Protecting funds in mobile money schemes

Mobile money is new to most people – indeed it will be to the majority of Nigerians. Developing trust in mobile money is going to be key to adoption. Users will rightfully ask “is my money safe?” and “what happens if the mobile money scheme fails?” These are all valid questions that must be addressed by regulators and mobile money operators.

In Nigeria the regulatory body for mobile money is the Central Bank of Nigeria (“CBN”). The CBN framework for mobile payments already goes a long way in ensuring funds in the schemes are protected. The most important element of what they have done is to require isolation – funds in electronic wallets must always match funds in the bank. This means the mobile money scheme cannot use the deposits as part of their working capital. There is also the capitalization requirements the CBN has laid out – N500m (~$3m).

These and other auditing rules are great, but we at Paga think schemes need to go further. The risks here are not only with the mobile money scheme but also with the deposit banks. With all due respect, if Lehman Brothers can fail, then any bank in Nigeria can one day fail. To be clear, we think the banking industry in Nigeria is strong and with the pending consolidation will only get stronger. The recent regulatory moves by the CBN has also instituted better risk management and reporting at the Banks. All these moves, along with the CBN’s demonstrated appetite to step in and ensure there is confidence in the banking sector make it less likely the big banks will fail. Nevertheless, the most comforting thing to someone who puts their hard earned N500 ($3) into a mobile money scheme is that it is protected by the government’s deposit insurance scheme.

As we prepare to launch at Paga we have re-doubled our efforts to address this issue. We are working with our banking partners to ensure that all funds in Paga are insured appropriately.  With our banking partners we have held meetings with the Nigerian Deposit Insurance Corporation (“NDIC”). There is currently no concept of “pass-through insurance” in the NDIC framework. The concept of pass-through insurance exists in many similar national insurance corporations and covers mobile money schemes. Essentially what it means is that should the deposit bank fail, then the one pool account of the mobile money scheme is not seen as belonging to one corporate customer but rather by a list of people who have funds in the mobile money scheme. The mobile money scheme is responsible for keeping the list.

We are confident, as we have seen in other aspects of mobile money regulation, that the CBN and NDIC will come to the right conclusions here. It is imperative they do if we are to achieve the promise of mobile money – financial inclusion for the 80% of Nigerians with no access today.

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