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G2A’s CEO on fraud, money laundering and the future of his online marketplace

 

Bartosz Skwarczek wants to clear his company’s name once and for all

About a month ago independent developer Tiny Build made a bold accusation. They claimed that a company called G2A was “facilitating a fraud-fueled economy” by allowing digital game keys purchased with stolen credit cards to be sold secondhand online. What followed was an ugly public confrontation between the two organizations.

In the last few weeks, G2A has seemingly made concessions in favor of developers by agreeing to, among other things, offer a form of royalty payments. Since Polygon began covering the story, G2A has even made changes in how it verifies the the identity of its users.

Now G2A wants to set the record straight about its business practices. It offered up the company’s chief executive officer, Bartosz Skwarczek, for an interview.

In order to make sense of the whole story, Polygon also reached out to several experts in the international payments industry. Here’s what we learned about digital goods, the gray market and G2A’s place in it all.

A CASE OF MISTAKEN IDENTITY

One of the first points, and perhaps the most important, that Skwarczek wanted to make is that G2A is no longer a seller of digital goods, gray market or otherwise.

He said that for a long time they were, among other things, a retailer of digital goods. But as of today G2A does not maintain its own inventory. Instead, Skwarczek said, their main line of business is as a marketplace.

“When you’re saying that G2A is a reseller [in your previous articles] people think that this is the truth,” Skwarczek told Polygon. “This is not. We have eBay’s business model, which means that there are third-party sellers here. There are 200,000 external, third-party sellers. We’re not buying product from them and selling those products to the market. We are just delivering the platform and they are doing the transactions.”

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Skwarczek describes himself as an entrepreneur, coach, speaker and mentor on his personal website. Here he’s pictured with NASDAQ’s senior vice president of listing services Robert H. McCooey Jr.

The benefit of such a marketplace, Skwarczek said, is that competition drives down the cost of goods for consumers. It’s just that, in this instance, nearly all of those goods are ephemeral digital codes. Because of the breadth of payment options that G2A allows, it has also been able to make inroads into places its competitors can’t easily reach like India and Turkey. But, Skwarczek said, its biggest markets are the U.S. and Europe.

“When you have 200,000 sellers competing with each other, it’s obvious that the price will be good,” Skwarczek said. “However, there’s one more important thing. All other functionalities on your website, on your marketplace, must be nearly perfect to bring those customers to your side. This is why we started [focusing on] support, which right now is considered one of the best, if not the best, in the industry. We do benchmarking every month, comparing our marketplace to other marketplaces and other developers, other publishers.”

That attention to user experience, he said, is why today G2A has more than 34,000 different products available for purchase compared to Steam’s 12,000.

“Today,” Skwarczek said, “we’re number one.”

FRAUD PREVENTION

The basis for the conflict between Tiny Build and other publishers like Electronic Arts and Ubisoft is complex. At its core is the issue of chargebacks.

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THE PROVENANCE OF GAME CODES

Last year Polygon decided to try and track down the origin of a single game code purchased online at G2A’s competitor, Kinguin.

With the help of Kinguin’s CEO, we were able to follow the code around the world from the final seller in Italy, to his source in the Netherlands and eventually to an anonymous user on Steam who told us he was from Venezuela. But no one could prove where the code really came from. Read more here.

When stolen credit cards are used online, card holders often don’t realize that fraud has taken place until their billing statement arrives. Once fraud is reported, credit card companies issue chargebacks, a process by which a suspect transaction is invalidated, denying publishers like Tiny Build compensation for those purchases.

The chargeback process itself can take up to 30 days. That leaves a window of opportunity for criminals using stolen credit cards to sell their digital codes online using marketplaces like G2A. Recently, Tiny Build’s CEO Alex Nichiporchik said he was able to buy game codes — the same game codes purchased with stolen credit cards through his own online shop — on G2A’s marketplace. That means that anonymous resellers and G2A both profited from these sales. Meanwhile, the transactions run through Tiny Build were invalidated through chargebacks.

In its defense, G2A denied to Polygon that it knowingly participates in the sale of stolen goods.

“G2A is a marketplace,” its PR team stated via email. “We provide a service for people to buy and sell goods. We absolutely in no way participate in or support any activity that is not legal.

“It is our responsibility to do everything we can to protect the integrity of the marketplace and we take that responsibility seriously. Our security policies and regulations have been built to be in full compliance with the regulations set forth by all global regulatory authorities.”

So what are G2A’s responsibilities to buyers and sellers as a global marketplace?

CROSSING THE BORDER

Faisal Khan is a banking and payments consultant based in Pakistan who specializes in cross-border transactions. “If money moves across borders,” Khan told Polygon, “if value moves across borders — be it overseas, business-to-business, peer-to-peer, chargebacks, Bitcoin — that’s my domain.”

