Rogue elements in Mobile Money Platforms: A currency crisis red flag (Part 1)
By Paddington Masamha
Cash barons have become the state’s leading nemesis. In Zimbabwe cash is being commoditized and traded. Corporates and individuals holding on to mainly physical bond notes (which morphed into ZIM dollars, ZWL$), United States dollars (USD) and South African rands (ZAR) are daily offered various premiums to exchange their cash in hand with bank and mobile money balances.
This has been a direct consequence of the currency crisis currently bedeviling the Zimbabwean economy. Although parallel market activity is navigated through the utilization of different payment platforms (e.g. Real Time Gross Settlement (RTGS), various online payment platforms, mobile money payment platforms and physical cash), momentous outcry has largely stemmed from Ecocash’s agents.
The mobile platform has attracted the attention of various organizations such as Zimbabwe Anti-Corruption Commission (ZACC), ZIMHAWKS and various pressure groups who hold the view that the Ecocash agents have gone rogue. Social media platforms such as WhatsApp, Facebook and twitter have been engrossed in messy debates regarding the hefty cash premiums being charged by the alleged reprobate Ecocash agents.
Ecocash has been so topical to the extent that even the Econet Group Founder and Chairman Strive Masiyiwa has been dragged to comment on the concerns being raised. This article is an attempt to interrogate the issues surrounding the various public debates gripping the nation.
Mobile Money Development and the Ecocash dominance
According to a GSMA 2014 report, mobile money technology has evolved from the basic M-Pesa product of Kenya and has given birth to various new products across the whole globe such as Easypaisa (Pakistan), T-cash (Indonesia), Ecocash (Zimbabwe), b-Kash (Bangladesh), Telesom ZAAD (Somaliland), Ez Cash (Sri-lanka) and SMART money and GCASH (Philippines).
Mobile money started in the year 2007 in Kenya in the mode of M-Pesa. Zimbabwe did not lag behind in the new technology adoption process given that the mobile money services were launched in 2011 when Econet wireless launched its Ecocash mobile money followed by One wallet in 2013 and Telecash in January 2014.
The Mobile Network Operators (MNOs), holding all other things constant; can be described in economic terms as an oligopoly market. The standard expectation is that a few giant firms usually dominate the market. Econet however has emerged as the market giant and some circles of society tend to view Ecocash as exhibiting monopoly tendencies.
A key factor to consider in the current discourse is the fact that fierce competition has always existed between banks and the telecoms giant Econet. For instance, banks currently do have alternative mobile money products such as FBC bank’s mobile moola, CBZ bank’s mobile banking and CABS textacash. Even the closed banks such as Kingdom Bank had cellcard, whilst Tetrad had eMali and Interfin’s cybercash.
Regardless of having these possible alternatives, Ecocash has over the years been the predominant and widely used mobile money platform. The Ecocash product has not only been recognized locally but it has amassed regional and international awards for instance the Best Mobile Innovation for Women in Emerging Markets (2018) and the GSMA GLOMO Awards for Best Mobile Money in the World (2017).
Emphatically, Ecocash has grown from offering the basic cash in and cash out services to offer a variety of product offerings such as airtime recharging, international money transfer services, bill payments, bulk payments, banking services, micro-loans, tap and go services, scan and pay services and having a savings club among other key functionalities.
The paramount question however is why has Ecocash become such a dominant platform and dwarfed One Money and Telecash? Could it be the telecoms giant’s financial muscle? What about the organization’s innovation capacities? Could the huge subscriber base explain the Econet success story? Why have the possible competitive products realised such miniature market acceptance?
Of particular concern is also why mobile money has been such a successful product particularly in developing (mainly poor) countries? Given the rapid growth and development of the product, there has been limited scrutiny regarding the actual benefits derived from these mobile money platforms. Additionally, regulators have also failed to keep pace with the technological innovation within the mobile money industry. Zimbabwe has not been insulated from such developments.
Primarily the widely celebrated benefit of mobile money is its significant impact on reducing the financial exclusion conundrum of most poor countries. The relative urban concentration of the traditional brick and mortar banks poses high monetary and opportunity costs involved in accessing and using financial services, especially to the rural poor in remote locations.
Through the use of mobile phone technology, the financially excluded have the potential to access credit, insurance products, remittances (domestic and international), increasing household incomes and ultimately reducing poverty.
In Zimbabwe, the Ecocash mobile money technology has helped ensure that marginalised sections of society do have access to banking services. For instance; unbanked households particularly the rural population (e.g. farm workers, pensioners, rural farmers) find mobile money to be easily accessible, affordable, convenient and secure transacting platforms. Basically, Ecocash has been a conduit to promote economic growth through facilitating financial inclusion.
