Legal analysis of Regulation of Mobile Payment System ... · i DECLARATION I, Jean Marie Vianney...

KIGALI INDEPENDENT UNIVERSITY ULK

MASTER PROGRAM

INTERNATIONAL ECONOMIC AND BUSINESS LAW

P.O BOX: 2280 KIGALI

Thesis Submitted in Partial Fulfillment of

academic Requirements for award of Masters

Degree in Law

By Jean Marie Vianney SIKUBWABO

Supervisor: Dr. George MWAISONDOLA

Co- Supervisor: Lecturer René MUNYAMAHORO

Kigali, September 2014

Legal analysis of Regulation of Mobile

Payment System under Rwandan Law

i

DECLARATION

I, Jean Marie Vianney SIKUBWABO hereby declare that, this work entitled “Legal analysis of

regulation of mobile payment system under Rwandan law” is original. It has never been

presented elsewhere. Every part of it is a product of my own research and where other

individual's work has been used, references have been provided. I declare that it will never be

presented anywhere else, and all rights of it are reserved to me.

Jean Marie Vianney SIKUBWABO

ii

DEDICATION

To Almighty GOD;

To my wife Claudine UMUKUNDWA;

To my beloved daughter Fleurise Chance INEZA;

To my family.

iii

ACKNOWLEDGEMENTS

I owe a great many thanks to many people who helped and supported me during the writing of

this thesis. I thank my supervisor Dr. George MWAISONDOLA, and co-supervisor Lecturer

René MUNYAMAHORO whose help, stimulating suggestions and encouragement helped me

in all the time in the writing of this thesis. Without their patience, encouragement and constant

guidance, I could not have completed this study. I wish to extend my heartfelt thanks to my wife

Claudine UMUKUNDWA for her beyond measure patience and encouragement in my studies.

More particularly, I would like to express my sincere gratitude to the Founder of Kigali

Independent University (ULK), administration, lecturers, and the rest of the staff for the facilities

provided to me in my studies, without whom, furthering my postgraduate studies would have been a

distant reality.

Last, but not least, I thank my family, work colleagues, classmates and friends for their support

and encouragement to pursue my interests. I would like to also express my gratitude to all those

who have not been mentioned in this thesis work but gave me the possibility to complete this

thesis.

Jean Marie Vianney SIKUBWABO

iv

TABLE OF CONTENT

DECLARATION ........................................................................................................................................... i

DEDICATION .............................................................................................................................................. ii

ACKNOWLEDGEMENTS ........................................................................................................................ iii

TABLE OF CONTENT .............................................................................................................................. iv

Abstract ....................................................................................................................................................... xii

GENERAL INTRODUCTION.................................................................................................................... 1

I. Background to the study ........................................................................................................................... 1

II. Scope of the Study ................................................................................................................................... 2

III. Statement of the problem ...................................................................................................................... 3

IV. Hypotheses .............................................................................................................................................. 4

V. Research objectives .................................................................................................................................. 5

VI. The research methodology .................................................................................................................... 5

VII. Significance of the Study ...................................................................................................................... 6

VIII. Structure of the Research .................................................................................................................. 7

CHAPTER I: CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW ON MOBILE

PAYMENT ....................................................................................................................................... 8

I.1. Conceptual framework .......................................................................................................................... 8

I.1.1. Conceptual and theoretical perspectives of electronic payments .......................................................... 9

I.1.1.1. Electronic payment system ............................................................................................................... 10

I.1.1.2. Mobile transactions .......................................................................................................................... 11

I.1.2. How is mobile payment processed? .................................................................................................... 12

I.1.3. Mobile phone messaging as means of payments ................................................................................. 13

I.1.4. Importance of introduction of electronic and mobile payments in transactions in Rwanda ............... 14

I.1.4.1. Advantages of mobile payments for the payment service providers ................................................ 15

v

I.1.4.2. Advantages of mobile payment for traders and consumers .............................................................. 16

I.1.4.3. General challenges of mobile Payments........................................................................................... 16

I.1.5. Evolution of mobile payment system in EAC region .......................................................................... 17

I.2. Literature review on regulation of mobile payments ........................................................................ 18

I.2.1. Framework for the literature review .................................................................................................... 19

I.2.1.1. Actors in mobile payment services market ...................................................................................... 20

I.2.1.2. The payment service providers in a competitive market .................................................................. 20

I.2.1.3. Application of contingency theory in mobile payment regulation ................................................... 21

I.2.1.4. Review of the findings of related studies and publications in the area of mobile payment system . 21

I.2.2. A comparative study of the factors influencing the mobile payment development in Rwanda .......... 23

I.2.2.1. The role of improved legal, regulatory, and standardization environments in mobile payment

systems in Rwanda .......................................................................................................................... 23