Khan was quick to point out that the relationship between G2A and the sellers that use its marketplace is covered in the liability clause of their terms and conditions. Right now, that liability cannot exceed €500.

Khan said their liability to users — those buying codes on their marketplace — is functionally zero.

Adding further distance between itself and its patrons, Khan said, is the fact that G2A does business out of Hong Kong.

“The European Union, the United States and Canada have very strict payment laws in addition to their very strong consumer protection laws,” Khan said. “So, in this case if a transaction goes bad or gray or if it becomes contentious, they can get away with it.

“In the U.S. I have the CFPB, which is the Consumer Financial Protection Bureau, to go to. I’m going to go to the Better Business Bureau. There’s a lot of protection that is offered to consumers in the United States. In this case, they’ll say, ‘Well what are you going to do? The transaction was done.’”

But with the case of digital goods, it gets even more complicated.

Say that Developer X has a batch of Steam codes fraudulently purchased from its online store. It reports those codes as stolen to G2A, G2A takes them down. Fine. Done deal. Skwarczek says that his company has a robust database that makes that possible and fairly easy.

WITH THE CASE OF DIGITAL GOODS, IT GETS EVEN MORE COMPLICATED.

But say that Developer X has a batch of Steam codes fraudulently purchased and doesn’treport those codes to G2A. Maybe they’re not aware, as in the case of Tiny Build. They’re still for sale on the G2A marketplace and you, Susie Consumer, buys one. The game code is accepted by Steam, and it works for a while. But Developer X eventually reports the codes to Steam, and one day Susie Consumer goes into her library and the game she bought on G2A is gone. Access is revoked.

What’s G2A’s liability to the customer in this instance? Again, by their terms and conditions, functionally zero.

“It always depends on the case,” G2A’s Skwarczek told Polygon. “Because sometimes we give money back, of course, because the customer — because there are rights [given to them by their governments] to do it, all right? We have to be fair between sellers and buyers.”

Unless, of course, you buy G2A Shield, a one-time up-charge and a monthly subscription service available from G2A.

If Susie Consumer buys G2A Shield and if something goes wrong with her code, does she get her money back? Absolutely, Skwarczek said. No questions asked.

“We’re so sure of our security systems that we guarantee that [transaction] with our [own] money,” Skwarczek said. “This is not an insurance. This is a guarantee for customers that they receive their money back. He receives his money back if he wants to use G2A Shield.”

Once more, Skwarczek stressed how different G2A’s liabilities are now that it is strictly a marketplace and not a retailer.

“There are absolutely different regulations between marketplaces and retailers. We are obliged to ask questions when customers come to us with a return policy — except with G2A Shield — because there is a seller who needs to know why a customer wants to give the product back.”

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Skwarczek during a visit to Google’s headquarters. Also pictured is G2A’s chief marketing officer Dawid Rozek.

EXIT STRATEGY

So say then that you are a criminal who has turned stolen credit cards into game codes. And say that, hypothetically at least, you’ve moved those codes quickly to the G2A marketplace and successfully sold them to a couple hundred Susie Consumers.

The ultimate goal is to pull cash out of your end of the internet. That’s called money laundering and, as an international business that serves as a marketplace for goods, G2A is obligated to root that practice out. The way it does that is with a set of practices known in the payments industry called “know your customer,” or KYC. It’s the process by which G2A, and other marketplaces like it, are bound by law to verify the identity of their sellers before they allow money to be transferred through their system.

But at what threshold do KYC practices kick in at G2A?

“In the United States,” Skwarczek said, “if you’re not a payment institution, it’s $5,000. If you are, it’s more strict. If you’re a financial institution, then it’s $2,000. … [At G2A] every transaction, every seller who is selling goods over $2,000 in this more restricted model, must be verified with KYC procedure. … ID and everything.”

But the vast majority of game codes fall well below that threshold. To keep criminals on their toes, Skwarczek says that G2A can trigger a KYC verification at any time. Maybe it will come at the $2,000 mark, but it could just as easily come at $500 or less.

“We comply with every regulation which is there. Why aren’t we more strict about these verifications? It’s all about the balance between being the most user-friendly and being the most strict about everything.”

But, says payments expert Faisal Khan, another important aspect of anti-money laundering practices — also known as AML — is something called a “velocity check.”

The clients that Khan works with, as a matter of course, use software that tracks how many of a given type of transactions is moving through their payments system. Those could be structured payments of about the same size, moving from one place to another over a short period of time. But it could just as easily be a particular game code moving through a marketplace in large numbers very suddenly.

“WE DON’T HAVE ANY WEAK POINTS,” SKWARCZEK SAID. “WE’RE JUST GROWING SO FAST THAT WE NEED MORE AND MORE GOOD PEOPLE.”

“You’re deliberately introducing hundreds if not thousands of transactions under the limit so that you don’t get flagged,” Khan said. “G2A should have a bird’s eye view on the entire ecosystem. They should be able to correlate the data and be able to see, suddenly, all these accounts coming up.

