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UWI researchers propose marrying mobile money to banks

Published:Wednesday | May 9, 2012 | 12:00 AM

Avia Collinder, Business Writer

A new report is proposing that the central bank require providers of mobile money services to do business through the banking system, to ensure there is no gap in the financial regulatory structure once the market takes off in Jamaica.

The proposal by academics aligned to the University of the West Indies (UWI) would require cellphone accounts used for money transfers to be treated as bank accounts.

It was initially speculated in early discussions on how the market would operate that mobile money transfers would be an alternative or competing service to the traditional banks.

However, the UWI researchers say the clear trend in other markets overseas is that banks have become the holders of the float - that is, the sum of all deposits held in the virtual mobile phone accounts - of the mobile payment systems.

Transformed services

Their 2011 paper, Report on the Study of possible Mobile Financial Services in Jamaica, cites SmartMoney service in the Philippines and M-PESA of Kenya as examples of transformed services.

The accounts for SmartMoney customers continue to be handled by mobile number operator, Smart Corporation, but the funds or float in the SmartMoney system is held in Banco de Oro Universal Bank.

M-PESA provides what was originally supposed to be a remittance service, but due to Central Bank of Kenya requirements and regulations, has been mandated to hold its float in a set of trustee banks.

The report was authored by Dr Maurice McNaughton, Professor Evan Duggan and Professor Terrence Forrester of the UWI, with input from payment systems consultant Carl Johan Rosenquist and Associate Professor in the Department of Economics, Texas Christian University, Dawn Elliott.

It posits that the Bank of Jamaica should adhere to principles laid down by the Bank for International Settlements for interbank financial transactions to be cleared and settled through the national payment system.

"In this scenario, all accounts used to carry out interbank financial transfers must be hosted by approved financial institutions, that is, the float held in any mobile financial services system must be held in a bank," the report states.

It said BOJ would have need to stipulate that mobile phone-based accounts be able to send payments to any other phone-based account, and that the phone accounts operate as conventional bank accounts - capable of accepting deposits by cheque or account transfer.

"In essence, the m-Commerce account must be an integral part of a retail payments ecosystem," the report said.

Payment gateways

The researchers note that internationally, the more advanced mobile network operators have introduced payment gateways and bank card augmented commerce.

Money spent is debited from a dedicated mobile payment account held either by the mobile network operator, the operator's banking partners, or a hybrid of the two.

"The funds are not stored on an electronic device, but an electronic device may store a number representing a balance held in an account within the country's banking system," the researchers said.

This makes such funds available for transfer between any legal entities within the country, and "provided that foreign exchange regulations are obeyed", may also be available for international remittance.