I.2.2.2. Regulatory bodies having the authority to regulate mobile payment system locally and

internationally .................................................................................................................................. 25

I.2.2.3. Power of Consumers and service providers in mobile payment system in Rwanda ........................ 25

I.2.3. Gaps in Rwandan governmental institutions to cooperate for a better implementation of the existing

mobile payment regulations............................................................................................................. 26

I.2.3.1. Failure of National Bank of Rwanda to set out clear mechanisms of implementation of regulation

governing electronic payments ........................................................................................................ 26

I.2.3.2. Failure of RURA in enforcement of regulations of electronic payments in place in Rwanda ......... 27

I.2.3.3. Weakness of telecom companies to comply with obligations specified in license .......................... 28

I.2.3.4. Challenges related to security payments .......................................................................................... 28

I.2.3.5. Challenges related to infrastructure in mobile payment ................................................................... 29

I.2.3.6. Challenges related to the regulatory framework .............................................................................. 30

I.2.3.7. Anticipated effects of e-money on monetary policy ........................................................................ 31

CHAPTER II: ANALYSIS OF EFFECTIVENESS OF REGULATION OF MOBILE PAYMENTS

IN RWANDA ................................................................................................................................. 32

vi

II.1. Problems related to the regulation of rights and liabilities of operators of mobile payments and

protection of customers ................................................................................................................. 32

II.1.1. Liabilities of financial institutions for the loss incurred by customers in mobile payment transactions

......................................................................................................................................................... 33

II.1.2. To what extent are the mobile network operators liable for the loss incurred by customers in mobile

payments in Rwanda? ...................................................................................................................... 34

II.1.3. Effects of lack of interoperability between operators of mobile payment service providers to the

consumers ........................................................................................................................................ 34

II.1.3.1. Possible problems caused by interoperability of mobile payment service providers...................... 35

II.1.3.2. Interoperability is not considered as a binding obligation to the payment service providers in

Rwanda ............................................................................................................................................ 35

II.1.3.3. The way forward for implementation of interconnection between payment service providers in

Rwanda ............................................................................................................................................ 36

II.1.3.4. Implementation of interconnection between payment service providers for promotion of

customers’ interests ......................................................................................................................... 37

II.1.3.5. Payment service providers take advantage of weakness of regulatory framework to create indirect

restrictions ....................................................................................................................................... 38

II.1.4. Limited awareness of consumers in mobile payment services of their right and liabilities ............... 39

II.1.5. Lack of services of deposit and withdrawal of money in mobile payment system in Rwanda .......... 40

II.1.6. The problematic of protection of consumers engaging in mobile payment system in Rwanda ......... 41

II.1.6.1. Protection of customers in case of unauthorized mobile payments ................................................ 42

II.1.6.2. Cases of non delivery, late delivery, and non-refunds .................................................................... 43

II.1.6.3. Quid of fraudulent or negligent behaviors of agents of mobile payment service providers having

caused undue payment? ................................................................................................................... 44

II.1.6.4. How does the regulation in place govern the burden of proof for consumers’ claims? .................. 46

II.1.6.5. Lack of fixed physical address of MNO Agents as a challenge to the burden of proof for the

consumers ........................................................................................................................................ 47

II.1.6.6. Effects of anonymity on burden of proof for claims arising in mobile payments .......................... 47

vii

II.1.6.7. Impact of different regulatory bodies of m-payment on consumer protection in Rwanda ............. 48

II.1.6.8. Protection of consumers in cross-border m-payments ................................................................... 49

II.1.6.9. Lack of international customer protection benchmark in mobile payment system ......................... 50

II.1.7. Impact of lack of harmonized regulatory regime on mobile payments in EAC ................................ 51

II.1.7.1. Regulation of charges in cross-border mobile payment .................................................................. 52

II.1.7.2. Impact of EAC monetary union on mobile payment system as a newly introduced payment system

in Rwanda ........................................................................................................................................ 53

II.2. Effectiveness of mechanisms for disputes resolution in mobile payments available under

Rwandan laws ................................................................................................................................ 54

II.2.1. Alternatives for disputes resolution between merchants and consumers in mobile payment system 54

II.2.3. Regulation of insolvency of mobile payment service providers under Rwandan electronic payments

regulations ....................................................................................................................................... 55

II.2.4. Lack of prudential rules imposed on banks and other financial institutions by the regulation of BNR

......................................................................................................................................................... 55

II.2.5. Regulation of settlement of disputes in mobile payments with cross-border effects in Rwanda ....... 56

II.2.6. Jurisdictional issues in mobile payments disputes resolution with cross-border effects ................... 57

CHAPTER III: MEASURES TO BE ADOPTED FOR EFFECTIVE REGULATION OF MOBILE

PAYMENT SYSTEM IN RWANDA ........................................................................................... 59

III.1. Preventive measures ......................................................................................................................... 59

