This morning's Technology Salon covered the legal hurdles facing mBanking - using your cell phone to interact with your bank account - in developing world scenarios.

Cell Phone in rural India

The Salon started with a great overview of what's out there today in mBanking; current business models, and common technical and legal hurdles. The second speaker focused on some of the unique challenges facing Western African nations in creating a multi-country cross-border mBanking system to facilitate regional and international trade. I've redacted the names and any organization-identifying information from this post and my notes because the discussion was intended to be freeflowing and not on the record.

The three general models presented provide a good structure for seeing how mBanking is being approached. First is banks adding mobile services as value-adds to their current customers. This is seen often in more developed situations, and is not intended to target the unbanked or new customers. Second are banks specifically seeking new customers (who do not currently have any bank account) through tailored mobile banking. Finally, we see Mobile Network Operators - MNOs - adding mBanking features to their services.

The technical problems will not surprise anyone who's dealt with mobile phones - differing technical requirements and interoperability (of the phones and of the networks). Basic (and therefore, cheaper and more common) phones do not have much to offer for security -- obviously a tough issue if there's to be reliable financial transactions. More advanced phones have the unfortunate downside of being more susceptible to virii and malware. Plus most banks are not particularly invested in having a shared platform, as they would prefer to create proprietary solutions discouraging users from switching banking providers.

BoP Spending
(on Flickr by Merkur*)

The regulatory and legal problems are largely unsurprising as well - how can you "prove" in court that the requested mBanking transaction was approved by the user - is an SMS admissible evidence? Does the country even have an eSignature law to enable electronic authorization? There are massive consumer fraud protection issues, banking regulations (does a mobile provider have to maintain liquidity in case of an "mbank" run?), not to mention which department or ministry of the government will oversee the laws - will it be the technology/IT ministry or the Finance ministry? Once you also enable cross-border transactions, you have to also be very careful of anti-money-laundering (AML) rules, which is all the more difficult with the specific base of the pyramid target market who could best benefit from mBanking, but who may not have a verifiable home address in any normal sense of the concept.

The silver lining to all these problems is that most of them can be addressed through decent regulations - but naturally that presents its own challenges. Regardless there's strong value (e.g. tax revenue for the government) in formalizing the multi-billion-dollar informal economies that mBanking could help with, so there's pressure to create technology neutral but bank-policy-regulated laws that balance usefulness, consumer protection, and limiting monopoly growth, but whether those will overcome the resistance to other problems, including created currencies like cell phone minutes as value (or Final Fantasy codes).

There are huge promises in mBanking for the BoP market, without a doubt. Artisans, small farmers and the like could get paid remotely for their work, and could get commissions or advances for specific tasks. However, the technology and the regulatory framework need to be, in combination, bulletproof and safe for consumers to use without fear. In the case of MNOs being the bank; they must be required to act like a bank in terms of insurance and liquidity. In the case where the MNO is merely a passthrough to the bank, both the MNO and the banks must be able to prevent fraud and crime, provide risk management strategies for themselves and their customers, and find some reasonable transaction security. The governments must be involved creating a strict but not stifling regulatory framework that protects against predatory practices, fraud, and overly rampant capitalism and monopolistic tendencies.