Central Bank’s new Regulation on Mobile Financial Services

1. Mobile financial services in Myanmar

It is estimated that less than 10% of the population in Myanmar have a bank account. Reasons for this low figure include a lack of trust in the banking system following the collapse of several banks in 2003, the fact that people feel safe to carry cash as there is not much robbery and theft, and a lack of bank outlets in rural areas. For banks, it would simply be too costly to try to serve customers in the entire country through traditional brick-and-mortar outlets.

Money transfer services through mobile phones are now a viable alternative as a sizeable portion of the population now own a mobile phone. The customer deposits money with a participating shop, thus creating an account, and transfers money by keying in a PIN on his phone to authorize the service provider to arrange a pay-out. Or the participating shop, upon receipt of a deposit, creates a code with which the recipient can withdraw money from another participating shop.

Telenor announced that it intended to offer mobile financial services for “a segment that will not be served by the banks in general because the cost will be too high”(http://tinyurl.com/zvsq589). The company has since formed a joint venture with Yoma Bank and started offering its products to the public under the name Wave Money (http://tinyurl.com/zs6dhud). Other providers of mobile financial services are myKyat (http://tinyurl.com/hhu2xut) under a license held by First Private Bank, 663 Mobile Money (http://tinyurl.com/hxdm7ek) under a license held by Myanmar Citizens Bank and Myanmar Mobile Money (http://tinyurl.com/zn5mywo) under a license held by Innwa Bank.

Analysts point out that mobile financial service providers have to compete with established money transfer systems such as post offices and the traditional hundi system in terms of pricing and customers’perception of their trustworthiness (http://tinyurl.com/zj8qqaz).

Money transfers through post offices seem to cost 0.05% - 0.5% of the amount remitted, and a hundi remittance seems to come at 1% - 2% - in contrast, the Telenor/Yoma Bank joint venture Wave Money charges 1.6% - 9.5%for a money transfer (calculated according to figures available on Wave Money’s homepage). Yoma Bank, in contrast, charges only 0.005% plus Ks. 500 for a bank remittance through its brick-and-mortar outlets (http://tinyurl.com/jcyuwbk).

Furthermore, a quick survey among Myanmar acquaintances (all modern, educated people) revealed that some had the vague feeling that their money might “disappear in cyber-space”in a mobile transaction.

Nevertheless, it is expected that mobile payments will grow, with Telenor/Yoma Bank having an edge over their competitors as their brands are known throughout the population. Growth may very well first occur more in comparatively wealthy, urban areas rather than the poorer countryside as customers in the former may be more able and willing to pay for the convenience of mobile payments (no need to queue in order to pay a bill).

Further reading: Supporting Digital Financial Services in Myanmar, a report from December 2015 compiled by, among others, USAID (http://tinyurl.com/hp2jnhm).

2. The Regulation on Mobile Financial Services

The Regulation, issued by the Central Bank on 30 March 2016, allows mobile network operators and non-bank financial institutions (i.e. entities registered with the Central Bank under section 20 Financial Institutions Law 2016 such as finance companies) to apply for a license to provide mobile financial services. Previously, such services could only be offered by banks and financial institutions. Analysts predict a beneficial impact from the inclusion of non-bank players as banks in Myanmar seem to lack the capacity to develop the digital financial services market to its full potential. However, it remains to be seen to what extent foreign financial services providers can participate as no foreign entity is, as of now, licensed as a “non-bank financial institution.”

The Central Bank has uploaded an English translation of the Regulation on its homepage (http://tinyurl.com/h5juoeg).

The most important aspects of the Regulation are as follows:

(a) Kyats only

Mobile financial services providers may deal only in kyats. The allowed services are:  opening and maintaining accounts; cash-in/cash-out transactions;money transfers between accounts; domestic payments between individuals, between the government and individuals, between businesses and individuals and between businesses and businesses; any other transactions allowed by the Central Bank from time to time.