III.1.1. Measures for prevention of possible risks of interoperability between m-payment service providers

in EAC region .................................................................................................................................. 59

III.1.2. Educational measures of the risks associated with mobile payments to the customers .................... 60

III.1.3. Availability of measures of risk assessment by mobile payment service providers ......................... 61

III.1.4. Measures for prevention of money laundering and terrorism financing under the Rwandan mobile

payments regulatory framework ...................................................................................................... 62

III.1.4.1. Developing Customers Due Diligence measures for prevention of money laundering and terrorism

financing .......................................................................................................................................... 64

viii

III.1.4.2. Improvement of requirements for eligibility of agents as measure of money laundering and

terrorism financing .......................................................................................................................... 66

III.1.4.3. Making the principal financial institutions liable for acts of their agents in the matter of money

laundering and terrorism financing .................................................................................................. 67

III.1.4.5. Measures of inter-institutions cooperation in the mobile payment services .................................. 69

III.1.4.5.1. Cooperation with FIU-Rwanda National Police for prevention of money laundering and

financing of terrorism ...................................................................................................................... 70

III.1.4.5.2. Establishing a strong cooperation between public and private sectors for effective anti-money

laundering measures ........................................................................................................................ 71

III.1.5. Possible solutions to the consumers in cases of mobile payments errors ......................................... 71

III.1.6. Measures of protection of minors engaging in mobile payments for effective protection of

consumers ........................................................................................................................................ 72

III.2. Regulatory measures ........................................................................................................................ 73

III.2.1. Improving the role of National Bank of Rwanda in conflicts resolution between customers and

mobile payment service providers ................................................................................................... 73

III.2.2. Improvement of role of COMESA clearing house to promote cross-border mobile payments across

the region ......................................................................................................................................... 74

III.2.3. Regulatory measures of insolvency of m-payment service providers for the security of deposits of

funds of the public ........................................................................................................................... 74

III.2.4. Developing online disputes settlement measures for effective cross-border m-payments ............... 75

III.2.5. The necessity of the Rwandan legislator to be vigilant for the challenges related to online disputes

settlement mechanisms .................................................................................................................... 76

III.2.6. The use of connecting factors in cross-border mobile payments disputes settlement ...................... 77

III.2.7. Harmonization of regulations governing the Mobile Payment Service Providers in East African

Community ...................................................................................................................................... 78

III.2.8. The East African Payment System (EAPS) as a solution to cross-border e-payments .................... 79

GENERAL CONCLUSION ...................................................................................................................... 81

Bibliography ................................................................................................................................................ 85

ix

ABBREVIATIONS AND ACRONYMS

ACH: Automated Clearing House

AML: Anti- Money Laundering

Art.: Article

ATM: Automated Teller Machine

BNR: Banque Nationale du Rwanda

BPR: Banque Populaire du Rwanda

CCLIII: Civil Code Book III

CDD: customer due diligence; often used synonymously with KYC (know your

customer)

CFT: combating the financing of terrorism

CPSS: Committee on Payments and Settlement System

DRC: Democratic Republic of Congo

EAC: East African Community

EDI: Electronic Data Interchange

EFT: Electronic Funds Transfer

e-money: electronic money; refers to the electronic alternative to cash.

Et al.: et alii (and others)

Etc.: et ceatera (and so on)

EU: European Union

FATF: Financial Action Task Force

FIU: financial intelligence unit

GSMA: Groupe Speciale Mobile Association

HTTP: Hypertext Markup Language

ibid: Ibidem (in the same book, same author, and same page)

ICT: Information and Communication Technology

Id: Idem (in the same book, same author, different pages)

ID: Identity Card

IOSCO: International Organization of Securities Commissions.

x

IT: Information Technology

KYC: know your customer (refers to a set of due diligence measures taken by a financial

institution to identify a customer and the motivations behind his or her financial

activity. It is a key component of AML/CFT regimes).

KYC: Know Your Customer

M-banking: Mobile Banking

MF: Mobile Fund

MFS: Mobile Financial Service

ML/TF: money laundering/terrorist financing

ML: money laundering

MM: Mobile Money

MMS: multimedia messaging service

MMT: Mobile Money Transfer

MNO: Mobile Network Operator

MTN: Mobile Telecommunication Network

NO: Number

O.G.R.R: Official Gazette of Republic of Rwanda

Op. cit.: opera citato (in the book previously cited)

P: Page

P2P: Person-to-Person

PCCA: Procédure Civile, Commerciale et Administrative

PIN: Personal Information Number

RDB: Rwanda Development Board

RURA: Rwanda Utilities Regulatory Agency

SACCO: Savings and Credit Cooperatives

SEPA: Single European Payment Area

SIM: Subscriber Identification Module

SME: Small and Medium Size Enterprise

SMS: short-message service; enables users to send text messages from mobile phones.

