UNCITRAL Colloquium on Electronic Commerce

UNCITRAL Colloquium on Electronic Commerce

15 February 2011

Mobile Payments: Aiding Development

Richard L. Field

I. It is both rare and heartwarming to find that developing countries are world leaders in a new technology -- mobile payment.

As other speakers have mentioned, adoption of mobile payments in some African and other States far exceeds their citizens' use of the Internet, ATMs, and bank accounts, and far exceeds the adoption to date of mobile payments in much of the developed world. It offers the possibility of hope and opportunity for many who have had too little of either. For this reason, UNCITRAL has high hopes of focusing on this area for possible future work.

I - Millennium Development Goals for 2015

Yesterday, Cecile (Barayre) mentioned the Millennium Development Goals. I thought it was important to highlight how central they are to the UN's ongoing mission, including UNCITRAL's work.

"Eradicating extreme poverty continues to be one of the main challenges of our time, and is a major concern of the international community. Ending this scourge will require the combined efforts of all, governments, civil society organizations and the private sector, in the context of a stronger and more effective global partnership for development."

United Nations Secretary-General BAN Ki-moon

The eight Millennium Development Goals (MDGs) range from halving extreme poverty to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015. They form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions, and have led to unprecedented efforts to meet the needs of the world’s poorest.

Goal 1. Eradicate Extreme Poverty and Hunger

Target 1.A: Between 1990 and 2015, cut in half the proportion of people whose income is less than $1 a day

Target 8.A: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system

Target 8.B: Address the special needs of least developed countries

Target 8.F: In cooperation with the private sector, make available benefits of new technologies, especially information and communications

On the other hand, must also consider the possibly negative effects of new m-money services on traditional societies:

- effect on social structures / barter / elimination of social interaction

- elimination of some jobs

- new availability of credit!

- leverage creates new money in a society

- risk of consumer overextension, defaults

- risk of inflation

- effect of higher velocity of money (inability to timely catch fraud)

- effect of strength of national banking system?

II. Compendium of legal & policy issues:

A. Domestic and cross-border implications:

- money laundering

Financial Action Task Force (FATF) -- independent, inter-governmental body <www.FATF-GAFI.org> issued "Money Laundering Using New Payment Methods" in October 2010 (117 pages).

It divides Mobile Services into 4 categories:

(i) Mobile financial information services (view accounts only; no transactions; low risk)

(ii) Mobile banking and securities account services (tied to existing accounts; likely regulated and supervised)

(iii) Mobile payment services (allows payments by non-account holders; widely varying controls and supervision of non-traditional FI payment service providers)

(iv) Mobile money services (ability to store value on mobile phones, in the form of phone credits, airtime, etc.; likely to be unregulated and unsupervised in many countries)

Also issued FATF 40 Recommendations in 2003, "Standards for Money Laundering" (24 pgs)

(Note that these are distinct from Microfinance, which involves lending and may or may not include a mobile payment or mobile money aspect. I understand that UNCITRAL has recently conducted a separate colloquium on the topic of microfinance.)

- terrorist financing

- anonymity issues

- mitigation of risk through value limits, monitoring

- customer due diligence / "know your customer"

- Note that there exist no uniform international standards for low-risk products

- G-to-G information sharing

- ongoing investigations / strike forces

- tax evasion cases, etc

- gambling

- migrant workers - remittances cross-border (e.g., Bangladesh workers in Saudi Arabia, Emirates)

- seizure of phones at borders / customs

- identifying technology needed and enabling its use locally (export restrictions, patents, etc)

- partnerships with foreign experts, investors

- developing debt/credit & equity markets

- other intellectual property issues

- distance selling issues (language / applicable law)

- integration into global markets

- restrictions on the use of strong encryption / Export Administration Acts

- exceptions for banking services?

- where is the money? -- liens, setoffs, attachments

- abandoned property laws (who "owns" the money? foreign operators?)

