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The Use of ‘Mobile Phones’ in Changing the Banking Regulatory Landscape in Africa

Document Cited authorities 3 Cited in Related
Vincent
Author
Pages308-330
DOI10.3366/ajicl.2019.0274
Published date01 May 2019
Date01 May 2019

The purpose of this article is to assess the possibility of stepping up the use of mobile phones to leverage regulation of the banking industry and financial service markets. It has drawn on experiences of East and Southern African countries where there has been an uptake in the number of mobile phone subscribers. The author has adopted an evidence-based (qualitative) approach from selected countries to evaluate the role of mobile phones and how they could be used as an infrastructure to leverage regulation of banks and financial institutions in Africa and other regions. The article has been enriched by expert commentaries, books, journal articles and policy documents on the widespread usage of mobile phones not only for communication but also as an infrastructure for socio-economic development. The scope of the article was particularly delimited to the Eastern and Southern African countries because of the uptake in the use of mobile money in effecting international transactions in this region. This data was then evaluated drawing on practical experiences of countries on the use of mobile phones and their effect on social and economic development of countries. The limitation of the article was the paucity of literature specifically on mobile money and its economic impact on countries where data on this article was collected. There was scanty data available to give a comprehensive understanding of mobile phone usage in the delivery and regulation of financial services in many African countries. The data generated indicates that there is a positive impact of access to financial services due to the use of mobile money. The goal of the author in writing this article was to address a gap in the law relating to mobile phones and their usage in changing the banking regulatory landscape in Africa.

The originality of the article lies in the fact that there are not many articles written on mobile phones and how they have been utilised as an infrastructure for countries’ socio-economic development. The article has relevance for countries beyond East and Southern Africa in terms of providing a platform for further research on the use of mobile phones not just for communication but for other development purposes as well. While the focus of the article has been to assess the role of mobile phones as an infrastructure for development, it provides insights into how mobile phones have been exploited to enhance regulation of the banking industry. It is anticipated that the article will appeal to academics, researchers, policy-makers, governments, oversight institutions, the donor community, police departments and others because it is relevant for each one of these constituencies in a variety of ways.

The article was written by drawing on experience of a number of African countries with regard to how they have harnessed mobile phones to enhance socio-economic development in some countries like Kenya and why they have not been harnessed as a development infrastructure in others like South Africa. The conclusive remarks proffer suggested changes that could be adopted by states to consolidate and harness mobile phones as an infrastructure going forward.

INTRODUCTION

The literature review carried out on mobile phone usage across Africa has shown that the number of telephone subscribers has exceeded the number of bank account holders as of 2010.1 The use of mobile phones has increased government regulation of the banking industry and other financial service markets.2 The use of mobile phones has leveraged regulators in the delivery of financial services in several African countries, lowering transaction costs, driving financial inclusion and providing consumers and small businesses with easy, cheap and safe ways to transact.3 The impact of mobile money on financial inclusion is well documented, but it is not only the poor and unbanked in many countries who have benefited from mobile money but corporations as well. Small businesses use mobile payments as a way to pay their workers.4 Mobile phones have also enhanced interoperability between payment providers (this simply refers to the ability of participants to make payments across systems).5 Mobile phones offer communication channels through which data can be transmitted and shared not only across policy and enforcement agencies but also to execute online transactions. Thus governments will have to enact enabling laws to equip financial institutions and telephone companies with mechanisms to share data and to enhance their ability to prosecute criminals.6 Using innovative technology, registered phones in the names of known criminals could be fitted with electronic chips or a Global Positioning System (GPS) so that their movements can be easily monitored. Mobile phones contain the call history, contacts, text messages, web browser history, email, GPS and other location information that the police and law enforcement agencies find valuable.7 Evidence gathered from mobile phones has helped investigators to piece together motives and events to provide new leads for investigations. Smartphones and cell phones have become a regular part of criminal investigations because they are now owned by most people and provide information about a person's whereabouts and a person's contacts using the forensics found in digital devices – including mobile phones – recovered from criminals. Every time a person uses a cell phone, a signal is sent out that pinpoints where the user is. Mobile phone towers and the GPS features in some smartphones help to track where a phone is at any moment it is called. Mobile phone carriers can provide authorities with a phone's location via proper court documents. Mobile phone records can help to identify calls that have been made and received. Regulators have been able to locate the cellular masts used in the conversation or SMS (short message service) or to retrieve data communication which they can use to fight crimes. In addition to collecting cell phone communication records, the police also encourage citizens to use their mobile phones to report crimes and send in tips.

Since the global system is technologically driven, the environment in which mobile phones are regulated favours the technologically advanced countries as opposed to LDCs. The widespread encryption technology undermines the capacity of fledging countries to harness the technologically oriented anti-money laundering (AML) procedures and systems.8 Criminals have recognised the potential of the Internet and ruthlessly exploited it for their business expediency. Criminals have demonstrated the ability to manipulate markets, undermine controls and keep a step ahead of law enforcement agencies.9 Criminals have exploited enhanced technologies to interact with their sponsors and other syndicates in setting up schemes and in liaising with local criminal groups. The Internet technology has not only spurred on new crime typologies but it has also changed the regulatory landscape in which modern crimes are regulated. In most developed economies such as the UK, advances in technology have impacted the business regulatory landscape in many ways, not least that most business operations are impersonalised (for example, the Internet and telephone banking), making the system prone to exploitation.10 There is no longer the urge for business and customer intermediation since the business is conducted either online, by telephone or by any other electronic means without knowing who the parties are. Criminals are known to exploit advances in communication technology to stay ahead of law enforcement authorities by circumventing state prudential controls. In theory, the globalisation of markets has been applauded as a vehicle for transmitting technological benefits from developed to less developed countries and bridging the digital divide between economies. It can therefore be inferred that the advanced Internet technology has precipitated an ideal environment for criminals to commit crimes with ease and stay at large.

 M-PESA MONEY TRANSFER SYSTEM IN KENYA

There is anecdotal evidence to corroborate the fact that mobile money transfers in many countries have created a platform to enhance cross-border trade, healthcare, agriculture and other economic sectors.11 The term ‘mobile money’ refers to the money stored using the SIM (Subscriber Identity Module) in a mobile phone as an identifier as opposed to an account number in conventional banking. There has been an uptake in the use of mobile money services so much so that it has become easier to pay a hotel bill using your mobile phones in Nairobi than it is in New York because Kenya has developed a world-leading mobile-money system – called M-PESA (M stands for ‘mobile’ and PESA is a Swahili word for cash).12 This system was launched by Safaricom (the country's largest mobile network operator and part of the Vodaphone Group) in 2007 and is now used by over 20 million Kenyans, equivalent to more than two-thirds of the adult population. Around 25 per cent of the country's gross national product flows through it.13 Because of the success, M-PESA has now been rolled out in six other African countries, namely Zimbabwe, Tanzania, Uganda, Zambia, South Africa and the Democratic Republic of Congo (DRC). M-PESA lets people transfer cash using their phones and is by far the most successful scheme used to transfer money from one place to another that has been innovated.14 M-PESA was originally designed to allow micro-finance loan repayments to be made by phone, reducing the costs associated with handling cash and thus making possible lower interest rates.15 But after a pilot study, M-PESA was broadened to become a general money-transfer scheme and so far it has gained positive traction.

 HOW DOES THE CONCEPT OF M-PESA WORK?

A person who wants to use M-PESA signs up, pays money to the mobile money operator (typically in a corner shop selling airtime) by handing over to them a...

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