“If they’re not doing velocity checks on their AML policy, then the policy itself is flawed. It is seriously flawed.”

We asked Skwarczek to tell us about his anti-money laundering practices at G2A. He would not go into detail, other than to say that he’s actively hiring as he expands into new territories. Right now, in fact, G2A has an opening for a “global payments compliance officer.” One of the requirements is for that individual to have experience in AML practices.

They also need “proven experience of building something from scratch.” But, Skwarczek said, that is not evidence of lax or absent AML practices.

“We don’t have any weak points,” Skwarczek said. “We’re just growing so fast that we need more and more good people. Our company is about specialty. This year we’ve hired more than 200 specialists into our company, people from different parts of the world.”

In G2A’s defense, it’s easy to see the game industry’s release schedule itself mirroring this kind of velocity within the marketplace. How is G2A supposed to know the difference between a popular new game, and a popular new kind of fraud? That’s part of the challenge of their particular business model.

KATY BAR THE DOOR

One of the issues that Tiny Build takes with G2A is the ease of putting goods — stolen or otherwise — up for sale on their marketplace.

In late June, after discovering that so many of their games had been sold on G2A without their knowledge, Tiny Build called on the company to make significant changes in how they verify the identity of their users.

“Actually verify your merchants,” Tiny Build’s Nichiporchik pleaded in late June. “I just made an account and within an hour was able to sell a ton of keys, no verification whatsoever. If eBay allowed you to sell merchandise without verifying sellers’ credentials (they ask you for IDs, statements confirming addresses, tie it to your bank account, etc), they’d probably under similar fire right now as they’d facilitate stolen goods trade.”

While Polygon was researching this article, G2A did make a significant change in how they validate sellers. Now, instead of an email alone, G2A also requires that sellers connect their account to a Facebook or a VK social media profile and validate their phone numbers. Only after all three pieces of information are confirmed are they cleared to sell on the marketplace.

That verification, G2A told Polygon, extends to all accounts on the marketplace both old and new.

While that will undoubtedly deter casual fraudsters, it also presents a hurdle for new users to the platform and may slow the growth of G2A. But they made the change anyway as an act of good faith.

But is it an effective deterrent for money laundering?

Daniel Csoka is a member of the Federal Reserve’s Faster Payments Task Force, an initiative to create a more streamlined and secure payments system in the U.S. As such, he has expertise in online payments and anti-money laundering practices. We asked him about G2A’s change to a three-point verification system for all sellers.

“Well, what does it take for me to get a Russian Facebook [VK] page?” Csoka said. “Probably not much. What does it take for me to get an email? Well we already know that I can get a throwaway one. What’s it take for me to get a phone? I can buy a burner.

“WE HAVE OUR OWN PLANS FOR THE FUTURE. … BIG PLANS AND AMBITIONS.”

“Did you know that the number one name of prepaid phone users before the 9/11 attacks was ‘Mickey Mouse’? So, in terms of answering your question from a Faster Payments Task Force perspective, what do I think about that? It’s woefully underwhelming. Before I used one anonymous source. Now they want three.”

Tiny Build’s Nichiporchik was similarly unimpressed.

“Every site out there does social media logins and SMS verification,” he told Polygon via email. “There’s nothing stopping people from getting burner cell-phones and going around this.”

Throughout our interview, G2A’s Skwarczek was adamant about the quality of his marketplace. With regard to the specific issue with Tiny Build, where some 27,000 game codes were sold in a short period of time, he was careful to point out that only a very small portion of those transactions themselves had complications. Only .16 percent of those transactions he said — roughly 43 of them — had issues with payment fraud on G2A. And, for those customers who received the codes, only .8 percent had issues with those codes that required a call to G2A’s customer service.

His system, the G2A system, works well Skwarczek said. They are complying with those laws which apply to their marketplace, and the only way to stop fraud as in the instance with Tiny Build was for developers to work more closely with his team.

As for the future, G2A is experiencing unprecedented growth Skwarczek says. That’s why venture capitalists are beating down his door.

“VCs are trying us and are convincing us to work with them,” G2A’s CEO told Polygon. “But we’re refusing everyone at the moment. They’re pretty frustrated. We have several offers.

“Every week someone is coming and saying, ‘We’d like to be a partner in G2A.’ We have our own plans for the future. We’ve considered a few very serious scenarios, but we know what we have to do. We have our homework to do. We have big plans and ambitions. We want to be a solid partner for everyone in the gaming industry.”

Wal-Mart sues VISA for requiring signatures on chip debit card transactions

Christine Wang,CNBC 16 hours ago 

 

https://www.yahoo.com/finance/news/wal-mart-sues-visa-requiring-204142856.html

 

 

Vodacom to discontinue M-Pesa mobile payment offering in SA

 

Shameel Joosub. Picture: MARTIN RHODES

Shameel Joosub. Picture: MARTIN RHODES

VODACOM will discontinue its M-Pesa mobile payment offering in SA at the end of June, the mobile network said in a statement on Monday.

