Mobile Financial Services: An Approach To AML/CTF For Mobile Money

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Mike RodinAssociate General Counsel

The Western Union Company

Mobile Financial Services:

An Approach To AML/CTF For Mobile Money Transfer

World Bank WorkshopJune 2008 | Bangkok

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The Western Union Company (NYSE: WU)

§ A global leader in cross border money transfer services

§ Our core product: consumer-to-consumer international money transfers within minutes

§ We handle on average more than 1.5 million transactions daily across all our platforms

§ Global network of 345,000 Agent locations linked through a centrally operated proprietary system

§ Network is comprised primarily of unaffiliated agents such as post offices, banks, and, where allowed, bureau de change



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A Look Back

• In business for more than 150 years

• Began in 1851; first traded NYSE in 1865

• One of the first 11 companies in Dow Jones average listing 1884

• Consumer-to-consumer service in 1871

• Consumer-to-Business service in 1989

• Spun off on Sept. 29, 2006, trading on NYSE



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Mexico

At a macro-economic level, international remittances are driven by two related trends…

Developing Countries

Developed Economies

Remittance Est.*

2008 2010

$401 billion

$456 billion

Migrant Population**

2008 2050

200 million

290 million

* Aite Group Research 2007 ** United Nations, Western Union



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WU Services Available

Payment Services Geography

§ Major emigration countries: China, India, Mexico, Philippines

§ Major remitting countries/regions: USA, Western Europe, Saudi Arabia

Source: United Nations, IOM



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Western Union Money Transfer -- How it Works

Sending Agent

Paying Agent (Receiver /

Payee)

“To se

nd

money

”Fo

rm

WU PC Equipped Location

WU Host Computer

WU Customer Service Center (CSC)

“To re

ceive

money

”Fo

rm



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Regulatory Environment – Licensing

In the United States, money remittance is licensed at the state level

• Western Union maintains all necessary licenses

• Outside the United States, Western Union engages Agents who maintain all licenses to offer money transfer services in their own country

• In certain markets outside the United States, Western Union maintains our own money transfer licenses, or has formed joint ventures with our Agents

• Regardless of licensing, Western Union provides AML/CTF support to our Agents



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AML/CTF Resources and Support to Agents

• Global Compliance Capability– $30 million operation and 250 dedicated employees with

regional specialties– Agents maintain additional compliance resources– Proprietary monitoring, analysis, and reporting systems– All transactions screened through multiple sanctions lists– Goal is to comply with AML/CTF laws everywhere we or our

Agents do business– Provide support and guidance to our Agents worldwide



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Mexico

Recipient• Cash-based Economy • Largely Unbanked

Sampling:Bank Branch

Density per 1000 km

Source: Celent Analysis 2006

100

50

Spai

nIta

lyG

erm

any

Can

ada

Fran

ce UK

Pol

and

Philip

pine

sM

exic

oTh

aila

ndIn

dia

100

50

Spai

nIta

lyG

erm

any

Can

ada

Fran

ce UK

Pol

and

Philip

pine

sM

exic

oTh

aila

ndIn

dia

100

50

Spai

nIta

lyG

erm

any

Can

ada

Fran

ce UK

Pol

and

Philip

pine

sM

exic

oTh

aila

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Sender• Payment Choices• Banking Options• Technology Channels

$$$$$

A Money Transfer transaction must contemplate unique attributes or capabilities by region, country & consumer…



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The Relevance of Mobile• Mobile networks cover over 80% of

the world’s population• In a world of 7 billion people, there

are billion PCs, but over 3 billion people have a mobile phone

• Mobile phones are the first consumer technology to be more prevalent in developing countries than developed*

– The mobile phone has become the “internet of the developing world”

• Uses for the mobile device are continually increasing

* Source: GSMA



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What is a Mobile Wallet?

• Software application that connects the mobile device to a source of funds and is used by consumers to make payments or transfers from the handset

• Functions include:– Cash in / Cash out– Mobile top-up– Mobile-based banking– Bill payment– Consumer to consumer transfers– Purchases



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mWallet Regulatory Framework

• Two basic models• Bank-centric

– Account maintained at a bank– May be individual accounts or pooled account– Bank applies customary procedures for opening accounts

• Operator-centric– Operator maintains funds– May be licensed money remitter– May rely on trust accounts or other ad hoc arrangement

approved by local regulator



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Mobile Operator

A

Mobile Operator A

Mobile Operator B

M-Wallet

M-Bank

Money Transfer

Money Transfer

Cash to Mobile

Mobile to Cash

Mobile to Mobile

Bi-Lateral Agreements

Early phases of cross-border Mobile Money Transfer have tended to feature “receive” countries developing bi-lateral agreements…



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Mobile Operator

A

Mobile Operator A

Mobile Operator B

M-Wallet

M-Bank

Western Union

Western Union

Cash to Mobile

Mobile to Cash

Mobile to Mobile

Global AccessWestern Union

A connection to Western Union Mobile can help to transform a local financial service offering into a global financial service offering.



