Financial Sector Development in Africa: Opportunities ... - World Bank

Mobile Financial Services in Africa: The Next Generation 69
that the risk of insolvency was low and that there were external
incentives to provide good customer care for mobile financial services.
Third-generation entrants may also not be subject to any regulatory
framework in their role as retail payment providers—while even if
second- generation financial services were unregulated, their MNO providers
were accountable to a sectoral telecommunications regulator that
had broad influence over their market conduct. New entrants may also
cross borders as PayPal has, further eroding national regulators’ oversight
and influence.
The third-generation model, therefore, raises the question of whether
and how to provide for a new class of payment service provider that is
subject to authorization and oversight. These questions go to the heart of
the vision of retail electronic payments and the institutional infrastructure
necessary to support its sound development. Few countries have yet
answered them. For most African countries, much of the past decade’s
focus has been placing the basic pillars for electronic payments, such as
payment system legislation (which provides the legal certainty necessary
especially for systemically important payment systems) and a functional
real-time gross settlement system (RTGS) for large inter-bank payments.
(In African countries, the RTGS is usually operated by the central bank,
which can offer final settlement via accounts it holds for regulated
banks.) On the latter front, there has been much progress: most African
countries now have operating RTGSs (Kenya has had a functional RTGS
since 2005, for example), although a few outliers, such as Ethiopia, were
still—in 2010—in the process of implementing one. 16 However, the overwhelming
majority of African countries still lack the pillar of payment
system legislation; among these are Kenya and Tanzania, which have been
the site of so much innovation in mobile payments to date. 17 Indeed, the
traditional paradigm of payment systems is changing in these very countries:
while overseeing the systemically important payment systems
remains vital, regulators are focusing more on the oversight and consumer
protection issues raised by pervasive retail electronic payment systems.
Some countries that have pioneered second-generation models (Zambia
and Ghana, for instance) have now adopted legal frameworks that give
regulators authority over various forms of payment. Celpay, for example,
started as an unregulated service provider and is now authorized as a
designated payment system business under Zambia’s 2007 National
Payment System legislation.
Designing appropriate policy and regulation and implementing supervision
or oversight in the fast-evolving world of electronic payments are