“Vodacom’s decision is based on the fact that the business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in SA there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” CEO Shameel Joosub said in the statement.

The decision does not affect M-Pesa outside SA.

“In other markets where financial inclusion is limited and where there is a more supportive macro environment, M-Pesa continues to gain solid traction based on exponential growth in customer acquisition. Kenya and Tanzania are prime examples of this. It is important to note that this decision does not affect M-Pesa customers in Tanzania, Lesotho, Mozambique and the DRC (Democratic Republic of Congo), where the product continues to grow exponentially,” the statement said.

“Vodacom is fully committed to mitigating any inconvenience to customers impacted by the decision and assures all M-Pesa SA customers that their funds remain safe and readily accessible. We remain of the opinion that opportunities exist in the financial services environment and we will continue to explore these,” Mr Joosub said in the statement.

MasterCard and GM: Pay with your key fob

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NEW YORK — Start your engine with a keyfob, sure, but what about to pay for gas?

MasterCard wants to enable payments on devices — part of a growing movement loosely called Internet of Things — so that you can transact a purchase of everything from the ring on your finger to the key fob for your car.

On Monday, MasterCard announced the program to make it happen, with an assist from a variety of industry partners. There’s Qualcomm and NXP on the tech side, Capital One as the first banking issuer, and General Motors with designs on producing that first payments-capable key fob, the idea being that you might pay for food or gas when making a pit stop on a road trip.

Other partners include Ringly, which makes “smart rings” for women, Nymi, which has a wearable biometric band that uses your heart rate to authenticate your identity, and TrackR, which sells a Bluetooth location-tracker. Fashion designer Adam Selman is also designing products from which you’ll be able to transact.

MasterCard Chief Emerging Payments Officer Ed McLaughlin says such nascent “Internet of Payment Things” represents the next wave in commerce. The first of these payment-capable products are expected to roll out in the U.S. in 2016.

“Everyone is seeing that payments are moving beyond mobile,” McLaughlin said during an interview. “For a long time the focus was on the smartphone itself. We believe every device will be used for payments.”

Adds Tom Poole, the managing vice president for digital payments at Capital One: “We really want you to use the form factor (to pay) that makes the most sense for you.”

Compatible products will have an NFC chip inside and leverage “contactless” payment terminals, similar to the way you might pay with your phone.  Transactions will be “tokenized” and secure, MasterCard says.

You’ll be able to monitor transactions and accounts through an app on your phone, and most importantly be able to remotely turn off the payment mechanism in a product that gets lost or stolen. You can use your existing MasterCard credit card accounts, and earn any eligible loyalty or rewards points.

Capital One’s Poole says a number of factors are coming together to make this possible. Hardware costs are dropping. Technical and industry standards around NFC terminals and chip cards are getting adopted. Huge investments are being made on the security side. “Banks are perpetually upping their game,” Poole says.

To be sure, challenges remain for a mobile payments industry still trying to persuade consumers to increasingly eschew physical wallets and plastic credit cards and transact instead with their smartphones and watches.

“As with all of this stuff there’s going to be a learning curve or adoption curve. This vision doesn’t come to life overnight,” says Jordan McKee, an analyst with 451 Research.

But McKee figures Visa and other financial companies will follow MasterCard on a similar mobile payments strategy.

You can check out MasterCard’s video on this below.

Email: ebaig@usatoday.com; Follow USA TODAY tech columnist @edbaig on Twitter

Google, Ford, and Uber have joined a coalition to further self-driving cars

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Uber CEO Travis Kalanick

http://www.businessinsider.com/r-google-ford-uber-join-coalition-to-further-self-driving-cars-2016-4

Alphabet’s Google unit , Ford, the ride-sharing service Uber, and two other companies said on Tuesday they are forming a coalition to push for federal action to help speed self-driving cars to market.

Sweden-based Volvo Cars, which is owned by China’s Zhejiang Geely Holding Group Co , and Uber rival Lyft also are part of the Self-Driving Coalition for Safer Streets. The group said in a statement it will “work with lawmakers, regulators and the public to realize the safety and societal benefits of self-driving vehicles.”

The coalition said David Strickland, the former top official of the U.S. National Highway Traffic Safety Administration (NHTSA), the top U.S. auto safety agency that is writing new guidance on self-driving cars, will be the coalition’s counsel and spokesman.

“The best path for this innovation is to have one clear set of federal standards and the coalition will work with policymakers to find the right solutions that will facilitate the deployment of self-driving vehicles,” Strickland said in the statement.

On Wednesday, NHTSA is holding the second of two public forums on its self-driving car guidelines that will feature comments from tech companies and automakers at Stanford University.

