MICROCAPITAL PAPER-WRAP UP:M-Bureaus: M-Banking´s Next Killer Application?, By Alice Liu and Michael Mithika

“M-Bureaus: M-Banking´s Next Killer Application?” By Alice Liu and Michael Mithika, Published by USAID, April 2009, Available At: http://collab2.cgap.org//gm/document-1.9.34524/17.pdf

In this paper, the authors explore the possibility of using mobile phone payment transaction history to determine credit information for customers at the bottom of the pyramid. Kenya is used as the case study due to its successful mobile-payment (m-payment) system. The authors had worked on the assumption that most clients who make m-payments do not have access to banking services, but this assumption was proven to be false. In fact, a study by the Financial Sector Deepening Kenya (FSD Kenya), an independent trust, found that 70 percent of those who make m-payments use multiple banking services. However, this leaves 30 percent who do not use bank services and whose credit history may be determined through m-payments. Kenya´s M-PESA m-payment system, offered by the mobile phone company Safaricom, was launched in 2007 and registered 2 million customers within one year of operation. Currently, 6 million of the 39 million Kenyan population uses M-PESA. By February 2009, the cumulative value of money transfers made through M-PESA was USD 1.5 billion. Zain Kenya also launched its Zap m-payment platform in February 2009, leaving Kenyans with the choice of two m-payment platforms.

M-PESA records name, national ID number, and date of birth for registered users, but this information falls short of the data required for customers by credit reference bureaus in Kenya. M-payment data does not include income or securities information. And although m-payments offer a history of bill payments, the actual due date for the payments is known only to the merchant and not to the payment platform. However, m-payments can be used to determine whether customers make regular bill payments. Income level can be inferred through the size and frequency of the payments, but it is uncertain whether customers are making payments for themselves or for others. Monthly money transfers can indicate stability of income.

In Kenya, the two government bodies that are in charge of m-payments are the Central Bank of Kenya (CBK) and the Communications Commission of Kenya (CCK). However, the actual regulation of m-payment systems is unclear. Because the 1998 Kenya Communications Act does not allow disclosure of customer transactions through m-payments, data is not currently available to credit reference bureaus or banks. CBK does not regulate M-PESA, although the latter provides monthly reports on a voluntary basis. Under Kenya´s Information Implementation Act, there is currently a timeline and roadmap being developed to create a licensed and operational credit reference system in Kenya, but the system itself has not begun development. The Act also requires all banks to participate in this system, but information from alternate sources like m-payment platforms or non-licensed financial institutions like MFIs. This may be due to the fact that bank data itself is incomplete and is mostly recorded on paper. Although the information is being converted to an electronic record, the percentage of information already converted is unknown.

There are only two Credit Reference Bureaus in Kenya which are still in the process of being licensed. CRB Africa allows customers to make debt payments through M-PESA while Metropol East Africa Ltd. Is developing one credit information system based on bank data and another based on alternative sources including m-payments. The Credit Reference Bureau Regulations of 2008 require the reporting of defaults on payments and allow credit providers to share information about clients, but do not require the collection of m-payment data or the reporting of on-time payments. Furthermore, because CBK does not regulate MFIs or non-bank institutions, Credit Reference Bureaus need not grant information to these institutions as well.

The authors find that none of their interview subjects can identify a business incentive for an m-payment system and the Credit Reference Bureaus to share data. Although payment for the data may be an incentive, the Bureaus may not want to pay for data that can be freely obtained from banks. And although m-payment providers may want to access the credit profiles of postpaid customers, the authors claim that there are other ways of identifying potential and existing postpaid customers without assistance of Credit Reference Bureaus. Mobile phone providers also sometimes provide credit to dealers and may want their credit history, but there are also additional methods for determining credit eligibility of dealers. Market insight value is another incentive, but Kenyan law does not allow transaction histories of customers to be made available.

The authors conclude the report with a series of recommendations. They advise the Kenyan government to support m-payment platforms so that Kenyans who do not have access to banks may take advantage of mobile financial services. Additionally, they recommend that MFIs be encouraged to use m-payments to gain a wider customer base. The authors also express the need for a clearer sense of government regulation of m-payments and for the incorporation of m-payment data into credit information systems. A possible topic for further study could be an analysis of how well m-payment data predicts the credit rating of customers. Finally, the authors recommend the exploration of business incentives for m-payment providers and Credit Reference Bureaus to share data.

By Goda Thangada, Research Assistant

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