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Background
Mobile money has, without doubt, had a profound impact on the financial services sector in Uganda and in other markets in the region. The most tangible impact mobile money has had thus far is providing the unbanked population with convenient means of engaging in financial transactions.
Recent data indicates that mobile money accounts in Uganda have, in the past 10 years, risen to over 32 million, the number of transactions crossed the 4 billion mark and the value of transactions stood north of 140 trillion Uganda Shillings. Compared to the number of bank accounts which stand at about 14 million, mobile money is truly walking the talk of promoting financial inclusion.
Mobile money services have also expanded to include credit, insurance and interest bearing savings following the enactment of the National Payments Systems Act.
With product expansion and scaling, however, comes various concerns which may have a direct impact on customer experience and confidence in a service. Mobile money has not been an exception, and concerns ranging from the conduct of the service providers and security of the platforms among others continue to be raised in various quarters.
In this article, I highlight a public concern that service providers have moved to address, the potential pitfalls with the proposed solution, and a possible balancing act in the context of the National Payment Systems (Consumer Protection) Regulations of 2022.
Mobile Money Transaction Reversals
The possibility of mobile money service providers facilitating transaction reversals has been at the centre of public debate for a while. The proponents for reversals contend that if a customer sends money to an unintended recipient in error, the service provider should be able to facilitate a reversal. On the other hand, the service providers have often argued that they cannot facilitate the reversal especially in circumstances where the unintended recipient has withdrawn the money or without a verification of the claim with both parties involved.
Recently, one of the leading mobile money service providers announced a “solution” for customers that send money in error. By dialling a code, a customer can initiate a reversal of a transaction. This is however pre-conditioned by the fact that the recipient must not have withdrawn the funds sent.
Concerns with the Transaction Reversals
While the advert announcing the solution is not clear to what transactions a reversal applies, from a test conducted, it appears that it is applicable to only peer to peer (P2P) transactions. If this assumption is accurate, it follows then, that the reversal does not apply to peer to business (P2B) or business to business (B2B) transactions or put differently, to transactions involving customers and businesses where the businesses use merchant codes. If so, this reduces the concerns that follow hereunder.
P2P reversals may have a negative impact on people conducting business through the mobile money ecosystem. This is so because it creates an incentive for dishonest buyers involved in P2P business transactions to initiate reversals after obtaining good or services.
Take for instance, a one John goes to a stall and purchases goods of X amount. Because the seller accepts payment by way of mobile money, John pays for the goods and moves away. Assuming the seller does not withdraw the funds immediately, and John moments later initiates a reversal, the seller is unable to obtain value for the goods sold – at least not until the service provider resolves the dispute.
The resultant effect from the above scenario is two-fold. It not only increases incentive for dishonesty in P2P transactions but also greatly diminishes incentive for customers to maintain mobile money balances on their accounts at the risk of locking up their funds in reversal claims. Ultimately, a customer who would subsequently conduct other transactions within the ecosystem will not be able to do so. Further, the possibility of interest earnings on mobile money balances would be diminished because a cash-out is safest option to retain value.
Even if it were the case that the seller in John’s transaction above would later receive value for the goods sold, the difficulty and inconvenience that comes with dispute resolution process maybe unwelcome and may perhaps force some customers to revert to other payment channels or cash transactions.
Consumer Protection Regulations
While there is consensus that it is important to have consumer protection guard rails in place, especially in instances of unfair market practises, it is necessary to consider the wider implications of certain proposals that may be proposed in good faith albeit with undesirable consequences – as in this instance.
The National Payment Systems (Consumer Protection) Regulations lay down various obligations that licensees must put in place, such as a consumer protection policy and complaint handling mechanisms.
The Regulations grant the customer a right to seek clarification or raise an inquiry with a service provider. The service provider has the corresponding duty to put in query resolution procedures, which must be available on a 24 hour basis and a query resolution timeframe of 6 hours for, among others, electronic money transactions and cash transfers. The service provider has a further duty to put in place redress mechanisms that include compensation, rectification, or restitution in the event of loss – upon completion of an investigation of a query.
Based on the foregoing, it may be argued that the duty on the part of the mobile money service provider is to put in place timely complaint resolution mechanisms for customers that send money in error in P2P transactions, as opposed to creating a blanket option of initiating a transaction reversal.
To this end, requests for reversals would be handled on a case by case basis to ensure the solution does not become susceptible to abuse and does not erode the customer confidence in P2P transactions. This would also maintain the incentive for customers to maintain their balances on their accounts, without the uncertainty of locking up value in a dispute.
To obtain customer buy-in on the case by case reversal, however, the service provider must satisfy the customer that once a query has been raised, it would be resolved in a timely manner and in accordance with the regulations.
It remains to be seen how mobile money service providers will continue to address customer concerns with the service, while ensuring that customer confidence is not eroded.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