NHTSA did not immediately return a message seeking comment on the coalition.

Ford said in a statement the group will “work together to advocate for policy solutions that will support the deployment of fully autonomous vehicles.”

NHTSA hopes to release its guidance to states, policymakers and companies on self-driving vehicles in July.

California has proposed barring self-driving cars that do not have steering wheels, pedals and a licensed driver ready to take over in an emergency, which Google has opposed. Under current regulations, fully autonomous vehicles without human controls are not legal.

NHTSA Administrator Mark Rosekind has said policymakers should avoid a “patchwork” of state regulations on self-driving cars but has not taken a position on California’s proposal.

In February, NHTSA said the artificial intelligence system piloting a self-driving Google car could be considered the driver under federal law, a major step toward winning approval for autonomous vehicles.

The five companies, which all are working on self-driving cars, say one of the group’s first tasks is to “work with civic organizations, municipalities and businesses to bring the vision of self-driving vehicles to America’s roads and highways.”

 

(Reporting by David Shepardson; Editing by Chizu Nomiyama and Bill Trott)

How can mobile phones make the world more sustainable?

 

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How can mobile phones make the world more sustainable?

The increasingly rapid advancement of mobile technology now makes it possible to access information from almost anywhere in the world through the Internet and mobile apps.

How can we utilize this advancement to create a more sustainable planet?

The answer lies in connecting rural landowners to governments and financial institutions through the use of mobile technology.

With an expected 50% increase in global food demand by 2030 and more than 9 billion people to feed by 2050, there is a critical need for additional agricultural investment.

Approximately 440 million farmers do not have a bank account or mobile money account, and there is $450 billion in unmet global demand for smallholder agricultural finance, according to the World Bank and Dalberg.

With limited infrastructure in rural areas, communicating with the government and accessing bank products is nearly impossible for many landowners. However, with expanded mobile coverage and increased Internet accessibility through mobile devices, Thomson Reuters can now help connect these parties and address key challenges to sustainable economic inclusion.

Mobile technology is now helping landowners document their land rights, governments develop formal registries, and financial institutions reach landowners and farmers who desire credit and insurance.

By bridging this connection gap, we are improving land registries for governments with wider participation from landowners, helping farmers to access credit and crop insurance with formal land titles to demonstrate ownership and collateral, and helping banks reach new customers and make responsible lending decisions.

We have seen a dramatic reduction in poverty resulting from a stronger agricultural sector around the world, such as 63% higher agricultural productivity in plots without risk of eviction in Uganda and a 50% gain in productivity after land titling in Nicaragua.

Mobile technology has a big part to play in the fight against poverty and creation of a sustainable planet.

Blocking remittances harms financial inclusion

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About 2 billion people around the world lack access to formal financial services, making it difficult for them to build a nest egg, obtain loans, start businesses, and climb out of poverty. The United States and many other governments have long recognized that improving financial inclusion is a critical aspect of addressing poverty, and recent years have seen significant global progress in the number of people engaging with the formal financial ecosystem.

While progress in improving financial inclusion has been remarkable, it is also fragile. In particular, remittance services, which are a key part of the financial ecosystem, are under increasing threat. Currently, the annual total of remittance payments sent from the United States exceeds $50 billion. There are millions of families in the developing world whose ability to keep food on the table and a roof over their heads depends on remittances sent by immigrants in the United States and elsewhere.

Yet several developments are imperiling those payments. First, in recent years the United States and other governments have been levying large fines on banks for alleged violations of international sanctions and anti-money laundering rules. Banks are responding with widespread closures of accounts held by remittance companies and other financial service providers that they perceive as exposing them to too much risk. The result of this so-called “de-risking” process is that many responsible, law-abiding users of remittance services become collateral damage.

Reducing access to formal financial services such as remittances is deeply problematic from a development and social stability standpoint, particularly for marginalized communities. Our analysis of nearly two-dozen economically, politically, and geographically diverse countries shows that increasing—as opposed to impeding—access to and usage of formal financial services is a key factor in helping people at the bottom of the economic pyramid become more prosperous and self-reliant.

Moreover, curtailing access to formal financial services inhibits consumer protection safeguards and threatens financial integrity. When people are blocked from access to formal financial services, they often turn to less traceable channels, exposing them to exploitative fees and leaving them without adequate consumer protection when transactions go awry. Shifting financial flows to informal mechanisms weakens the overall integrity of the financial system by reducing financial transparency and oversight.

A recent development in the American political sphere demonstrates yet another way in which remittance services—and the people who depend on them—risk being collateral damage for forces well beyond their control. In an effort to compel the Mexican government to finance the wall he wants to build along the U.S. border with Mexico, Donald Trump is threatening that, if elected president, he would cut off remittances that many Mexicans in the United States send to family members in their home country.