SMS: Short Message Service

Telecom: Telecommunications Company

xi

TIGO: Transportable Integrated Geodetic Observatory

ULK: Université Libre de Kigali (Kigali Independent University)

UN: United Nations

UNCTAD: United Nations Conference on Trade and Development

UR: University of Rwanda

xii

Abstract

The ever-expanding capabilities of mobile phones have made them increasingly powerful

platforms for an impressively wide range of commercial and financial transactions. This study

has investigated the situation of regulation of mobile payment in Rwanda. In that regard, it focused

on challenges of implementation of the existing rules and regulations on electronic payments in

Rwanda especially the mobile payment as a newly introduced payment system that is reaching a

large number of banked and unbanked. Mobile phones have evolved from simple personal

communication devices to become both platforms for commerce and indispensable “lifestyle

infrastructure” that enhances productivity, facilitates financial transactions, and makes life more

convenient and efficient.

This study also attempted to assess the effectiveness of the regulatory framework in place in

Rwanda as well as its impact to the development of this technological advancement. Despite the

progress made by the Rwandan lawmaker, questions still persist in line with protection of the

most vulnerable users and consumers of this new payment methods while they have very limited

knowledge of what should be their rights and obligations, effectiveness of regulation of payment

activities exercised by the telecommunication companies, guarantee of protection to the

consumers available in policies of the payment service providers, this study attempted to

elaborate and propose mechanisms for remedy to these issues.

The study revealed also that the mobile payment system has the potential to reduce payment

challenges for unbanked in Rwanda. However, more education of the public, improvement of the

regulatory regime in place, and improvement of technology is needed to realize its full potential.

1

GENERAL INTRODUCTION

I. Background to the study

The use of technology in commercial activities in recent years in Rwanda has led to the

emergence of various new supporting services in the marketplace. Among these services is the

e-payment which enables payment done via the electronic medium and without involving any

physical cash.

Electronic Payment is a financial exchange that takes place online between buyers and sellers.

The content of this exchange is usually some form of digital financial instrument (such as mobile

wallet, encrypted credit card numbers, electronic checks or digital cash) that is backed by a bank

or an intermediary, or by a legal tender1.

Rwanda is one of the countries where technological developments in the field of

communications in recent years have expanded the methods of contract formation as well as

payment methods to include new ones such as mobile and internet payment methods. The speedy

and complex structure of electronic payment mechanisms make electronic payment transactions

appear to be integrated transactions overall. In reality, advancement in technology and aggressive

adoption of technology at micro or macro level of the economy is seen as one of the critical

success factors to obtain an edge and sustain in the digital economy.2

To this end, the Rwandan government adopted the Vision 2020 and put ICT and finance at the

priority, EDPRS emphasizes the access to finance as a strategy, FSDP (Financial Sector

1 Turban, E., King, D. et al. (2008). Electronic Commerce 2008: A Managerial Perspective, London, Pearson

Education Ltd., p.550. 2Amrik H. (2009). Seeking Fertile Grounds for Mobile Money, available at: http://www.pymnts.com/journal-

bak/lydian-payments-journal-2010/seeking-fertile-grounds-for-mobile-money-2/, accessed on 11/07/2014.

http://www.pymnts.com/journal-bak/lydian-payments-journal-2010/seeking-fertile-grounds-for-mobile-money-2/

http://www.pymnts.com/journal-bak/lydian-payments-journal-2010/seeking-fertile-grounds-for-mobile-money-2/

2

Development Program)3 defines areas to be developed in payment systems, the Vision and

strategy in payment systems as regulated by the National Bank of Rwanda.4

However, in view of the importance of rapid transactions and payment initiatives, and the gaps in

the current state of knowledge in the field, it is important to provide a knowledge base on mobile

payment that can be employed to identify significant experiences, together with the models being

deployed around the world, especially in developing countries like Rwanda. The biggest

consequence is that developing countries like Rwanda, have to confront challenges of inadequate

technology, and thus, this kind of transaction is related to different problems causing disputes

between the users and dealers, and mostly it may depend on inefficiency of the regulatory system

in place.5

This study investigated the challenges of implementing and using mobile payment in line with

the regulation in place; emphasis was put on regulation of m-payment service providers and

protection of the consumers’ rights.

II. Scope of the Study

This study was limited on mobile payment system; a matter that lies in domain of company law.

It attempted to give a description and analysis regarding how the provisions and features of the

regulation n°07/2010 of 27/12/2010 of the National Bank of Rwanda on electronic fund transfers

and electronic money transactions govern the mobile payment model.

