Nonbank E-Money Issuers: Regulatory Approaches to Protecting Customer Funds

This Focus Note reviews global regulatory approaches to protecting customer funds in the context of nonbank e-money issuers.

The arrival of mobile telephony and innovative technology is forcing regulators to re-evaluate their rules for financial service provision. Non-banks like mobile network operators may be well-placed to dramatically expand the reach and range of financial services for the poor and unbanked. The challenge is to craft policies and regulations that mitigate risks to customer funds without stifling the dynamism, creativity and potential of these new actors. Regulators in several countries have crafted innovative approaches to meet this challenge. These include developing and implementing policies related to fund safeguarding and isolation that allow regulators to meet their goals of customer protection and financial inclusion.

Safaricom and Kenya-based Equity Bank recently launched M-KESHO, a product that uses M-PESA’s platform and agent network to provide an expanded set of banking services. Such partnerships may mark the next phase of branchless banking, cementing the role of nonbanks in the delivery of a full array of financial services to those currently underserved by traditional banking models.