According to a memo Trump sent to the Washington Post, Trump wants to propose changing the federal regulation governing how banks address customer identification to require that “no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States.” Trump’s aim is to threaten to significantly impede the flow of remittances via money transfer companies or wire transfer firms unless Mexico agrees to pay for the wall.

Given that more than 95 percent of the reported $24.8 billion sent by Mexicans living abroad back to individuals in Mexico in 2015 came from Mexicans living in the United States, the negative economic and social consequences of curtailing remittances would be enormous—even if “only” those remittances sent by undocumented workers would be disrupted. And, Mexico wouldn’t be the only country impacted. Blocking remittances also would undermine economic development across much of Latin America and in many other places around the world that receive money sent by immigrants in the United States.

Most people don’t view global anti-money laundering standards and the American presidential race as particularly closely intertwined. But with respect to remittances, those topics have recently converged. The debate surrounding immigration reform in the United States is important. So is ensuring the integrity of the global financial system. But the solutions to the challenges those issues raise shouldn’t involve choking off financial flows to the people in the world who can least afford it.

Economics of mobile money and financial inclusion: Bank of Ghana at the forefront of regulations

Source: Economics of mobile money and financial inclusion: Bank of Ghana at the forefront of regulations

A Washington based think tank, Centre for Financial Inclusion, describes financial inclusion as “a state in which (1) everybody has access to a full suite of financial services including; credit, savings, insurance, and payments (2) Provided with quality; convenient, affordable, suitable, dignifying and client protection (3) To everyone who can use financial services; with special attention to rural people, people with disabilities, women, and other often-excluded groups (4) Through a diverse and competitive marketplace; a range of providers, robust financial infrastructure and clear regulatory framework”. The 15-year United Nations’ 17 Sustainable Development Goals (SDGs) prominently features universal financial inclusion attainment ambitions for all countries.

Mobile Money (MM) is a timely technology that promises to be the key anchor towards attaining financial inclusion around the world. As at 2014, there were 255 MM service providers in 89 countries across the world; according to the GSMA 2014 report. Ghana is one such country with four MM service providers, with mobile phone penetration reaching in excess of 115%. The World Bank Findex data mentions Ghana as one of 13 markets with mobile financial services (MFS) penetration above 10% in 2014. BMI Research, in its June 2015 report, indicated that according to the World Bank; “13% of adult Ghanaians report having access to a mobile account, as compared to the Sub Saharan Africa average of 11.5% in 2014”.

According to the 2015 Financial Inclusion Insights survey executed by InterMedia, whilst access to banking increased only marginally from 34% to 36% of Ghanaian adults, access to MM increased from nearly zero to 29% in the last five years. As at November 2015, the number of MM transactions per month in Ghana averaged 24 million individual counts, via 44,000 registered agents, with corresponding cash value of GHs3.4 billion in transaction value.

Banking, Money Multiplier and the Economy 

In economic terms “Broad Money” refers to the amount of money held in currency and bank deposits by households and companies within an economy. In a 2014 article published by Michael McLeay, and two others, of the Bank of England’s Monetary Analysis Directorate, they indicated that 97% of broad money in the United Kingdom is held in the form of deposits with banks, rather than currency in the hands of the public. Obviously, the case in Ghana is a far cry from where it should be in the modern world.

With so many currency bills in public circulation, Ghana misses out on the advantage of the multiplier effect of money. The multiplier effect of money and its benefits to an economy is simply the logic that money is better traded when it is held as deposits in bank accounts rather than as currency bills in the hands of the public. Largely, money in bank deposits, after regulatory reserves are secured, are traded as loans and advances to businesses; to pay suppliers and to bridge operational expense shortfalls, and also to individuals; to finance household expenditure.

Whichever activity the bank loan is deployed to, it stimulates consumption; increasing revenue for local producers who in turn increase production and increase employment thereof. When loan is disbursed by a bank, the loan (money) finds itself changing hands from one person/entity to another. The gains of that money (loan) to the economy are much enhanced where the money changes hands within the banking system than where it settles transactions as physical currency bills. In simple terms, where the money (loan) is used as payment to the credit of a third party’s account in another bank, this particular money (loan) becomes new money (fresh deposit) in the banking system.

Where transactions remain settled within the banking system, the money goes through multipliers of new money creation and that circle continues. This is the process by which economies increase their money supply and its attendant effect on reduced lending rates. The contrast is where the public hoards more money in currency bills thereby reducing bank reserves and the supply of money. However, it is noted that the multiplier effect of money manifests better within an economy where the banks are willing to lend their deposit liabilities than to trade in exorbitant government bonds and treasury bills; crowding out industry in the process. To this far, it is obvious the case for money’s multiplier in Ghana is poor; the resultant effect on the economy is obvious as more money circulates outside the banking system and the banks’ attitude towards lending remain unchanged. This brings into very sharp focus the potential role Mobile Money plays in the Ghanaian financial services sector as remedy.