This study attempted to conduct an analytical study on the situations of mobile payments made

in Rwanda from 2010 (the date of promulgation of the regulation n° 07/2010 of 27/12/2010) to

date. In the space, this study has been limited in Kigali city with a special attention to the

identified rural areas of districts in Kigali city. For a comparative purpose, other regional and

international rules and regulations, various studies and case laws have been explored.

3 RUSAGARA, C. (2008). Beyond Banking: Regional Financial Integration, FSDP-The case of Rwanda, session

IV, African Finance for the 21st century, High-level seminar organized by the IMF Institute in collaboration with the

Joint African Institute, Tunis, Tunisia, March 4-5, 2008, p. 8. 4 Id., p. 9.

5 Bassey, C. (2009). Digital Money in a Digitally Divided World: Nature, Challenges and Prospects of e-Payment

Systems in Africa, Oxford: Princeton University Press, p.18.

3

III. Statement of the problem

With adoption of mobile payment system, the majority of financial transactions are easily made

between debtors and their creditors in Rwanda. The mobile telephone has functional capabilities

for serving as a virtual bank, internet banking terminal, thereby making it strategic alternative for

bridging the digital divide in Rwanda.

Rwanda is still at infancy stage in use of electronic payment systems, and mobile payment is the

main focus in this study, the regulation of this system is new.6 It is to be realized in this

regulation that the regulator concentrated on electronic payments in general without any focus on

mobile payment method.7

However, it is possible to realize that participants in the mobile payment system hardly

understand their rights and liabilities, thereby acting on unequal terms especially when the

legislator had not clarified any by leaving the situation in a vacuum. Many consumers are not

knowledgeable of their rights related to refund policies, liabilities of customers, merchants and

institutions, flow of data and mechanism for preventing and protecting cyber-crimes and thefts,

conflicts resolution in the mobile payment services providers’ policies, etc.8

Like all things that are new and burdened with visible challenges, mobile payment faces various

challenges in Rwanda. There are many cases of services paid through the use of mobile phone

while the payer has not received the service that they paid for, and refunds never made or made

with very long delays, mobile money transfer without reaching the beneficiaries and not refund

to the sender, cases of funds transferred to the wrong creditors, etc. It is also added the problem

to know who the liable partner is: the transmitter, the operating institution or the intermediary,

and the system of solving such disputes arising in this payment system especially the protection

of consumers.9

6 The Regulation governing electronic fund transfers and electronic money transactions was promulgated in 2010

(Regulation no 07/2010 0f 27/12/2010).

7 The regulation of National Bank of Rwanda does not contain provisions related to mobile payment system. It

consists of a general regulation of electronic fund transfers and electronic money transactions. 8 Chatain, P. L, et al. (2008). Integrity in Mobile Phone Financial Services: Measures for Mitigating Risks from

Money Laundering and Terrorist Financing, Working Paper 146, World Bank, Washington, DC, p. 8. 9 Onyeiwu, S. (2002). Inter-Country Variations in Digital Technology in Africa: Evidence, Determinants and Policy

Implications, UNU-WIDER Discussion Paper no 2002/72 Helsinki: UNU-WIDER, pp. 23-24.

4

Another challenge to examine is the increasing of regional integration whereby there will be

cross-borders payments without mechanisms of cross-border conflicts resolution10

, lack of a

developed regulatory regime at the regional level, lack of interoperability which risks in need of

many mobile devices if the user wishes to transact with different mobile payment service

providers.

Particularly, it is to be suspected that the obstacles to its adoption in Rwanda are not being

investigated deeply to allow implementation strategies to be employed on the basis of reliable

business models. So far, we did not identify any academic papers that may have studied the

regulation of mobile payment system in Rwanda after entering into force of the regulation on

electronic fund transfers and electronic money transactions.

With this observation, there are many interrogations in light with mobile payment system as a

new drive adopted in the payment systems in Rwanda, but this study will be centered on the

following:

1. How does the regulation in place protect the vulnerable consumers vis-à-vis the payment

service providers in mobile payment system in Rwanda?

2. What are the measures to be adopted for improvement of regulation of mobile payment system

in Rwanda?

IV. Hypotheses

Given that electronic cash constitutes a fundamentally new class of electronic payment

instruments, considering the regulation in place and the situations of stakeholders in mobile

payment system, the following hypothesis have been formulated:

1. The National Bank of Rwanda had put in place regulations governing respectively electronic

fund transfers and electronic money transactions and regulation Payment Services Providers.

However, these regulations accuse some lacunae and imperfections in light with regulation of

telecommunication companies engaging in mobile payment activities, rights and liabilities of

10

Up to date, m-payments are made on a limited scare, but the projection is to settle payments on the regional level.

Among EAC member States, different telecommunication companies offer the mobile payment services; having

these telecom companies interoperate will facilitate transactions, but the users will also need to know the liable

partner in cases of infringements.