(b) Licensing requirements for a mobile network operator or non-banking financial institution

A mobile network operator or non-bank financial institution desirous of engaging in mobile financial services must set up a company “solely for the purpose of carrying out mobile financial services” with a “minimum capital” (presumably, minimum paid-up capital) of Ks. 3 billion which must then apply to the Central Bank for a registration certificate to provide mobile financial services.The application requires a no-objection letter from the Ministry of Communication and Information Technology (now: Ministry of Transport and Communications) in case of a mobile network operator and a no-objection letter from the “primary regulator of that entity” (i.e., the Central Bank itself) in case of a non-bank financial institution.

(c) Licensing requirements for a commercial bank

A commercial bank seeking to conduct mobile financial services must apply to the Central Bank for product approval. The provisions of the Regulation also apply to commercial banks in so far as they do not conflict with the Financial Institutions Law.

(d) Power of the Central Bank to prescribe the “range of the fees and charges”

The Central Bank has the power to prescribe the “range of the fees and charges” that may be imposed by a mobile financial service provider.

(e) Appointment of agents

The mobile financial service provider may appoint agents (individuals or companies) and must provide comprehensive information with regard to the agents to the Central Bank, e.g. the due diligence policy and procedures for choosing the agent and a risk assessment report. Mobile financial service providers are barred from imposing exclusivity clauses on the agent; they are liable for the actions of their agents.

(f) Transparency vis-à-vis customers

The Regulation requires full transparency vis-à-vis customers as to fees, services provided, terms and conditions, agents used, etc., and obliged the mobile financial services provider to enter into a written agreement (either on paper or in electronic form) with every customer for whom it opens an account.

(g) Internal controls

The mobile financial services provider has to implement a minimum system of internal controls to assure sound management, prevention of money-laundering and of the financing of terrorist activities, recovery in case of disasters and an effective audit function.

(h) Record-keeping and regulatory oversight

Extensive record-keeping and reporting requirements; tight regulatory oversight by the Central Bank.

(i) Provider's account

The mobile financial services provider must open a current account with a commercial bank on which all moneys owed to the customers are kept; the balance of the account and the monies owed must be reconciled daily until 4pm at the latest and any deficiencies compensated until noon of the following day.

(j)  Know-your-customer and due diligence

Know-your-customer and customer due diligence procedures are as follows:

• For an individual customer with a “level 1” transaction limit: Submission of the national registration card, driver’s license or passport “if necessary”

• For an individual customer with a “level 2” transaction limit: Verifying the SIM registration against the mobile network operator’s database or submission of the national registration card, driver’s license or passport

• For a business customer with a “level 3” transaction limit: Submission of the business registration certificate and identification requirements for opening bank accounts

(k) Transaction limits

Depending on whether the customer is an individual or a business and the documents seen by the agent during the know-your-customer and customer due diligence procedure, there are the following transaction limits; these limits do not apply for payments to merchants and financial institutions, payments for utility bills, taxes or government fees.

• “Level 1” limit for an individual customer:Cumulative transaction limit per day Ks. 50,000; cumulative transaction limit per month Ks. 1 million; maximum account balance Ks. 200,000

• “Level 2” limit for an individual customer: Cumulative transaction limit per day Ks. 200,000; cumulative transaction limit per month Ks. 5 million; maximum account balance Ks. 1 million

• “Level 3” limit for a business customer:Cumulative transaction limit per day Ks. 1 million; cumulative transaction limit per month Ks. 50 million; maximum account balance Ks. 10 million

(l) Ensuring competition and a good service level

Certain obligations to ensure competition and a good service level, e.g. obligation to “be able to provide services that are interoperable with other mobile financial services providers”, prohibition for mobile network providers to discriminate against mobile financial services providers, obligation to comply with prescribed technical standards.

(m) Prohibition to create confusion with banks

Mobile financial services providers must not create the impression that they are banks, so they are probably barred from calling their products “mobile banking”.

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