Mobile Money and Money Creation in the Economy 

As it is presently, Mobile Network Operators (MNO) provide MM services. By registering for MM services, the user acquires an e-account (MM wallet) that is immediately accessible via a mobile phone. Deposits into the MM wallet become electronic cash domiciled on a mobile phone; with monetary value that is transferable to the credit of another account, transmittable for the payment of goods and services at a merchant point, or redeemable for cash at an agent point, an ATM or at a bank teller. The MM wallet is in reality a bank account with customer transaction interface on a mobile phone, which is settled with a traditional bank, but with transaction history data held with an MNO.

In real terms, MM services mirror the practice of traditional banking; albeit in a virtual form. In traditional banking, banks keep a General Ledger (GL) Cash Account that settles all currency inflows and outflows by customers such that at all times the bank’s GL Cash account balance equals physical currency bills in its vaults (including cash-in-hand at teller tills and ATMs). With MM services, the service provider’s application software accommodates back-end virtual bins (vaults) from which e-money movements (MM deposits and withdrawals) are settled; the net balance at any point in time being the e-currency bills in the operator’s e-vault. The total e-currency bills in the virtual vault at any point in time represent balances on all MM wallets (unique customer account balances) and the balance in the internal “unclaimed suspense account” (Cash-to-Cash “C2C” token IDs yet to be paid out).

MM service providers in turn operate escrow (trustee) accounts with traditional commercial banks where the net balance (of issued e-currency) in the service provider’s virtual vault is settled for liquid assets (currency bill) of equal value in the commercial bank. Ultimately, at any point of reconciliation, the bank balance in the trustee bank account of the MM service provider must equal the net e-currency balance in the virtual vault of the MM service provider; which is the total MM wallet balances of customers of the MM service provider. In effect, every pesewa on the MM wallet of an MNO customer is a deposit with a commercial bank which is ultimately traded as loans to industry and households.

The new BoG Guidelines 

To further enhance the benefits of MM to the financial ecosystem, the Central Bank of Ghana (BoG) introduced new regulations to govern electronic money transactions and also MM agent services. The new directives encompass all e-money activities including; MM, magnetic debit and credit cards and internet based money.

The Bank of Ghana on July 6, 2015, served notice to revoke its Guidelines for Branchless Banking – Notice No. BG/GOV/SEC/2008/21 – to be replaced by two different Guidelines. The two new regulatory Guidelines are dubbed “Guidelines for E-Money Issuers in Ghana” and the “Agent Guidelines”.

The crux of the E-Money issuers Guidelines is for all non-banking institutions in the business of mobile financial services to, by January 6, 2016; apply to be licensed as Dedicated Electronic Money Issuer (DEMI) institutions. This regulation requires all MNOs to register new companies, appropriately incorporated in Ghana, to assume responsibility for their Mobile Money operations as separate legal entities from their core business of voice and data communication services.

The Guidelines proceed to identify clearly laid out objectives which include; promotion of financial inclusion initiatives by extending financial services beyond traditional branch-based channels, limiting electronic money issuance only to duly licensed  financial institutions regulated under the Banking Act, 2004 (Act 673), and also to ensure adequate transparency, fair treatment, and effective recourse for e-money customers. With these objectives, very far reaching directives have been issued by the Guidelines to bring about uniformity in e-money transactions and hence making room for easier enforcement of regulation by the BoG. These will bring about very notable changes in the operations of Mobile Money services going forward.

The Guidelines will introduce three tier risk-based Know Your Customer (KYC) documentation processes with progressively higher capped daily and monthly account balance limits and correspondingly more stringent KYC requirements at each tier of MM account opening. Another significant fiat issued by the BoG is for DEMIs to pay interest on balances in MM wallets. The Guidelines proceed to enhance proof of identification to cash out money from an agent (over-the-counter) depending on amount involved. Also, the document captures consumer protection rights and provides specific directives in the case of insolvency of DEMI or bank partner. DEMIs will be required to provide insurance cover on customer wallet balances under the upcoming deposit insurance protection policies for banks. Finally, the Guidelines proceed with clear directives on how dormant MM accounts should be handled.

Moving onto the Agent Guidelines, it seeks to regulate the activities of agents of both traditional banks and DEMIs. In its preamble, this Guidelines assert to; “…promote the use of agents as a channel for delivery of financial services and specify necessary safeguards and controls to mitigate the associated risks and ensure consumer protection safeguards”. The Guidelines proceed to lay out further objectives in addition to those stated in the e-money Guidelines including; providing a single and coherent framework for agents, and also to ensure compliance with the Anti-Money Laundering Act, 2008 (Act 749).

With reference to its objectives, the Guidelines stipulate several directives towards achieving success. Some of the key interventions will include; introduction of “Agent Network Managers” who may be sourced by Principals to carry out responsibilities ranging from recruitment, training, compliance monitoring, liquidity management, and general support. The Guidelines also make room for another layer of service providers known as “Master Agents” who may sign an overarching agreement with a principal to contract and manage agents that provide banking or e-money services to customers on behalf of said principal.