5

operators of mobile payments, protection of vulnerable consumers engaging in this payment

system, and resolution of conflicts arising herein.

2. Preventive and regulatory measures including improvement of regulatory aspects at both local

and regional levels in the matter of e-payment, educational mechanisms that would make the

users of this payment system knowledgeable of their rights and obligations should be the

measures to be adopted for the development and effectiveness of mobile payment system in

Rwanda.

V. Research objectives

Generally, this thesis aims at analyzing how the regulation put in place renders the mobile

payment system more effective and beneficial to the most vulnerable users. Therefore, the

primordial objective of this thesis is to assess the effectiveness of the regulatory framework in

place in line with mobile payment in Rwanda

Particularly, the undertaking of this research aims at:

- elaborating the lacunae and imperfections of the current regulatory framework as well as its

implementation by the operators;

- proving the necessity of promulgation of a law exclusively governing the mobile payment

system in order to guarantee the business transactions without equivocal in Rwanda;

- re-enforcing the awareness of rights and obligations of interveners in mobile payment in order

for them to make reasoned choices when deciding to transact via this payment system;

- proffering solutions to the identified lacunae and imperfections; these will serve as a guide for

future regulations in order to cope with the hindrances of effectiveness of this payment system.

VI. The research methodology

Before making a deep description of research methodology used in writing this thesis, it is

important to remind that hat a technique is what skill the researcher has to get for doing

something while method is the way the researcher has to follow to do something. For one

6

method the researcher can use one technique or more; or he can apply one technique for more

than one method.11

In order to verify the above mentioned hypotheses and achieve our

objectives, different methods and techniques have been used:

- The legal dogmatic and comparative methods played an important role in examining existing

local legal regimes and comparing them with international legislations through a descriptive and

analytical discussion;

- With analytical method, the researcher has been able to use facts or information already

available, and analyze these to make a critical evaluation of the material;

- Doctrinal method has served in exploring different writings including books, journals, articles,

laws, case laws, etc;

- An inductive method has also played an important role in this study since from empirical

observations; the researcher has been able to formulate generalizations;

- Through a deductive method, this research has generated hypotheses from particular

theoretical frameworks and then tested these by observing reality.

The research techniques in this study have involved the use of open-ended questionnaires for

payment organizations, banks and individuals in that process of payment, as well as informal

discussions with agents in different departments in payment institutions.

VII. Significance of the Study

Since the entering into force of the regulation no 07/2010 of 27/12/2010 of National Bank of

Rwanda on electronic fund transfers and electronic money transactions, and implementation of

this e-payment system in Rwanda, apart this above mentioned study by IFC, there have not been

any due diligence academic works in this area from the dealers to the users.

11 Ghosh, B.N. (1982.). Scientific Methods and Social Research, New Delhi: Sterling Publishers Pvt. Ltd., p. 42.

7

This research is significant mostly due to the fact that mobile payment system is now gaining

familiarity in Rwanda while effectiveness of its regulation is still questionable. This payment

system is being implemented by both financial institutions and mobile services suppliers; such an

empirical study plays a crucial role in diagnosing possible challenges and risks, regulatory

lacunae, and guide in adopting adequate measures.

In addition to the main challenges highlighted in this work, exploration of available resources,

analysis of data gathered on the field will focus on the understanding of challenges from the

implementers of this payment system, as well as protection that consumers obtain from the regulatory

framework in place.

VIII. Structure of the Research

This thesis was organized in three main chapters preceded by a general introduction. The first

chapter of a conceptual framework and literature review on mobile payment system has defined

key concepts on which this work is tailored and the theoretical aspects related to mobile

payments. Chapter two was reserved on analysis of effectiveness of regulation of mobile

payments in Rwanda. In this chapter, we analyzed the problems related to weakness of the

regulatory framework in line with protection of consumers of m-payment as well as regulation of

mobile payment activities exercised by the telecom companies. The last chapter proposed the

measures to be adopted for improvement of regulation of mobile payment system in Rwanda.

8

CHAPTER I: CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW ON

MOBILE PAYMENT

To determine the current state of effectiveness of regulation of mobile payment system in

Rwanda, this research has conducted an extensive exploration and analysis of relevant resource

books and articles published in a wide variety of books and journals of electronic payments since

electronic payment is an interdisciplinary topic (in which mobile payment is included), local and

international regulations in the area.

This chapter had provided an overview of existing literature on mobile payment system. It

consists of conceptual framework that had strived to enhance the understanding of concepts and

theory in light with mobile payment system. The section on literature review has made a scan of

related studies with aim to highlight the gaps in line with regulation of mobile payment system in

Rwanda.

I.1. Conceptual framework

The place of money as a value resource within the payment system of any economy makes the

payment process an important aspect of people’s lives. Hence, while money in its old and new

forms will always remain a key resource for facilitating payment and settlements of financial

obligations12

, the forms of payments and settlements risk change to accommodate new forms of

money and technologies.

