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Why Mobile Money Accounts Could Be 'Debit Cards' That Yield No Interest [opinion]
Feb 14, 2012 (The Monitor/All Africa Global Media via COMTEX) --
The proliferation of mobile money transactions in countries where the majority of people are unbanked but have cellphones is one of the single transformational highlights of modern banking in developing countries.
Whereas most users of this financial service think of it as a mechanism to transfer funds between mobile money accounts (MMA), the accounts are increasingly doubling as cellphone debit cards.
Significance
To illustrate the potency of the MMA debit card feature, if user acceptability of MMAs increases significantly, virtually all transactions could be made from one's MMA. One could pay a boda boda/taxi fare, restaurant meal, movie tickets, groceries anywhere, rent, school fees, and any regular transactions with other MMA holders by simply a few strokes on their phone's dial pad. This is not accounting for the fact that many already pay their airtime and utility bills via this facility.
In fact it is not unthinkable that Mobile Network Operators (MNOs) cannot wait for the time when all subscriber lines are registered next year, when they will be able to bombard users with offers that will get them into accepting the MMA facility. At that time, it is likely that their financial services business will eclipse the cellphone business in a matter of months, which brings me to the critical point.
Telecom companies in profits
MNOs are literally operating a financial institution like debit card service without the identical regulatory oversight of financial institutions. Most importantly for the user, MNOs are offering demand deposit savings accounts services without paying interest to subscribers'. In fact MTN Uganda uses the catch phrase "Virtual Banking, bridging the gap to the un-banked" in reference to its mobile money service.
In examining Uganda's Financial Institutions Act (2004), the MMA feature of a MNO makes this entity a financial institution albeit an unregulated one. Like savings bank accounts, MNOs take cash 'deposits' in MMAs. The accounts are demand deposits in that the MMA owner has access to the use of those funds on demand. As a matter of fact, the funds are more readily and conveniently accessible than those in a bank savings account.
MNOs keep these MMA owner funds in 'prudentially regulated institutions' like where they earn interest. However, the interest earned is never reported nor paid to the MMA owners.
Excuses
One excuse is that the interest is miniscule. Another is that the interest helps MNOs cover their operating costs. Both are very absurd. First, if one uses another's money to run their operations, shouldn't there be consent? Moreover, who gives them the right to decide for a depositor that the interest earned on their funds is too low and not worth being received/paid?
Going by the most recent transactional volume data I could find, over $420m had moved through the different MMAs in Uganda during the three months ending October 2011. I cannot imagine that all this money was disbursed to users on the day it was 'deposited' due to ordinary bank float. Suppose a conservative amount, say 10 per cent of those funds ($42m) was the average daily balance held by MNOs for purposes of computing interest earned. Assuming a 5per cent simple interest rate p.a., the interest earned would be about $525,000 (over Shs1.2bn)! Is this miniscule?
Mandating MNOs to pay a reasonable savings account interest rate on MMAs is good public policy. There are only 3 million bank accounts for a population of about 33 million people. Since there are fewer individuals with bank accounts than the number of bank accounts reported, the percentage of banked individuals is significantly lower than 10 per cent of our population. Contrast this figure with countries like the USA where only about 7.7 per cent households are unbanked. MMAs may finally be one way to increase the population of 'banked' individuals. Paying interest on MMAs should act as an incentive to increase savings deposits nationally.
Moreover, as more subscribers adopt the scheme of payments from their MMAs, less cash will be carried for transactions motives causing the need for large circulation of legal tender to diminish. It is not safe to move around with bundles of money but for the lack of options in Uganda, this practice is commonplace. One can argue that this will encourage phone theft and hackers who would seek to access funds from victims' MMAs.
Fortunately, simple call to one's MNO will place a block on the MMA. Besides, in the unlikely event that a thief accesses a victim's account, the trail of transactions they perform could easily be traced increasing the likelihood that the thief will be caught. Overall, stealing a cellphone with a MMA is no way comparable to stealing a wallet from one's pocket.
So compelling MNOs to 'pass through' interest they obtain on their subscribers' MMA deposits is the right thing to do and is good public policy in this day and age.
The writer is Associate Professor of Finance at Drake University -USA
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