6. M-Payments: How Much Regulation Is Appropriate? Learning from the Global Experience

Simone Di Castri et al., Consumer Protection Diagnostic Study (Kenya. Nairobi: Financial Sector Deepening Kenya, 2011), p. 11.

The FDIC governs part of m-payments by supervising banks and assuring that they comply with consumer protection laws, such as the Fair Credit Reporting Act, the Fair Credit Billing Act, and the Truth-In-Lending Act. The FRS, although serving as the nation’s central bank, has the responsibility, inter alia, to supervise and govern banks, ensuring the payment system remains stable and safe. The NCUA regulates federal credit unions and the OCC regulates national banks and federal savings associations by ensuring that they operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. The FCC regulates interstate and international communications by radio, television, wire, satellite and cable. Because one of the goals of the FCC is to regulate homeland security through communications, the FCC has an interest in regulating the security and privacy data of m-payments, although FCC’s role as a m-payments regulator needs to be clarified because it does not have direct regulatory authority. In contrast, the FTC has direct authority over several participants in the m-payment ecosystem, including operating system developers, application developers, handset manufacturers, advertising companies, telecommunication providers and even companies offering bill-to-carrier options. The FinCEN also is an agency touching m-payments. As a division of the US Department of Treasury, the FinCEN’s purpose is to enhance the integrity of financial systems by facilitating the detection and deterrence of financial crime. Because financial crimes involve money laundering, FinCEN issued the Prepaid Access Final Rule, requiring prepaid access providers and sellers to file suspicious activity reports, retrieve and hold transactional and customer information, and effectuate an anti-money laundering program.

Non-Banks In Retail Payments, Bank for International Settlements, 2014.

For example, India and the United States, have introduced measures to protect customer funds if the issuer of prepaid payment instruments becomes insolvent. Committee on Payments and Market Infrastructures (CPMI) and the World Bank Group (2015 Consultative Report On Payment Aspects Of Financial Inclusion (so-called “PAFI Report”, 36). The report examines demand- and supply-side factors affecting financial inclusion in the context of payment systems and services and suggests measures to address these issues.

Several financial regulators still impose account-opening requirements that the poor cannot meet, which represents a conservative approach to interpreting the standards of the Financial Action Task Force (FATF) that does not take into account the risk-based approach recommended by the FATF, the FATF guidelines on financial inclusion and the experience of progressive countries that have adopted alternative and simplified opening procedures to overcome the obstacle represented by traditional identification criteria. Strict KYC rules employed in some markets place prohibitive costs on PSPs. For more information on the FATF risk-based approach, see FATF, Guidance For A Risk-Based Approach. The Banking Sector, FATF/OECD, 2014.