Both openness and certainty are important to establishing what is termed as an “enabling” financial services(FS) regulatory environment.

Firstly, what is an enabling regulatory environment?

Just as plants would struggle to grow and survive without the right soil, climate and care, businesses too require the right mix to grow and thrive. For families and individuals to live full and happy lives it is important that the right kinds of businesses take root to help provide both the right kinds of products and services as well as gainful, fair employment.

This summer while caring for my Aloe Vera plant I learnt that over-watering could lead to disastrous consequences. My beautiful young plant lost it’s firm, upright disposition and adopted a slothful, “who cares” stance, until I realised all it needs is a few drops of water. Right beside it though, my Vietnamese Coriander wanted not just to be always very well-watered but also some “emergency rations” to be made available in a saucer below, to be drawn on as needed.

I had an important role as carer – I could not be over-zealous with one plant and had to force myself to leave it be, while providing the other a totally different level of care. Once I learnt my lesson peace reigned and, in the end, there was little to do to achieve happy plants.

Openness and Certainty

Regulators around the world have a considerably harder learning curve as there are a myriad of “do’s and don’ts” they must get right to do what we expect of them. So, forgive me for simplifying this but we tend to categorise regulatory stance on two main axes – Openness and Certainty.

Openne ss can spur or stifle innovation

Openness refers to the stance on who can offer financial services – just traditional players such as banks or also mobile operators, handset providers, global tech companies and others. Speaking of global companies, locality is another important aspect of openness. For the longest time, PayPal struggled to enter China, and global banks and money transfer operators had to create a complex set of partnerships to allow them to provide services across 200+ markets.

It is often critical for a regime to be relatively closed to protect fledgling local industries but there is always the danger of corrupt practices arising in an over-protected environment. The mix of products and services that become available to the population determine whether the next Facebook can be nurtured along or small enterprises are mercilessly squeezed out by providers enjoying dominant positions. In the UK, we enjoyed as open a regulatory environment as we could wish for, but the price has proved high – yet veering too far in the other direction can have equally disastrous consequences.

Certainty is established by each individual action

Certainty is something different but to my mind equally important. Every day that a company continues operations in a specific country, it is making an investment that it hopes will pay off. Investment is not one time only, but entering and leaving a country are often given more importance and we forget those who are simply making business as usual decisions on incremental investment.

If a country cannot create a level of trust in its institutions and governing bodies this can create levels of uncertainty that will destroy years of painstaking, rigorous work. Certainty makes the difference between whether a company can recoup the expenses on licensing and processes that it sets up. Certainty is also connected to fairness. If one company can get away with something, why should the next one not try? Certainty helps create level playing fields.

Charismatic regulators

Independence of regulators and cultivation of the highest calibre of professionals will ultimately, over a long period repay the people of a country.

Today digital trends facilitate an osmosis of innovation and services across jurisdictions that threaten traditional ways of protecting markets. How a country embraces and regulates the openness and certainty of their regulatory environment will impact on their position in the pecking order of tomorrow. Certainly, it will impact on GDP but more importantly it will impact on how that country is perceived by the world.

It is all too easy to find fault with our regulators. When things seem to be working it is easy for us to forget they exist. When the economy is playing up, they could be the first we turn on.

It is right and proper to be ever vigilant but we should never forget the critical role our regulators play and just how vulnerable they are. We must strive to educate ourselves to support and monitor them because the decisions they make each day do not just impact us – they determine the quality of lives of our children and grand-children.

International transfers can be inconvenient, expensive, or slow and particularly binding on migrants who need to make small value transfers. Yet while domestic money transfer has moved to the mobile channel in many cases, cross border remittances has proved more elusive. I was keen to learn more about this mobile-first international remittance service, hence caught up with Ambar Sur, CEO Terra to discuss the opportunity and challenges associated with digitizing cross-border remittances.

Ambar, what problem are you at Mahindra Comviva hoping to address with Terra?

The cost of sending money home has dominated discourse on international remittances, with G8 adopting the 5X5 resolution to maximize flows and reduce the global average cost of transferring remittances. A bilateral analysis of costs, as opposed to looking at aggregates, however, reflects wide heterogeneity across corridors. Whilst the cost of sending money along certain corridors in Latin America and the Caribbean may have halved in some cases, along South-South remittance corridors migrants often incur steep costs. In 2014, Africans paid $7.5B, the equivalent of Rwanda’s GDP, to transfer $64B to Africa.

At Terra, our research shows a migrant moving from rural to urban Zimbabwe on average remits $45 every 15-20 days to support household expenditure. Yet when the same migrant moves to South Africa with marginal wage gains, the minimum viable remittance size is $150, causing him to defer sending money home.