- research (e.g., using mobile payment data for the estimation of the travel patterns of malaria, etc)

B. Mainly domestic implications:

- regulation and supervision of bank mobile payment service providers

- transparent financials

- regulation and/or supervision of non-bank mobile money/payment service providers

- money supply / creation of money / leverage

- virtual currency issues? stability of private money?

- security

- identity management / esignatures (consumer / merchant / others)

- econtract enforceability

- personal privacy

- confidentiality rights to accounts, transaction details on phone, at merchant, carrier, etc

(Things that go wrong: )

- insolvency

- issuer credit default risk

-intermediary credit default risk

- special risk for prepay customers, who cannot afford other plans (estimated at 40% of market)

- legal characterization of prepaid "money"?

- fraud - issuers / others

- e.g., recent UK plea by hacker who stole 400 billion virtual poker chips from Zynga

- other crimes

- e.g., robbery, blackmail, holdups, kidnapping, bribery

- consumer protection

- dispute resolution

- e.g., negligence vs. strict liability standards for liability for lost device, PINs

- obligations of counterparties, banks, mobile service providers, etc.

- independent and trusted judiciary and/or arbitration processes

- seizures by police, others

- corruption

(Other: ) - underdeveloped corporate cultures, legal framework

- strategies to absorb unbanked into mainstream

- strategies to promote savings, use of banks/accounts, improve markets, create jobs, build middle class

- estimates that China, e.g., needs 25MM net new jobs per year

- use as microsavings accounts?

- taxes on transactions / tax evasion

- other government payments

- to government (taxes, fees)

- from government (subsidies, benefits, salaries, grants/loans)

- technical coordination - device manufacturers / issuers / merchants / etc

- embedding security, mobility into new architecture

- promoting competition, barriers to entry / cooperation / standards, IP sharing for interoperability of systems

- resilience of systems

- bandwidth competition with video

(consider offline approaches to payment? dedicated networks?)

A number of these issues are being dealt with by others, including other organs of the UN, with which UNCITRAL should work cooperatively if it takes up this topic.

III. Conclusion:

Is there a project for UNCITRAL WG IV here?

A. Tom Smedinghoff mentioned yesterday that Identity Management is at the core of each of the other 3 topics being discussed at this Colloquium. Interestingly, payment is also a major component of Single Windows, which seeks better ways to accomplish all Customs-related filings and transactions, as well as Electronic Transferable Records. The U.S. has previously proposed the development of "Principles" of Electronic Transferable Records, which could include not just the principles underlying electronic documents of title but also the principles underlying money equivalents.

And, as Tom said, payment is also closely tied to Identity Management, on the consumer, merchant, and government ends.

Finally, I will mention that Online Dispute Resolution, which is being studied in UNCITRAL, may also have a significant payment or mobile money aspect (undoubtedly at the complaint end, but also possibly at the dispute resolution end).

B. Because of the vastly different stages of law development in Member States with respect to payment law, I would suggest that it is, at best, premature to consider an international convention for m-payment. However, some developing countries do not have a suitable framework / infrastructure for electronic payment law, particularly at the consumer level. This may be particularly true where neither ATMs nor credit cards are common.

The UNCITRAL Model Law on International Credit Transfers (1992), I note, addressed only one form of payment: in the form of orders to a bank to move money from an existing account to a beneficiary. It is a sophisticated law, and I believe it would be unproductive to try to revise it to mix in other payment approaches. Many of the m-payment systems involve very different instruction and payment flows, so there is the possibility of developing separate rules that are more immediately applicable to mobile payment systems. The Commission might wish to consider future work on model legislation to benefit those developing countries, and other implementation assistance.

C. Central banks have obligation to all citizens, including unbanked. The inability to embrace non-bank payment models has caused problems and adoption delays in some countries, such as Bangladesh. UNCITRAL may wish to consider the opportunity to legitimize the validity/concept of systems run by mobile network operators or others (subject, of course, to the possibility of appropriate protections, controls, and oversight).

I have tried to offer some provocative thoughts, for further reflection. I hope they are useful to the Secretariat in its report to the Commission. Thank you.