May 2013 Financial News

GK goes after mobile money

May 22, 2013

GRACEKENNEDY is among seven applicants to have so far sought authorisation to become electronic retail payment service providers.

The conglomerate, which owns a bank and the largest remittance business in Jamaica, aims to be a first mover with technology, such as mobile money, which is expected to revolutionise the financial sector.

"First Global in collaboration with Grace Kennedy has the intention to get into the wallet of mobile money services," said Don Wehby, GraceKennedy's group CEO. "What is clear is that a large percentage of our population don't have bank accounts. We believe there is a huge opportunity for mobile banking."

It might be that GraceKennedy also wants to get ahead of a field that could take a swipe at its Western Union business.

For instance, in Kenya, money transfer companies virtually disappeared as remittance services migrated to the mobile money system, called M-Pesa.

It is still early days yet.

The Development Bank of Jamaica's (DBJ's) non-commercial pilot, which will test loan disbursements over mobile networks could give the Bank of Jamaica (BOJ) the remaining piece of information it needs to provide the complete regulatory framework for mobile money. But that may take a year or two.

Meanwhile, credit unions, remittance companies, commercial banks and one operator outside of the financial sector have applied to the central bank for authorisation, according to BOJ Deputy Governor Livingstone Morrison.

When these companies that want to offer services, which include e-money stored in a device such as a mobile phone and SIM card gets authorisation, a new wave of doing business will be made available to the country's unbanked

It means that Jamaicans who don't have bank accounts will soon be able to carry out transactions using a cashless system.

Furthermore, these payment instruments and services will make paying for goods and services easier.

In any case, all the instruments that have been put on the table currently exist, although not yet widely available in Jamaica.

"If it's easy for people to use, people will do transactions and that will facilitate economic development," said Morrison.

And should Jamaica Co-Operative Credit Union League's (JCCUL's) application be successful, it will pave the way for the Jamaica Credit Union e-Payment Services System for mobile top-up and bill payment.

Its customers will be able to put money in their accounts to allow them to make bill payments with companies that the credit unions will collaborate with, according to Glenworth Francis, the general manager of JCCUL

They will also be able to access cash to top up their mobile phones.

A retail payment service may be a custodian account based payment service or a customer account based payment service.

Issuers that are authorised to operate custodian account based payment services may issue e-money by accepting physical money from customers/merchants' and may convert e-money into physical money for e-money account holders (cash-outs) on their request, directly through appointed merchants, the BOJ said in it's payment system consultative document.

A custodian bank will keep the cash to ensure that the company isn't using consumers' money.

This means, that the value of what's on card should always add up to what's in the custodian account.

"If the entities aren't banks, they can't use people's money," Morrison stated.

Customer account based are offered by regulated deposit-taking institutions.

But, it doesn't mean that banks will have an advantage over other institutions.

"Different entities will have different strategies that are aligned to their businesses," Morrison said.

But it isn't easy for companies to qualify for authorisation.

"The central bank is facilitating a different arrangement and stands committed to making the system secured," he said. It has put the framework in place for companies to innovate.

Still, it will stick to key policy objectives. These include safety and efficiency, consumer protection, affordability and availability of the infrastructure to facilitate the instruments.

Under the finalised guidelines, all electronic retail payment service providers are required to maintain sufficient capital to support a minimum net worth of US$100,000 or the equivalent in Jamaican dollars, subject to any changes that the bank shall make from time to time, according to the BOJ.

Additionally, retail payment service providers (who collect monies in exchange for value distributed in an electronic retail payment system) are required to pay US$5,000 ($461,000) authorisation fees for the initial application, and US$4,500 for renewals. Agents (representing one or more issuers of an electronic retail payment instrument) are required to pay US$200 for both initial applications and renewal.

Those companies that have applied will have to go through periods of assessments.

The first stage is a business assessment that involves a review of the business plans, financial strength, managerial and technical expertise and the governance and administrative arrangements that will be employed by the applicant.

Once the Bank is satisfied that the company has a legitimate operation, they will move onto doing on-site evaluation- operational assessment.

This will be administered to determine the adequacy of the business, including information technology infrastructure.

The BOJ is responsible for the regulation and supervision of clearing and settlement systems in Jamaica. All entities intending to offer electronic retail payment services are subject to the guidelines and are required to apply to the central bank for authorisation before starting operations. The Bank began accepting submissions in April.


Source:
BY SHAMILLE SCOTT Business reporter scotts@jamaicaobserver.com
Jamaica Observer
Wednesday May 22, 2013

http://www.jamaicaobserver.com/business/GK-goes-after-mobile-money_14302663#ixzz2U2uJ4A88