What makes international remittances more costly than domestic transfers?

Typically higher cost has been seen to be due to shortcomings in institutional, technological and operating infrastructure in host and home countries, such as poor access to banking. These are real issues, but we view cost associated challenges in a broader perspective. Big investments have been made by providers to address persistent first and last mile issues and improve quality of domestic payment infrastructure in terms of access, speed and affordability. New services compare favourably against traditional cost-intensive processes for agents in brick-and-mortar shop-fronts to handle cash transfers. In Africa 60+ countries have already launched mobile money services.

Transferring money is expensive on account of limited inter-connectivity between financial institutions and systems. By applying the more favourable volume economics of large agent networks at the receiving end, mobile operator networks could lower the cost of remittances.

How could mobile payments change this?

Digital intermediaries could exploit widely available mobile payment technologies to enable service providers to share each other’s service architecture. This could rewrite the rules of international remittance from being a high-value, low-volume business to becoming an increasingly low-value high-volume business.

On the Send side, mobile phones provide convenience and security and on the Receive side they make it possible to reach money where formal financial institutions simply do not exist. Innovations in intermediate networks which unify end mobile service points could generate more consumer value, expand supply and improve volumes by 3X as lowering costs could encourage micro-transactions as low as $50. So the next time our friend in South Africa wants to send $50 to his daughter in Zimbabwe he will not be giving cash to a bus driver to hand carry!

Mobile enabling remittances is not new. Why has what you suggest not been achieved so far?

One needs to look at the history of innovation among mobile network operators (MNO) in emerging markets. In 2003, Mahindra Comviva in collaboration with Vodafone India launched its digital airtime distribution product. The ability to sell airtime in small denominations (< 10 cents) helped operators register 100% year-on-year growth in customer acquisition for a decade.

The remittance market is awaiting a similar revolution. The ability to convenient, affordably and securely remit money in sachets would unlock latent market potential and enable a range of use cases. A parent, for instance could send a gift of $50 to their child, anytime, anyway and almost anywhere in the world.

How are mobile operators around the world approaching the remittances opportunity?

MNOs have designed operational and network systems to process a large volume of micro-transactions and are well-positioned serve this market. For instance, MNOs in Bangladesh handle 18M recharge transactions on a single day while MNOS in India process 1billion+ call data records daily.

As mobile money systems mature, remittances represent a significant source of additional fund inflows. The average transaction size of an international money transfer exceeds $120, which is equivalent to 4 domestic P2P transactions. As per a CGAP study, in 2010, they were 11 examples of deployments offering inward remittances. By 2014, they were 45+ deployment – a significant fourfold increase in four years. Remittance transfers via mobile phones have advanced primarily in Africa (Zimbabwe, Kenya, Uganda, Rwanda, Burkina Faso, Niger and Côte d'Ivoire) and Asia (the Philippines, Pakistan and Bangladesh).

What are the different business models you observe in the market?

We largely seeing two models. Firstly, unilateral models where operators facilitate cross-border transfers between their own operating companies: for instance Millicom launched a cross-border mobile money remittance service in February 2014 between Tigo Tanzania and Tigo Rwanda. Secondly, negotiated agreements involve partnerships of MNOs on certain corridors or legacy MTOs to benefit from an established network of agents in hundreds of countries: Bharti Airtel and MTN partnered to launch a service between Burkina Faso and Côte d'Ivoire.

Other service providers are also moving in this direction, for instance AMUCSS in rural Mexico created the remittance distribution network Envíos Confianza, which connected a rural microfinance institutions (MFIs) to a single platform, achieving economies of scale, and makes it easier for the small institutions to pay out remittances.

What are some challenges faced?

These are initial steps but the nature of these arrangements inherently prevents service scaling. For example, it took Safaricom over a year to create a mobile remittance service between UK and Kenya alone, primarily due to the need to negotiate FX related issues between Central banks.

I believe MNOs need to take advantage of investments they have made over the years and establish a “one network”, enabling users to send money to any mobile. They have a real opportunity to pool infrastructure and create a mass-oriented, affordable network for small-value transfers and benefit from resultant network effects. The direct credit into beneficiary wallets would encourage more transactions and promote financial deepening.

Are mobile wallet service providers ready to cooperate at such scale?

I could site two examples from the telecoms industry. In early 2000 MNOs agreed to interconnect personal short messaging systems. The resultant network impact created a significant revenue upside for MNOs.