Outstandingly, Ecocash has also bolstered the national payment system through improved insurance services (e.g. paying insurance premiums and its Econet’s own baby Ecosure), providing a convenient platform to pay utility bills (e.g. electricity, water, telephone bills), expanded the capacity for educational funding and reinforced communities’ capacity to make savings among the commonly citable benefits.
Recently in 2018, no matter how contestable the Intermediated Money Transfer Tax (IMTT) is; Ecocash has enabled the current Finance Minister to collect the 2% tax from the largely informal, shadow and even illegal transactions which were previously excluded from the national income accounts. As such, the existence of the Ecocash platform has helped the economy to grow and meaningfully developed the Zimbabwean financial market.
Given the slow pace of development in the Zimbabwean banking sector, the Ecocash platform has currently out-maneuvered the traditional brick and mortar banking services. Obviously, the concern of most analysts would be to probe whether the Ecocash mobile money success story is a by-product of the country’s currency crisis or the company’s aggressive market innovativeness?
Whilst multitudes are engrossed in the positive commendations placed in favour of the Ecocash payment platform, limited research and scrutiny has been placed on how best to regulate the mobile money technology. The existing body of knowledge has largely focused on praise singing the revolutionary technology without necessarily debugging the model sustainability issues, regulatory breaches and the concomitant rogue financial practices by the platform users.
Researchers have also downplayed the role played by mobile money of providing a platform for underground markets to exchange money. Instead the gospel which has been advanced is that mobile money helps in transitioning shadow markets into formal markets. Monetary exchanges which used to avoid formal channels are now largely noticeable on mobile money platforms.
It is imperative to note that mobile money transactions are paperless or digital hence eliminating the need for users to provide reasons for payments and or deposits (i.e. cash in or cash out transactions). Instead of mobile money being a conduit for development through formal channels, it has largely been the most preferred underground trading platform.
Shadow or underground activities such as prostitution, smuggling, pirating, corruption syndicates, have gone unchecked through utilising the less regulated mobile money payment platforms. The overbearing question is whether we should level the blame on the Ecocash platform or users of the platform, not forgetting the role of regulation within the same debate?
Emanating from statistics reporting the national transaction volumes, the Zimbabwean Monetary Policy (MPS) statements have largely demonstrated that Ecocash remains the most dominant payment platform (volume wise). However, the RTGS dominates the value statistics.
What boggles the mind is that with all the full knowledge of mobile money informality, the persistent outcry against rogue agents and given the fact that Ecocash dominates transaction volumes; why did the monetary authorities license Ecocash to be an authorized Bureau de change?
On the other hand, should the masses squarely blame Ecocash as the major perpetrator of currency parallel markets? With all these financial market developments, what role should the regulator play to sanitize the situation?
Mobile Money and the Regulator’s Dilemma
Fundamentally the regulator’s dilemma stems from the need to strike a balance between stringent controls and allowing financial service access. Should government prioritise the financial inclusion objective and ignore the rogue parallel market practices?
Can a country attain financial inclusion objectives whilst ignoring the rogue elements within the inclusion platform? What’s the correct dosage of regulation which ensures that illicit activity is controlled but at the same time fostering the mobile financial inclusion drive?
It is without a doubt that Zimbabwe is a poverty stricken economy. Further to that, the financial market development (particularly banking and insurance sector led-growth) has grossly been suffocated by the economic challenges harassing the motherland. With all these problems in mind, Ecocash acted as a temporary reprieve for the poor masses.
This reasoning partly helps to explain why Zimbabwean mobile money regulation has been more accommodative, though of course regulatory lapses should never be sidelined. The financial inclusion drive being spearheaded by the monetary authorities has chosen to adopt a loose stance towards regulating mobile money platforms.
The Zimbabwean mobile money regulator Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) is primarily engrossed with postal and telecommunications sector compliance issues. The POTRAZ website demonstrates that the regulatory authority’s mission is to, “To regulate the communications sector and promote the sustainable development and provision of universal communications services“.
This is a clear cut message that a regulatory deficit exists with regards to how mobile money should be regulated. Ecocash was incubated under the Econet umbrella but now currently under Cassava Fintech. The bottom line is POTRAZ has historically been incapacitated to fully regulate the Ecocash product whilst bank regulators have also had limitations managing a hybrid product (tele-banking features).
The regulatory debate has largely been on whether Ecocash should be classified as a banking product and strictly oblige with the bank regulatory framework? However serious consideration should be placed on the huge telecommunications muscle within the Ecocash mobile money platform.