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Service Variations

Mobile to Mobile A Mobile Remittance is submitted in Country A and routed to a mobile wallet in Country B

WUmobileOperator A Operator B

Mobile to CashA Mobile Remittance is submitted in Country A and available as cash at a Western Union Agent in Country B.

WUmobileOperator A

$$Cash to Mobile

A Cash Remittance is initiated by a Western Union Agent in Country A and routed to a Mobile Wallet in Country B.

WUmobile

$ $

Operator B



16(1) United Nations 2005 & 2006

2001 2008

Working Together

Mobile Network Operator

M-Wallet Platform

Introduces local service offerings and markets to subscribers…

Associates subscriber, mobile number and “financial account”…

Western Union MobileFacilitates Mobile Money Transfer

• Provides XML-based Messaging Interface• Global Compliance Rules Engine• Global Money Transfer Platform• Global Settlement Network• Access to 345,000 Agent Locations

Market Acceleration

Program



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Sending Agent

“To

send

mon

ey”

Form

WU PC Equipped Location

WU Host Computer



Payee) “To re

ceive

money

”Fo

rm

m-Wallet linked to bank account




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WU Host Computer



Payee) “To re

ceive

money

”Fo

rm




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Pilot Programs

• Partners Smart and Globe having great success in Philippines with mobile wallets

• More than 2.5 million subscribers combined

• Pilot will add Western Union international remittances



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Our Regulatory Approach• For cash send or cash receive, few differences between the mobile

remittance product and our standard “will call” remittance product• “Will call” regulatory roles and responsibilities apply

– Western Union provides access to the “send” or “receive” side of remittances through its global agent network

– Western Union provides AML/CTF compliance support for cash aspects of the transaction

• Mobile partner or partner financial institution responsible for activities related to mWallet– KYC and CDD for account holders– Velocity and other limits on mWallet accounts– Monitoring and reporting on transactions within mWallet accounts

• Mobile to Mobile– Western Union sanction list screening, AML monitoring and reporting

responsibilities for transactions it handles– Will rely on operator or financial partner to identify consumers



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Our Approach to AML and CFT

• Risk-based approach while complying with all applicable laws• Factors considered include:

– Intended use of the service– Whether senders or receivers are anonymous– Extent to which it is a cash-based service– Corridors offered– Similarity to other services– Other AML or CFT measures associated with the service– Potential usefulness to money-launders or terrorists

• Transaction and velocity limits are most frequently used tools



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AML and CFT and Mobile Money Transfer• Key considerations

– Expect frequent use for relatively low value transactions– At least one party will be subject to bank-like KYC and CDD– Cash limited to at most one side of transaction– Pilot in select corridors– Similar to loading prepaid cards– Transaction records with mWallet– Limits associated with mWallet

• Limits adopted for pilot– Individual transactions limited to US$ 100 (or local equivalent) in most corridors,

up to US$ 200 (or local equivalent) in some– Daily limit of US$ 800 (or local equivalent)– Monthly limit of US$ 2400 (or local equivalent)– Daily and monthly limits apply to senders and receivers– Will monitor for matching between receiver name as provided and name on

receiver account• Post-transaction monitoring

– As pilot ramps up, we will monitor actual activity– Limits may changes based on experience



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Our Approach to Regulators

• Transparent and Proactive

• In-person meeting with BSP in the Philippines

• Explain our approach

• Seek feedback

• Work to address any concerns

• Work with our partners



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Suggested Regulatory Approach

• Look at mobile money transfer in the context of expanding access to regulated financial services– Transactions that are now outside regulated channels will be in those

channels– People participating in formal channels are better protected than those

who are not– People in formal channels have greater power to control their money– The more financial activity that takes place in formal channels, the

better the view of and ability to regulate the financial system and economy

• Consider AML and CFT issues in the context of alternative means of sending money– Regulated channel at send and receive side– Enhanced KYC and CDD on at least one side– Records of all transactions in and out of mWallet– Transaction and velocity limits and limits imposed on the mWallet



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Suggested Regulatory Approach• Consider appropriate level of KYC and CDD in light of

circumstances– Weigh benefits of inclusion and protections of transaction limits against

risk of relaxing otherwise applicable requirements– Consider practicalities of attempting to apply certain requirements– Consider deferring certain steps until cash enters or leaves account

• Be willing to experiment and change with experience– We are all going to learn as programs develop– Western Union and the operators are expecting changes based on how

people use the service

• Engage with local operators and Western Union as programs develop– We will all benefit from each other’s perspective as the programs

develop– We share your concerns regarding AML and CFT and will modify our

program as necessary



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Other Legal Challenges

• Rules of general application to financial services– Directive on Distance Marketing of Consumer Financial Services

(No 2002/65/EC)– Directive on Electronic Commerce (No 2000/31/EC)– Cross-border Credit Transfer Directive (No 97/5/EC)– Data Protection Directive (No 95/46/EC)

• Need to adapt to mobile delivery channel– Simpler transactions– Technical limits of mobile device



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Why Western Union?

• World-wide experience with cross-border remittances

• Demonstrated commitment to AML and CFT efforts on a global basis

• Global reach provides global learnings

• Demonstrated commitment to working with regulators



Mobile Financial Services: An Approach To AML/CTF For Mobile Money

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