The industry had yet another opportunity to redefine messaging. In 2005-2006, all four private operators in India launched instant messaging services (powered by us) as part of a GSMA initiative. The operators however lost an opportunity to interconnect services, allowing WhatsApp to shortly after capture a large part of the instant messaging market and cannibalize P2P revenues.

Without discounting the complexities of interconnecting mobile money systems, these cases offer key learnings for operators around the world.

But is there revenue for mobile operators in this?

Across mobile-first emerging economies, mobile wallets represent a significant adjacent revenue stream for MNOs. The landscape is evolving rapidly, from new deployments to changing consumer behaviours. And some countries are recording a high number of financial transactions per active user (TPAU) with DRC at 45 TPAU, Sierra Leone 30 TPAU, Tchad 20 TPAU, Burkina Faso 18 TPAU and Zambia 12 TPAU.

Operators realize cross-border payments, beginning with personal transfers, could help consolidate customer relationship and fuel the Mobile Wallet 2.0 growth wave. Remittances can encourage and accelerate the adoption of new technologies, and offer opportunities to promote a range of new financial products among consumers, for instance by enabling senders to pay bills directly rather than sending cash. SMEs involved in informal trade contributing over 50% of total economic output in several emerging markets, especially Sub-Saharan Africa, can be targeted as there is an untapped demand for using risk-free, legitimate channels to transfer money across borders.

This brings me to the vital “how” question. Do innovations like these not need a favourable regulatory environment that prioritizes financial inclusion of remittance recipients?

With remittances contributing between 1% and 10% to GDP, regulators are aware that monies sent by overseas workers are a strong driver of financial inclusion in both sending and receiving countries but this is yet to translate into an adequate regulatory framework for small-value mobile enabled transactions.

Remittance receiving markets are at different stages of mobile money development and regulations are evolving as new use cases emerge. Even in Kenya, the pioneer in mobile money services, formal guidelines for mobile remittances services are still evolving. In recent months, regulators in Rwanda, Zimbabwe, Tanzania, Kenya, Philippines and Bangladesh have allowed MNOs to terminate cross-border transactions. In several other receiving countries such as Mozambique, the regulation around interoperability and mobile enabled cross-border remittances is still being formulated.

What are some regulatory gaps and potential changes you foresee for the future?

Currently there are no guidelines for an international remittances hub that interlinks multiple service providers. This is a significant regulatory gap. Regulators are willing to provide approvals for bilateral remittance contracts as we see from the number of announcements in the last 12 months. The model is however restrictive in terms of achieving rapid scale. Mobile wallet providers need to seek fresh approvals for each new corridor from the regulator which is inefficient and time-consuming. Likewise, licensed MTOs, who have signed an agreement with a mobile wallet service provider need to approach the regulator for partnering with another operator in the same country.

Another key issue is the complexity of adhering to compliance norms. Regulators in many countries such as UAE and Saudi Arabia do not allow remittance service providers to export resident data outside the country of origin, which creates new challenges for building an interoperable network. In predominant prepay markets there is no foolproof mechanism for registration of SIM cards. A SIM card may be shared among family, adding a new dimension to making mobile phones the receiving channel for cross border remittances.

How do these services benefit from support from the ecosystem?

All remittance transactions must be backed by a bank account. Banks have a low risk appetite due to potential reputational damage. Several banks in sending countries especially in the US are refusing to open or terminate accounts of MTOs. The recent predicament of Somalian migrants with US banks closing remittance account is a worrying trend. HSBC and Barclays in UK and WestPac in Australia have exited the remittance business, citing rising cost of compliance of anti-money laundering regulations.

Other issues relate to the taxation regime in each country. Taxes can be as high as 10% of the total service fee in several receiving markets, escalating remittal cost for consumers.

While there cannot be a uniform standard as these issues are country specific, the industry and regulators need to collaborate to figure out the “how” of bringing more remittance clients into the formal financial system.

What do you see to be the outlook for remittances for the next three to five years?

I don’t expect the fundamental business would change but we would do the same thing in a bigger, better way. Currently, the share of mobile as a channel to remit monies is 2%, as per Global Findex findings. By exploiting ubiquitous mobile connectivity, we have the capability today to create newer, efficient models which would ultimately expand the overall market. In the next five years, with the collective efforts of all stakeholders, we could see a minimum of 20% of remittances flowing via the mobile channel.

What is Terra’s role in the ecosystem?

Terra is building the rails for mobile powered international payments. We are architecting a new model by interconnecting existent digital financial service providers whilst assuming complete responsibility for obtaining and/or ensuring adherence to all regulatory requirements for conducting business. Our model, predicated on the ability to aggregate available infrastructure generates greater value for customers at lower costs and ultimately expands the industry.

