Mobile Payment

From: Assistant Secretary for Ministry of Telecom of Syldavia

To: World Bank

We are writing to request your support and assistance with a recent proposal to implement a digital payment system in Syldavia through Pelican-mobile, the country’s largest mobile network operator (MNO). The MNO is the primary vector for implementation because due to a successful push by both Pelican-mobile and the Ministry of Telecommunications, mobile phone penetration has increased to almost 90%, with more than half of the users in the country using smart phones.

Given that the majority of the population outside of major cities remains disconnect from the formal banking sector, any mobile-money solution must utilize the robust mobile network in which we have invested, and continue to invest significant funds. Furthermore, almost every town and small settlement already has a local Pelican-mobile shop, or affiliated shop and these shops would be used as financial hubs, allowing residents to transfer cash to and from their mobile money accounts for a nominal fee, which will help subsidize the system. This approach will allow thousands of Pelican-mobile shops already set up in every community across the country to act a trusted cultural bridge to bring the bankless into the folds of the financial services to achieve financial inclusion.

Since the Syldavian government is a minority holder in Pelican-mobile (49% ownership), a portion of the eventual profits from the project will flow to the state treasury and act as a supplement to the currently emaciated tax-revenue collection. Currently more than 80% of employment in Syldavia takes place in the informal sector and is consequently not taxed. By collecting a portion of the profits generated on a scaled transaction-based fee structure, the revenue will greatly bolster the current governments budget.

While leveraging the MNO, Pelican-mobile, is the best way to achieve financial inclusion in Syldavia, to ensure the service does not deteriorate without the pressure of competition, the Ministry has proposed additional telecom regulation to ensure quality. Additionally, the ministry has collaborated with our colleagues at the central bank to impose an upward limit on the size and type of business for mobile-money to protect the bank sector. While much of the benefits of this mobile money project will go to the rural poor in Syldavia, its popularity in urban centers, those already well-serviced by the formal financial products could undercut the already thin margins of Syldavian Banks. Interchange fees from debit cards, small dollar loans, and an overall reduction in deposits due to customers maintaining higher balances in their mobile money accounts could significantly reduce the revenue at banks.

Finally, while we have considered the alternative UPI approach to digital payment used in other countries, MNO solution is better suited for the local conditions. Rural Syldavia speaks a variety of languages and is currently vastly underbanked, with little to no bank representation outside of major city centers. Thus linking the digital payment initiative to banks will not achieve the type of volume needed for success as seen in Kenya with M-Pesa simply because banks have not set up presence or established trust in the areas that would benefit the most from financial inclusion.

From: Consumer Advocacy Group in Syldavia

To: World Bank

We are writing to request your support and assistance with a recent proposal to implement a digital payment system in Syldavia through Pelican-mobile , the country’s largest mobile network operator (MNO). Over 40% of Syldavia is excluded from the formal financial market, among the ten highest in the world. Exclusion from the formal financial market isolates and stagnates entire communities. Without access to very basic financial tools, families are unable to save and accumulate even the smallest assets beyond the land they work on.

Unfortunately, the current remittance market is replete with predatory agents costing families significant amounts to simply send their wages back home to their families. Therefore, we are advocating for immediate implementation of digital payment system through the MNO model because speed is key. Every day without mobile payment is another opportunity lost to lift the rural poor out of poverty om Syldavia. The MNO model is more likely to succeed in the short run because consumers including those who have never laid eyes on banks are already familiar with the Pelican-mobile shops and are already paying cash to use its phone services. Moreover, to convince the unbanked to rely on a digital service to safekeep their valuable, trust in a known entity such as Pelican-mobile and their mobile phones is essential. Finally, MNO given its existing network, can offer the same service for less cost, which in turn reduces the transactional cost to the end users and increases profitability and sustainability. These factors are critical to fast mass adoption. In contrast, most rural villagers may not have the necessary documentation to open a bank account, let alone use a mobile payment product linked to the bank account. Banks also lack the physical locations and mobile infrastructure to quickly set up a viable network comparable to the one established in India.

Though there are distinct advantages to choosing the MNO approach, we must establish meaningful consumer protection regulations such as those protecting customer data and curbing social harmful activities such as accessing small loans for gambling in order to balance out the inherent risks.

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