In May 2020 the Zimbabwean Minister of Finance Mthuli Ncube promulgated Statutory Instrument 80 of 2020, also to be cited as Banking (Money Transmission, Mobile Banking and Mobile Money Interoperability) Regulations, 2020. A statutory instrument is a secondary piece of legislation which enables an Act of Parliament to have greater effect, but without itself having to go through a parliamentary legislative process. In this case, SI 80/2020 was enacted by the Minister of Finance and Economic Development in terms of section 81 of the Banking Act (Chapter 24:20) which is the primary law (Statutory Instrument 80 of 2020). The salient aspects of SI80/2020 was the effective transfer of mobile money licensing to the RBZ, enforcement of interoperability for all mobile banking and any money transmission service. After SI80/2020 was promulgated mobile money agents were discontinued and Zimswitch was nominated as the national switch through which all operators are expected to integrate their payment services. Critically, money would now flow freely across mobile money wallets as well as banking accounts, in the same way banks have enabled inter-account transfers for generations. Banks which had been pursuing the voluntary enablement of this integration were relieved. Through the Bankers Association of Zimbabwe, the plea for interoperability enforcement by banks had gone on for over seven years, even reaching the Competition and Tariffs Commission (CTC). After the bankers’ plea, the CTC commissioned a market study which going by the action of the RBZ seems to have established the need to enforce interoperability.
The long-standing interoperability framework for inter-bank payments is a compelling precedent for the financial services sector. The introduction of bank and mobile money interoperability in 2020 also accelerated instant payments, an area that emerging or African markets seem to be ahead compared to Europe and the United States. The timing of SI80/2020 could not have been better, as it also helped ease the risk of Covid19 transmission. The new payment options supported the fast-growing e-commerce businesses that sought to continue trading whilst mitigating the risk of virus transmission.
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Since mobile money was introduced in the Zimbabwean market around 2010, the regulation and supervision thereof was a largely joint affair between the Reserve Bank of Zimbabwe and the telecommunications regulator, The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ). This was mainly because at the outset, the applicants coming into the market almost exclusively were mobile network operators who happened to fall under the purview of POTRAZ. By virtue of them crossing into the adjacent financial services industry, it was inevitable that the central bank had to be involved to authorise or ratify their participation. To its credit, the RBZ embraced the ‘test and learn’ approach to regulation that allowed mobile money to take off exponentially for over a decade, bringing millions into the financial services ecosystem. More importantly, mobile money has improved the efforts to improve financial inclusion in Africa and other developing economies of the world.
As the financial services market share of mobile money operators grew in Zimbabwe, particularly that of Econet, banks felt the integration of mobile money operations ought to be fair to both parties to allow a fair flow of funds. Being in control of the mobile money infrastructure, mobile money operators unfortunately did not feel this was urgent, and more funds continued to flow from the banks into the mobile money system. The cash-lite monetary policy pursued by the central bank after the hyper-inflationary period to 2009, saw an exponential growth of electronic payments.
The Financial Sector Deepening (Africa) asserts that interoperability is a key infrastructure component that enables the fintech ecosystem to flourish. This view however is not readily embraced by ecosystem players who are in a dominant position, as they view opening up the payment network as needlessly surrendering competitive advantage. Understandably they invested significant amounts of capital to develop the distribution network, especially the last mile of agents which commercial banks have not been able to activate due to model viability challenges. Those with extensive distribution networks equate this to giving competition a free ride.
The volume of mobile transactions fell by 7% in 2021 after the introduction of the new regulations in May 2020. The volumes further fell by 26.8% in 2021 to 1.2 billion transactions, indicating the significant impact that the statutory instrument had on the usage of the mobile channel. The most common view seems to be that the subsequent discontinuation of the cash-in cash-out agents had a huge impact on the volume of transactions. Notably, the cash-in cash-out agents appeared to have accounted for most of the cash circulating in the economy, since cash disbursed from the banks never seemed to return to the formal system. Instead, cash appeared to be bountiful in the street and with mobile money agents, hence the regulator’s argument that they were fuelling the foreign exchange parallel market.
In the final analysis, SI 80/2020 essentially pulled down the curtain on the nurturing phase of the ‘test-and-learn’ phase that allowed the financial inclusion driver that is mobile money to get off the ground. The biggest fintech innovation in Africa was ready to hold its own against institutions that have been in existence for hundreds of years, banks. Zimbabwe’s formal banking trends appear to corroborate the view that mobile money accelerates the adoption or access of formal bank products. According to a 2020 Finmark report on Zimbabwe, there was a 480% growth in the number of transactional accounts, from 1.5 million in December 2016 to 8.6 million in December 2020. This growth in the number of transactional accounts is attributable to the impact of mobile money, supported by the aggressive cash-lite policies of the RBZ. It remains to be seen if mobile money innovation will sustain its momentum from the 2010s under the more intense regulatory regime of the RBZ. The next challenge is to enable financial inclusion beyond payments which by and large has been significantly advanced by the mandatory interoperability introduced by the Zimbabwean authorities.
