1

Regulating Mobile Payments in Jordan

2

Central Banks face Challenges When Regulating Mobile Payments

2.5 Billion people are financially excluded

The main driving force of innovation is "Financial

Inclusion“

3

Challenges

• What are the challenges? • How to contain the risks? • Are the payment and settlement systems

more or less efficient?

4

Challenges

Challenges RegulationsInfrastructure

5

Regulating Challenges

Regulations

The Product

Non-Bank

Entrants

Managing the Risks

6

The Product

• What is exactly the product? • Is it a banking product or a payment product?

7

Why to Bother Regulating Micro Payments?

• To adhere to our mandate, objectives and vision statement of safe and efficient payment systems.

8

Non-Bank Entrants• The financial landscape is changing rapidly, non-banks are

providing financial services mainly payment services

• Shall CBs regulations prohibit non-banks and allow only banks?

• BIS stated that: Regulators should establish an open and level playing field. why?

• Commercial lessons: opening the market to providers with different value propositions

9

Risks

• What are the risks of the product? How to contain and manage these risks? AML, TF, consumer protection, fraud, liquidity,….

10

Mobile Money Versus Cash Risks.

• Anonymity: Mobile transactions are less anonymous than cash because they can be linked to a unique mobile number and transactions are recorded Mobile money reduces the risk of money laundering and terrorist financing.

• Elusiveness: Mobile money transactions are traceable in mobile operating systems as part of standard business practice. The telephone number of the sender and receiver, the time, and the amount of the transaction are all known to the mobile money provider, whereas cash transactions are completely elusive.

• Lack of oversight: A mobile money provider is usually

regulated and have strict internal controls with regular internal

and external auditing, whereas cash transactions lack oversight.

11

Managing Risksthere are limits on:• the amount per transaction;• the amount that may be sent or received per, month; and/or• the maximum balance that may be stored at any time (Balance Cap)• Differences according to the type of a payment (P2P, P2G, P2B, P 2 utility)

• KYC and CDD : identification is always required to register and conduct transactions (ID Number for Jordanians and Passport No for Non Jordanians)

• a PIN or password authentication is always required to conduct a transaction on a mobile device since it verifies the identity of the registered user every time the SIM card is used for a transaction;

• the system allows every transaction to be monitored; and mobile phone localization identifies the person making the transaction by recording the Mobile Station International Subscriber Directory Number (MSISDN) that is transacting.

• Reporting Requirements towards the AML Unit

12

FATF Recommendations

• Interpretative Note No 16 to FATF Recommendation No 10:

“There are circumstances where the risk of ML or TF maybe lower. In such circumstances, and provided there has been an adequate analysis of the risk by the country or by the FI, it could be reasonable for a country to allow it’s FIs to apply simplified CDD measures”.

13

Consumer Protection • Protecting client funds held as electronically stored value • Protecting client funds is a priority for any financial regulator. Basically our

regulations provide simple and clear rules that ensure the following:• Liquidity of funds—by requiring providers to keep the equivalent of the

outstanding electronic value issued in a bank account; and prohibiting use of the funds for purposes other than withdrawals and transfers according to customer request

• Ownership of funds—by requiring the accounts where funds are deposited to be pooled accounts to the benefit of the customers; prohibiting providers from pledging the funds as collateral;

• Collateral with warranty from the settlement bank to offer legal protection against other creditors in the case of insolvency of the issuer or the bank where the funds are deposited

14

Consumer Protection 2. Ensuring safety and reliability of services

MPSPs cannot provide the services unless tested, certified and authorized by CBJ

We also set specific rules to address reliability of agent networks, such as requiring agent transactions to be online and in real time. Agents must post signage informing clients that withdrawals depend on availability of cash at the agent.

Agents should be qualified and trained to perform the outsourced functions

The Service Provider should inform the CBJ about any agent assigned by him using a standard template.

3. Reducing opportunities for agent fraud and other harmful conduct

By requiring providers to screen, qualify, and monitor their agents.

By increasing consumer awareness mainly by the Central Bank and the PSPs

4. Ensuring clear and effective disclosure

Mobile payments may involve multiple entities that charge separate fees for their services For example, a fund transfer based on text messages may involve a fee to the bank and another to the mobile network operator. Agents can also—deliberately or accidentally—fail to disclose prices fully or charge unauthorized fees.

15

Consumer Protection • CBJ set rules for price transparency at agents (e.g. agents should post

signage with fees). • Agents are prohibited from charging fees directly to customers• Contracts with customers should to be as short and simple in language

as possible, and to include all fees and charges.• transaction logs at agents should contain information about each

transaction. This disclosure helps consumers identify the responsible entity when problems arise, thereby facilitating complaint filing.

5. Protecting clients’ personal information

6. Ensuring clients have knowledge of and access to effective redress and complaint procedures

7. Keeping providers liable for agents’ compliance with regulation

16

Infrastructure Challenges

Infrastructure SafetyEfficiency

17

Safety & Efficiency

• The process of mobile payments requires end to end process of banking involvement.

• The CBJ set the technical and security specification for JoMoPay as well as for the MPSPs who cannot link to JoMoPay nor provide the service unless got the certification and approval from CBJ

• CBJ requested the MPSPs to adhere to 1.5 Mio JOD as Capital Requirement

18

Safety & Efficiency • Would it affect the financial stability?

• What Levels of Interoperability does CBJ seek?

19

The Future

“It's coming, whether we want or not"