Today, one can load airtime in the mobile phone, pay services (subscription on the channels of

television, electricity, airtime, etc.), declare and pay taxes, register a business, debit an account,

etc., via mobile phone. From the general aspect of electronic payment, this is defined as a form

of financial exchange that takes place between the buyer and seller facilitated by means of

electronic communication.13

12

Beck, U. (2002). The silence of Words and Political Dynamics in the World Risk Society, in Logos, pp. 1-18. 13

Art. 2, par. 8 of Regulation n°07/2010 of 27/12/2010 of the national bank of Rwanda on electronic fund transfers

and electronic money transactions defined “Electronic fund transfers system” as a wire transfer network, automated

clearing house, or other communication system of a clearing house or other association of banks through which a

payment order by a bank or other payment service provider may be transmitted to the institution to which the order

9

There are several payment markets that can be identified each using specific forms of money.

“The business-to-consumer payment is used in commercial activities where the merchant is paid

directly by the consumer for goods and services”.14

This type of payment is also called retail

payment. The direct payment between two persons is called person-to- person payment.

“Commerce always involves a payer and a payee who exchange money for goods or

services, and at least one financial institution which links “bits” to “money”. In most

existing payment systems, the latter role is divided into two parts: an issuer (used by the

payer) and an acquirer (used by the payee). Electronic payment from a payer to payee is

implemented by a flow of real money from the payer via the issuer and acquirer to the

payee15

.

Finally, the payment intervening between companies buying and those offering products and

services is referred to as Business-to –Business payment. This thesis focused mainly on business-

to- consumer (including banks, business companies, and mobile service providers), and person-

to-person payments. In this chapter, we will evocate some general features of electronic payment

system briefly, attention will be put on mobile payment, and then on the benefits and challenges.

I.1.1. Conceptual and theoretical perspectives of electronic payments

As explained earlier, there are no enough recently related studies on mobile payment system in

Rwanda. Hence, there are no single or widely accepted theories that explain the regulation of

electronic payment initiatives16

, more particularly, the mobile payments model.

For a better understanding of this work, given also considerable confusion with regard to the

terms which are often used freely in the area of mobile payments, regardless of their original

meanings, the wide use of these inaccurate definitions led us to establish an initial conceptual

basis on which this work will be tailored. In order to understand the concept of mobile payment,

is addressed. See also, Neuman, B. C. & Medvinsky, G. (1996), Net Cheque, Net Cash, and the Characteristics of

Internet Payment Services. The Journal of Electronic Publishing, Vol. 2, Issue 1, p. 64. 14

Radu, C. (2003). Implementing Electronic Payment Card Systems, Artech House, p. 43-47. 15

Asokan, N., Janson, P., et al. ( 2000). Electronic Payment Systems IBM, Research Division, Zurich Research

Laboratory, pp. 1-16. 16 Park, C.H., and Kim, Y.G., Identifying key factors affecting consumer behavior in an online shopping context,

International Journal of Retail & Distribution Management, Vol.31, No.1, 2003, pp. 16-29.

10

it is crucial to evocate the notions of electronic payment as a big set in which mobile payment is

included.

I.1.1.1. Electronic payment system

Electronic payment systems work for a variety of aspects. Due to this nature, it is difficult to

produce a widely or universal definition for it. The regulation governing electronic fund transfers

in Rwanda does not define electronic payment system. However, it defines electronic funds

transfers system as17

:

“a wire transfer network, automated clearing house, or other communication system of a

clearing house or other association of banks through which a payment order by a bank or

other payment service provider may be transmitted to the institution to which the order is

addressed.”

According to Humphrey et al.18

, electronic payment refers to cash and associated transactions

implemented using electronic means. Typically, this involves the use of computer networks such

as the Internet and digital stored value systems. The system allows bills to be paid directly from

bank accounts, without being present at the bank, and without the need of writing and mailing

checks.

Electronic payment can also be defined as “payment by direct credit, electronic transfer of credit

card details, or some other electronic means, as opposed to payment by cheque and cash”.19

According to Kalakota and Whinston20

, “electronic payment is a financial exchange that takes

place online between the seller buyer and the seller. The content of this exchange is usually the

form of digital financial instrument (such as encrypted credit card numbers, electronic checks, or

digital cash) that is backed by a bank or an intermediary, or by a legal tender.”

17

See art. 2, para. 8, Regulation no 07/2010 of 27/12/2010 of BNR governing electronic funds transfers and

electronic money transactions, O.G.R.R, no special 30/12/2010.

18 Humphrey, D. B., Kim, M. & Vale, B., (2001), Realizing the gains from electronic payments: cost, pricing, and

payment choice, Journal of Money, Credit, and Banking, vol. 33, no. 2, pp. 216-234.

