With the recently released Apple Pay, the media hype surrounding mobile payments and mobile wallets has reached “banked” countries. It may sound like a great new idea for some, but for the 200 million people already using similar services for some years (most of them in “unbanked” countries), it looks obvious.
About 10 years ago some mobile operators discovered a new business opportunity providing basic financial services to unbanked people that were unable to access traditional financial institutions, namely banks. With mobile penetration growing in every market, unbanked people were attracted by the possibility of using their mobile phone to easily access savings accounts, bill payments and money remittances. Over the years the diversity of available services increased, as did the actors involved in them.
Nowadays there are more than 250 operators in almost 100 countries around the world providing these type of services, and more than 100 operators are planning its deployment in a near future.
Financial services, due to their lucrative nature, are susceptible to several types of risks. Most traditional financial institutions manage these risks well, monitoring operations involving their customers in accordance with national and international banking agency regulations. Nevertheless, some cases of failure to monitor and report transactions to authorities cause banks huge costs.
It is common to occasionally read news about banks that are fined for violating money laundering laws. Usually those fines vary between a couple of millions and sometimes billions of dollars. However, small fines do not make the news, and banks are very aware of that.
However, mobile operators neither think nor operate like banks.
When deploying their commercial offering, many operators around the world were not completely thorough in assessing fraud and security risks; assessing solution architectural designs for technical controls; evaluating the effectiveness of planned controls and initiatives from technical, people and process perspectives; determining the required controls for securing and assuring the service; and considering regulatory and anti-money laundering requirements.
The reality is that it’s the customer’s money that matters, and if operators encourage customers to utilise this type of service, trust must be at the forefront of the customer’s thoughts.
Some stakeholders have a different and more relevant role in the business than previously existed in traditional communication services. The agents act like bank branches for the money cash-ins and cash-outs, benefiting from transaction commissions. Some operators’ internal staff have access to customer account data, and the temptation and opportunity to commit illicit actions for personal benefit is higher than ever.
Mobile financial services generate additional gains on the operator’s balance sheet, but they also bring new challenges that can harshly damage profitability, as well as the public image and reputability of the operator.
Currently, most operators are not in a position to assure the following examples of business controls:
- Transaction accuracy/integrity between the switches and mobile money platform
- Transaction legality
- Customer profiling and behaviour
- Agent profiling
- Anti-money laundering
- Counter terrorist financing
Fraudsters began using these services to launder money, some of them managing very creative schemes using money remittances and expense mobile equipment’s acquisitions that are later traded in different markets. Phone credits or airtime are used by the criminals as tender for payment.
Also, terrorists and sanctioned entities/individuals find these services useful for financing. This occurs because many countries still lack effectual rules and regulations for these services and because these transfers of value occur outside of the traditional financial system and off the radar of the operators.
The agents that are involved in many of the transactions made across the chain quickly found that they could accelerate their revenues (sometimes with the collusion of the customers) splitting a cash-in operation into several transactions, generating false round-trip transactions and false activations through the identities usurpation, among others.
An operators’ internal staff with access to customer account data may be able to perform very low-value transactions to other accounts, sometimes inactive and suspended accounts that are forgotten or ignored to be monitored in a frequent way. Those accounts can be later drained and the persons involved can take benefit of that money.
Revenue assurance and fraud management departments, with the collaboration of a dedicated system, can play a significant role in avoiding undesired losses and protecting the trust users must have in the services. Namely they can:
- Guarantee customer transactions are correctly accounted
- Prevent transactions made to/from watch-listed individuals
- Detect collusion between customers and agents for commissions augmentation
- Analyse customer behaviour deviations due to account takeovers
- Resolve fraud and non-compliance cases
- Learn from the investigations and results achieved for the continuous control improvements
Mobile financial services have changed many lives, allowing millions of people to use banking services for the very first time, and to better manage and secure their money. Hundreds of operators have been able to add value to their offering, acting as communications-as-a-service providers, and improving customer brand recognition, contributing for customer loyalty.
Are you willing to put this important part of your business at risk?
This article was first published in Telecoms.com. You can find the original version here.
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