:
• Review the current position on e-money and consider the role of non-banks issuing e-money.
• Increasing access to the national payment system at a payments and clearing level, including non-banks.
• Review the definition of deposit and consider the option of introducing granularity into the usage of
deposit (eg. Deposits for the purpose of transacting) and using that to guide appropriate oversight.
• Introducing regulation to enforce banks to provide access to their services to third parties through secure APIs.
• Introduction of inter-operable real-time-push mobile transactions.
• The use of regulatory sandboxes to enable innovation while leveraging technology to better manage risks.
• Improve co-ordination between different departments and explore the opportunities for South African Social Security Agency (SASSA) to better leverage existing payment and transacting infrastructure.
• Shift the focus from the regulation of institution to the regulation of activity, service or product.