Principally, in the midst of the Zimbabwean cash crisis; statistics demonstrate that mobile money is one of the major forms of money used by the transacting public. The honors is upon the monetary authorities to establish measures to control the money circulated through MNOs.
Given the rapid changes in the mobile money technology and the complex business models, the two major regulators that is POTRAZ and RBZ have largely adopted a reactive regulatory stance with regards to mobile money.
Strikingly, MNOs are within the telecommunications sector but their product offerings have overlapped to provide services previously dominated by traditional banks. It is these overlaps that regulators have neglected and failed to keep pace with.
A reflection on Strive Masiyiwa’s Facebook submissions
To begin with, Strive Masiyiwa’s first line of response is critical in that it highlights the main challenge-that is poor problem diagnosis. Masiyiwa reasons that, “We cannot solve a problem, until we first understand it.” The current pandemonium against Ecocash agents is simply symptomatic of the inevitable currency crisis and concomitant hyperinflation plaguing Zimbabwe.
It is technically correct to signal that Ecocash only acts as a platform to transact and by virtue of it being a payment platform, it does not become a currency. Strive put it this way, “EcoCash is not a currency. It is simply a mechanism that money moves through.
You don’t dig up a road, simply because a thief came on a road! EcoCash is just a road for money, it is not the money! EcoCash does not have any money. The Cash [bank notes] money belongs to the agent. Ecocash does not print money, either physical or electronic.”
Rationally one can agree with me that the fundamental problem of the Zimbabwean currency crisis stems from the introduction of the bond notes and their assumed 1:1 parity with the USD dollar. My previous articles have openly debated these issues in detail. Zimbabweans are misdirecting their anger on a payment platform.
Mobile money was developed to act as a bridge to the financial service access gap. That alone demonstrates evidence that Ecocash is merely a platform upon which transactions are conducted. The consequent platform abuses by various users taking advantage of the currency crisis should not be viewed as a pitfall of the Ecocash payment platform.
If banking fundamentals were right, no arbitrage opportunities would arise. My public question is; should we close the RTGS platforms and online banking services simply because there are rogue elements within the system?
For instance, online payment platforms and the RTGS payment platform has grossly been abused and utilised as a channel for illegal monetary exchanges. In its worst case scenarios, various worse-off money laundering schemes have been processed through these banking platforms.
The end-point is simply to highlight that any payment platform can be subjected to abuse by the users. Therefore, the onus is upon the regulator to constantly research on methods and ways which trace, monitor and control the rogue elements.
The most trigging part is the section where Masiyiwa addresses the issue of the Zimbabwean currency crisis through candid questions. Strive poses the following questions, “Why is there such a shortage of bank notes in the first place, that it becomes possible to sell bank notes?, Who created such an arbitrage situation? Whose cash is the Agent selling, at that rate?, How does Econet police 50,000 agents?, What if we stopped them all from dispensing any cash, would it solve the problem? Why do the banks not dispense cash like banks around the world?, When an Agent sells his money at 50% premium, does he share the upside with EcoCash?”
Essentially these questions should best be answered by fiscal and monetary authorities. Genuine answers to these questions highlighted would change the monetary landscape. For instance, if one takes into account the parallel market bubble of this current week (3rd week of September 2019); one is convinced that surely a superior player in the market is influencing the exchange rates.
These are the rogue elements that monetary authorities should focus on. Corruption fighting organisations like ZACC and ZIMHAWKS should be mandated with investigating such large scale corruption syndicates.
My speculation is that the developments in Zimbabwe are simply not part of Strive Masiyiwa’s headache. As an entrepreneur, his role was to provide a state-of-the-art payment platform. It is the duty of regulators to ‘police’ rogues elements. It is Reserve Bank of Zimbabwe which is mandated with money circulation. Both the fiscal and money authorities have a role to play in eliminating the illicit parallel market trading and eliminating arbitrage opportunities.
At this stage of the Zimbabwean currency crisis, my best submission is that the Econet Group chairman is not focused on allocating funds to investigate the alleged Ecocash platform abuses.
Instead, in my opinion; Cassava Fintech should be researching on how Ecocash will compete with crypto-currencies (e.g. Bitcoin). Further to that given Facebook’s intention to launch a worldwide digital currency Libra, how can the Ecocash product compete and be integrated into new world technologies.
Let us all be reminded of this, given Strive Masiyiwa’s chairmanship role; probably he is simply stirring the Zimbabwean managers (the governor, ministers and certain regulatory boards) to act on their key result areas (KRAs).
Paddington Masamha is an independent economic and financial analyst