MEF CEO Dario Betti comments on news that the Zimbabwean government is stopping mobile payment services across the country. The assessment touches on the impact on one of the most developed mobile money markets in the world and provides lessons for the entire industry.
- The government of Zimbabwe decided to stop all mobile phone-based payment providers
- Utility payments from consumers can continue, but withdrawals and payments to businesses are blocked, the number of transactions limited.
- The Zimbabwe currency is suffering from hyper-inflation again, and the government suspects mobile money is used for international exchanges.
The Ministry of Information of Zimbabwe halted “monetary transactions” via mobile phone on June 26th. The four major mobile money providers EcoCash, MyCash, One Money, and Telecash are now severely restricted in service provision. It is possible to provide payment for utility bills, goods, and services but with a limit of ZWD5,000 ($13.82) imposed on accounts.
No withdrawals or personal payments are available, the number of transactions per day is also limited. The government is shutting down wholesale payments and mobile money agents, as well as transactions between merchants.
The government of the African nation is concerned that the phone-based money services are used for “illicit activities and sabotaging activities.” In practice, the concern is that mobile money might have been used to buy shares to move money out of the country, or simply that by buying shares consumers could avoid their currency to halve in real value on a regular basis.
The government of the African nation is concerned that the phone-based money services are used for “illicit activities and sabotaging activities.” In practice, the concern is that mobile money might have been used to buy shares to move money out of the country”
The Zimbabwean dollar has had a disastrous run: after being pegged to the US dollar at a 25 to 1 exchange, the currency was set to free exchange value – bringing high inflation and halving in price with respect to the USA dollar. Inflation is now running at nearly 800%.
Enacting monetary policy nowadays is complex with monetary supply spread by new technology and services on multiple fronts. However, it is tempting for central banks to close the taps of mobile services: they are still largely centralised and regulated. Even a limited-stop to the mobile currency will have enormous effects on the economy (and some could claim it could calm inflation).
Official numbers put users of mobile money at 7.3 million in Zimbabwe, a country of 14.4 million inhabitants. The astounding success is unfortunately due to a serious shortage of notes, and limited banking infrastructures. The success of mobile money is also its downfall in Zimbabwe: it does not complement cash, it replaces it in the economy. There might be illicit actions and speculations with these services but these are typical in a free-fall economy, and potentially occurring in with other payment systems including cash. The speculations are more due to the economic crisis of the country and little to do to the specificity of mobile money platforms.
The action taken might the equivalent to shutting the stable door after the horse has bolted: it is too late and not addressing the real problems with the economy at the base of this. There is little that can be said against mobile money in this case.
It is of no surprise that the action of stopping mobile money service did not stop but even aggravated the run from the currency. On the 1st of June, almost a week after the stop, the Zimbabwean government also closed the stock exchange until further notice. The freefall economy in Zimbabwe continues.
However, there is something to be said about mobile services too. Regulatory intervention for money laundry and capital control is needed and it should be welcomed by mobile money services. Embracing regulation is complex and expensive, but it does avoid jolts to the systems like the complete ban in Zimbabwe. It is necessary to bring mobile money to the maturity it deserves
Three lessons are evident from this:
- Africa is still the cradle of mobile money services with high penetration and real economic impact. The staggering penetration in countries like Zimbabwe should be food for thought. Look and learn from these markets.
- Government intervention on mobile money in times of crisis might be likely. Despite its ineffectiveness, this might not be the last time it is used. The misguided temptation to control such a centralized and efficient monetary tool is very high.
- However, there is some truth in the claim for the government. There is still work to be done in cleaning up mobile money. This tool needs to improve in compliance for money laundry and international payments – it should be at the same level as other banking services.