Starting with remittances, the same network can be exploited to launch contextual payment-related products for an increasingly connected customer base. As a team we are deeply convinced of the order of magnitude of the impact we would bring to the lives of consumers globally.

Ambar, thanks for sharing your thoughts and I wish you every success in achieving your goals!

Ambar Sur is the Executive Vice President for new projects at Mahindra Comviva and Founder and CEO Terra. A subsidiary of Mahindra Comviva, Terra is a mobile-first international payments company. As CEO, Ambar leads a team focused on Terra’s vision to digitize international money transfers, and deepen access to financial services. Previously Ambar has been Head Global Market Units, Chief Marketing Officer and Director-EMEA at Mahindra Comviva. CellCloud Technologies, an innovative prepaid solutions company co-founded by Ambar in 2001, merged with Mahindra Comviva in 2002.

The Shift Thought Family wish you and your family a Very Happy Diwali 2014.

What is Diwali? Here is a great post from Kabita Maharana at International Business Times:

Diwali 2014: Mythology, Traditions and How to Celebrate the Indian Festival of Lights

Vodafone in a landmark move, has published its first report that discusses its law enforcement disclosure requirements across 29 jurisdictions, purely discussing those in which requests were received.

In most countries, governments have powers to order communications operators to allow the interception of customers’ communications. This is known as ‘lawful interception’ (previously known as ‘wiretapping’). This involves mobile operators providing real-time information on the content of communications – phone calls, text of emails and more.

These requests were largely of 2 kinds:

1. lawful interception
2. access to communications data

They have not not included another intervention governments make, requesting that specific content be blocked. Creating this report was an interesting challenge for them, as they are often constrained from revealing what demands they receive, by law enforcement and national security legislation. For instance Indian regulators require that telecommunication service providers maintain extreme secrecy in matters concerning lawful interception.

Interestingly this is not confined to countries such as India and Qatar. It is unlawful to provide aggregate data on lawful interception practically anywhere. However, there are several countries where either by circumstance or choice, such interception mechanisms have not been implemented. These include the war-torn Democratic Republic of Congo, Mozambique, Kenya and, surprisingly, France.

They also raise a key point that they are publishing this report although really they see this to be a responsibility that government should have. It is not something that an individual operator can offer a full picture about.

They provide details of warrants, but as digital lives grow complex, each could cover many types of communication services.

We tried to examine what this means for Digital Money of different kinds. For instance, what could ‘lawful interception’ mean for users of cryptocurrencies? It is very difficult to identify a criminal purely through their online activity due to the anonymity cryptocurrencies provide. But, in the case of Bitcoin and several other cryptocurrencies, making transactions involves broadcasting certain information over the internet that can be used to track you.

Take the example of a known criminal. If the police have a good reason to suspect him of criminal activities, they can make a request to monitor his internet traffic. Every time he makes a transaction using Bitcoin, he effectively broadcasts 3 things: his ‘wallet number’, the ‘wallet number’ of the person he is sending Bitcoin to and the value of the transaction.

If the criminal’s identity is already known, then the police could immediately know his Bitcoin wallet too, and everyone who he has made transactions with it. This leaves the wallet vulnerable to confiscation, accomplices open to prosecution and the criminal himself should be fairly easy to gather evidence on, we expect.

For full details by country, and a download of the Vodafone report are available here: Law Enforcement Disclosure Report.

There is so much we have to share about our studies in Q1-2014 that we thought we should put it all together in an easy-to-read document available here.

Our work kicked off in Indonesia, where we undertook a market study and attended the Mobile Money & Digital Payments Asia conference in Jakarta. We were amazed at the intent with which providers are approaching the digital payments market, especially branchless banking and mobile money. Trials in these areas have recently completed, and people await new regulations. Banks, mobile operators and payment providers are engaged in defining business models in unique ways to drive mobile money to critical mass.

The types of initiatives discussed at the 13th EPCA Payment Summit 2014 in Brussels were equally fascinating, but with a different slant due to their focus on the European market. Harry Smorenberg of SCC and Douwe Lycklama from Innopay provided a great line-up of speakers to help us rethink transactions. Douwe introduced us to Nomophobia (a fear of separation from your mobile) and how it accelerates customer centricity.

Europe is readying for the PSD2 regulation and we heard from Philippe Pellé, Deputy Head of Unit DG Internet market and services. Presentations at the EPCA summit were extremely impressive, especially those from Pierre Petit (Deputy Director General, European Central Bank), Jason Lane of MasterCard and Wolfgang Maschek of Western Union, who enlightened us on regulations with suggestions on future improvement.