The Guidelines proceed to indicate other notable interventions. There will be new requirements on principals to submit clearly documented policies on Agent Due Diligence, including GPS coordinates of agents and master-agents’ physical location, prior to their enrolment. Customer Due Diligence is captured also as subject of regulation as agents of DEMIs may be permitted to adopt laid down KYC procedures to open e-money accounts on behalf of Principals. However, the Guidelines are explicit that agents will not be permitted to undertake any form of appraisal or underwriting of credit and insurance applications on behalf of their principals.

The Guidelines also move to articulate clearly BoG’s oversight on the entire e-money ecosystem including; timelines for various periodic activity (transaction data) reporting with adequate populated information in identifiable formats to the BoG. It stipulates corresponding sanctions applicable relative to omissions and commissions by any stakeholder in the entire value chain.

Expected Developments in Ghana’s MM eco-system

The future of MM in Ghana is set to become even more relevant to the economy relative to these regulatory changes. The first significant early shifts in the industry will come in the form of administrative structures and reconfiguration of the setup of MNOs. As of January 6, 2016, MNOs should cede their MM businesses away from their core business of voice and data telecommunication services. It is expected that the MM businesses of all MNOs will take the legal form of separately registered subsidiary businesses.

Looking further into the future, it is certain, however, that MM operations will become much more enhanced with dedicated attention and leadership; owing to independent Management and Board structures rather than being run as a department of MNOs. Rather than being clothed under the success of MNO businesses, the various MM registered companies (DEMIs) are able to right size each other at par and compete more directly on equal measure as financial institutions. Shareholders and investors, in turn, will become better placed to assess the performance of DEMIs as they report independent financial results.

As new yardsticks evolve in the form of performance scorecard metrics, Management of DEMIs will become more competitive in driving customer service excellence, product development and business partnerships; ultimately to gain market share.  Increased competition, coupled with increased penetration of smart phone usage in Ghana, is predicted to result in DEMIs developing MM apps to enhance customer experience on their application interfaces.

With the advent of DEMIs, enough time and resources will be dedicated to developing interoperability protocols between the various providers where MM users on one network can transfer money to another person on a different network. Deeper cross-border partnerships as well will be developed with MM operators in other countries for direct MM transfers between operators in Ghana and other countries. Interoperability between traditional bank accounts and MM wallets will become entrenched; where funds can be easily moved from MM wallets directly into bank accounts and vice versa.

As these developments unfold to further deepen and consolidate the Ghanaian financial ecosystem, many other innovations can be expected. It will not be unreasonable to expect MNOs and their partner DEMIs to simulate subscriber data into financial algorithms to churn financial prediction models. DEMIs and their parent companies must be able to analyze how call credit and data usage patterns, airtime upload date patterns, call durations and destinations, subscriber bio-data, type of mobile device in use and many other variables can be used to build predictive financial models. These models will then be packaged and deployed to various uses; banks and insurers to differentiate pricing during credit scoring and insurance risk underwriting and also marketing institutions and corporates for targeted marketing initiatives.  Other users of these algorithms may include; central and local governments for policy planning initiatives, other corporate institutions for product development, and also researchers in the international community.

In other developments, it is safe to expect Credit Reference data in Bureaus to be populated with data from DEMIs. Security services will collaborate more technically with DEMIs for financial crime investigations. Tax Revenue Authorities will develop collaborations with MNOs and DEMIs for informal sector income data for tax estimation purposes and MM services for tax collection. Receipts from issued government and corporate bonds will be collected via MM and government payments will increasingly be distributed via MM. Apart from BoG, other financial services sector regulators – NIC, SEC, NPRA, and also the NCA – will not have the luxury of not working closely with DEMIs as players under their regulation will continually seek collaborations with DEMIs.

One such development in the very near future could be Mobile Money Pensions. The Pensions Act (766) 2008 stipulates a three tier pensions regulation where the third-tier scheme is voluntary and makes room for the informal sector to contribute to personal pension schemes. Regrettably, the informal sector has largely been excluded from participating in pension schemes because the industry has not been able to develop niche products that are convenient and easy to be adopted by the informal sector. Mobile Money Pensions holds the panacea to underperformance in this area of pensions.

By: Sosthenes Konutsey

The writer is the Head of Corporate Business, Old Mutual Ghana

He is a long standing player in the financial services industry – Banking, Insurance and Pensions – and an advocate for Financial Inclusion.

– See more at: http://citifmonline.com/2016/04/13/economics-mobile-money-financial-inclusion-bank-ghana-forefront-regulations/?sthash.NHXdzkZE.mjjo#sthash.NHXdzkZE.R3TipGbd.dpuf