The last decade has seen telecommunications companies and banks offer secure, affordable, and simple mobile banking (m-banking).
Internationally, customers have enthusiastically adopted the technology, in many cases enjoying access to financial services for the first time. The various m-banking services, coupled with the ingenuity and energy of newly enfranchised users, have assisted individuals and nations in advancing themselves economically.
Kenya is a prominent example of this success, with six million M-Pesa — the money transfer service offered by Safaricom — accounts activated in the last two years. M-Pesa’s rapid growth will likely continue, with customers choosing its security and accessibility.
Governments, however, have had more difficulty in adapting to the new technology than their constituents. Governments have generally appreciated the economic benefits enabled by mobile banking, and, in some cases, have pushed for adoption.
However, governments have reacted with much less surety in adapting to the perceived security and users safety threats posed by that same technology. High on the list of concerns is the potential for m-banking systems to be exploited by money launderers and other criminals.
Such concern is not without merit. Criminal groups are often at the forefront of technology adoption and exploitation. It would be surprising if some criminals did not attempt to exploit the benefits offered by m-banking systems.
However, in assessing the threat, it is important to focus on the opportunities that m-banking systems offer to government agencies in the anti-money laundering struggle.
In tackling money laundering, officials generally seek to identify persons of concern and to discern patterns in their transactions. Both goals are predicated on the collection and storage of information. M-banking systems, including M-Pesa, already use extensive safeguards to identify users of their network.
In order to send funds, M-Pesa requires the physical device, a PIN, and official identification. The receiver must present at least an SMS confirming receipt and official identification when collecting funds.
It is possible to store and later analyse such information. Thus, records exist, which can be used by the government to identify and track the financial activity of all users.
This can, if properly used, greatly assist law enforcement and regulatory agencies in identifying and tracking nefarious users.
The opportunities M-Pesa, and other m-banking systems, present for information gathering contrast with that of informal value transfer systems, now likely to be replaced. Informal value transfer systems consist of hawala type transferal services, as well as the use of bus drivers to deliver funds to a given town.
While the exact mechanics of these systems differ, their commonality is the informal, trust based nature of the transaction, and the difficulty governments have in gaining information on their operations. Such transfer systems have proved ideal for criminal groups.
Compared to informal value transfer systems, m-banking provides exponentially more information to detect, trace and to deter the operations of criminal and terrorist organisations.
The government of Kenya should embrace mobile banking as an anti-money laundering opportunity, rather than as a money laundering threat.
The security of M-Pesa-like systems, its accessibility and its low costs are likely to draw increasing numbers of subscribers, allowing for better information collection, analysis, and law enforcement.
At the least, the shift of customers from informal value transfer systems into the formal financial sector will lessen the number of informal customers and transactions.
This in turn will allow governments to focus their resources on identifying individuals interested in informal systems only for their secretive nature. In this way, the increase in m-banking popularity may serve to doubly enable government efforts against criminals and money launderers.
Regulatory hurdles will continue, and will provoke intense and meaningful debate. Law enforcement agencies will have to adapt, and create mechanisms to monitor the increasing m-banking traffic for potential signs of criminal acts.
However, it is important to remember that m-banking is a net boon for government anti-money laundering efforts.
The challenge of mobile banking for governments is to design regulatory systems that allow for criminal detection, without squelching attributes that have allowed it to thrive.
Mr Herbert is a Master’s candidate at The Fletcher School of Law and Diplomacy.