It was a real pleasure for me to share the podium with such illustrious speakers, as I talked about the regulatory stances that countries adopt and how they map to their approach to regulation of Bitcoin and other crypto-currencies. My trip to Brussels was made delightfully complete with a view of Golden Square and the Manneken Pis, a mouthful of Belgian chocolates, and most important of all, the companionship of payment experts from across Europe.

This week I head off to India. Our viewport on India has just been updated and I’m looking forward to trying out some of the mobile wallets recently launched. Next stop Singapore, where Shift Thought will take part in the Terrapin trade show. We’ll share highlights from our recently published 2014 research, including our latest update of our Singapore Viewport.

This research, and more, is available with special offers during our promotion in Singapore this month.Do you plan to attend? If so, it would be a pleasure to meet you:

• At our Pop-up office at the REGUS Samsung hub, Level 8, 3 Church Street, Singapore on 21-22 April
• At our stand in the UK pavilion (British Chamber of Commerce) at the Terrapin trade show
• At one of the events we plan during our week in Singapore, 21-25 April; email us at contact@shiftthought.com for more details
• When I share highlights of Shift Thought study findings on Day 1 of the Future Bank Asia, Terrapin.

Click here for our latest catalogue of research. Our in-depth Viewports®, now available for most key markets around the world, are supported through unique hot-links on our portal. Mind-map like presentation makes it easy to rapidly understand the market, opportunities and risks. Additionally we recently completed key research projects on Remittance Prices and on Bitcoin/ crypto-currencies.

The Bill & Melinda Gates Foundation (BMGF) has been active in promoting Mobile Money projects around the world, over the past 14 years. In this year’s Reddit AMA, Bill Gates shares his views from his broad-ranging work around the world in poor and emerging countries where Bill and Melinda Gates have spearheaded projects to tackle a variety of problems, not the least of which is eradication of polio worldwide: India just went 3 years with no cases.

Bill Gates’ comments come at a time when Satya Nadella has just taken over as third CEO at Microsoft, and Gates gets back into the company, helping with product decisions.

There is much to enjoy in Bill Gates’ AMA, and we at Shift Thought drew particular inspiration in his comments on balancing business and philanthropy. As a budding start-up, at the end of a hard day we sometimes wonder if what we do is still enough. So hearing Bill Gates say “Just creating an innovative company is a huge contribution to the world”  did pretty much make my day.

But this blog is about all things Digital Money. Over the last few years we’ve worked towards putting the various innovations in payments and remittances into a framework, to clearly differentiate the different categories, of which crypto-currencies is just one. So it was good to hear Bill Gates thoughts on this:

“The foundation is involved in digital money but unlike Bitcoin it would not be anonymous digital money. In Kenya M-pesa is being used for almost half of all transactions. Digital money has low transaction costs which is great for the poor because they need to do financial transactions with small amounts of money. Over the next 5 years I think digital money will catch on in India and parts of Africa and help the poorest a lot.”

As increasingly polar views form around Bitcoin and the ever-increasing numbers of virtual currencies, I think it is really important that people appreciate that crypto-currencies are not the only form of Digital Money, and therefore welcomed Gate’s comments.

And here are some of the other highlights of portions of the AMA that grabbed my attention:

- On Direct Cash transfers as a means of getting funding and aid to developing countries:

“I favor improving the health of a country to enable them to be self-sufficient. I will be interested to see how cash transfer works out - in some cases like helping someone pay a school fee it could be catalytic. Our focus is health and agriculture which can transform a country. As long as kids don't have enough nutrition a country won't be able to support itself.”

- On big issues for the USA to resolve domestically

“Education would be the top issue since it is key to individual opportunity and to the country as a whole and we are not doing as well as other countries. After that I would say immigration since the injustice of the current system is incredible.”

For a bit more perspective on the work of BMGF, a worthwhile read is the 2014 Gates Annual Letter, where Bill Gates shares his thoughts on what he believes are the biggest myths:

1. Poor Countries are doomed to stay poor – By 2035 there will be almost no poor countries left, visible through shared images of before-after transformations in Mexico City, Nairobi and Shanghai.

2. Foreign aid is a big waste – in their 14 years experience, Bill and Melinda have experienced first hand the real impact aid has. With Norway, the most generous nation in the world, development aid is still less than 3%, and for USA it is less than 1%.

3. Saving lives lead to overpopulation – Ever since Malthus expounded his theory in 1798, various scarcity based views abound, but “letting children die now so they don’t starve later” does not work.

PayPal, the world leader in digital wallets is finding it hard to make it in the China Payments market, having been excluded from the 7th tranche of third party payment provider licences. Will it reach outer space first?

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