19 Agimo (2004). Better Practice Checklist for e-Payment. Australia Government Information Management Office

(online), available: http://www.agimo.gov.au/publications/2000/04/better-practice_checklist_for_epayment, visited

on 19/07/2013. 20

Kalakota, R., & Whinston, A. B. (1997). Electronic commerce: A manager’s guide, Reading, MA: Addison

Wesley Longman, pp. 32-33.

http://www.agimo.gov.au/publications/2000/04/better-practice_checklist_for_epayment

11

I.1.1.2. Mobile transactions

This refers to transactions carried out through mobile technologies and devices. In addition to

mobile payments, it includes every kind of mobile transaction offered by technology, whether it

involves financial values or not21

. In that regard, mobile payments are payments for goods,

services, and bills with a mobile device (such as a mobile phone, smart-phone, or personal digital

assistant) by taking advantage of wireless and other communication technologies.22

Today in Rwanda, one can check prices on different items and goods available in different

markets through E-SOKO system, load airtime, pay for different services including water,

electricity, subscription on channels of television, send money to another partner, just to name a

few.

The Rwandan perspectives in the area of re-enforcing the mobile payment system is to introduce

communicability between what is known as the mobile wallet (mobile account) and one’s bank

account. In this development, the mobile money client will be able to withdraw or deposit

money from or onto the mobile wallet and the bank account respectively. For instance one will

be able to withdraw money from their mobile wallet using an ATM card or even to top up the

wallet through their bank account.23

There are several models of mobile payments that are currently employed worldwide; the

following details were limited on mobile money and mobile banking as standard mobile

payments used in Rwanda up today.

I.1.1.2.1. Mobile banking

Mobile banking can be understood as a set of mobile banking services, involving the use of

portable devices connected to telecommunications networks that provide users with access to

mobile payments, transactions and other banking and financial services linked to customer

21

Alan L. Tyree. (1996). Virtual Cash–Payments on the Internet, 7 Journal of Banking, Finance Law, and Practice,

pp. 35, 139, 233. 22

Chaum, D. (1982). Blind Signatures for Untraceable Payments. Advances in Cryptology -Crypto ’82, pp. 199-203. 23

The Independent in an interview with John Bosco Sebabi, the Director of Payment Systems at the BNR, available

at: http://www.independent.co.ug/rwanda-ed/rwanda/7471-airtel-mtn-want-cross-border-cash-

transfer#sthash.rbFBAwkf.dpuf, visited on 18/09/2014.

http://www.independent.co.ug/rwanda-ed/rwanda/7471-airtel-mtn-want-cross-border-cash-transfer#sthash.rbFBAwkf.dpuf


12

accounts, with or without the direct participation of traditional banking institutions.24

As far as

the mobile businesses in Rwanda are concerned, it is important to notice that this concept can

also be regarded as the banking channel through which the digital mobile services are provided

by the institutions to their clients in their daily purchases and selling transactions.

I.1.1.2.2. Mobile money

Mobile money is mostly related to electronic money which is essentially digital and has

attributes related to mobility and portability, and is equivalent to mobile-money or mobile-cash.

It can be differentiated from other means of electronic payment (such as credit cards, debit cards,

smart cards, etc.) because of its ability to replicate the essential attributes of traditional money,

such as liquidity, acceptability and anonymity.25

Mobile money payment is one of the ways that will enable Rwanda to achieve a comprehensive

framework for e-payments that has been put in place, and driven by a visionary goal to enable a

cashless society by 2017.26

I.1.1.3. Difference between mobile money and mobile banking

With this consideration, it has to be noted that mobile money is distinct from mobile banking by

the fact that mobile banking refers to the situation where a bank account holder is able to transact

via commands from a mobile platform whilst mobile money account holders do not require a

bank account.

I.1.2. How is mobile payment processed?

Typically, there are two main ways by which mobile payments are processed: proximity m-

payments and remote m-payments. Proximity m-payments occur at the point of sale, where

customers use a phone with built-in near field communication (NFC)27

technology to make a

24

Glassman, S., Manasse, M., et al. (1995). The Millicent Protocol for Inexpensive Electronic Commerce System

Research Center, Digital Equipment Corporation, 1995, p. 71. 25

Chaum, D., op.cit., pp. 208. 26

The National Bank of Rwanda (NBR) Annual Report, 2011, p. 90. 27

SMART CARD ALLIANCE, PROXIMITY MOBILE PAYMENTS BUSINESS SCENARIOS: research report

on stakeholder perspectives (July 2008), available at: http://www.smartcardalliance.org/resources/lib/Mobile-

http://www.smartcardalliance.org/resources/lib/Mobile-Payment-Business-Model-Research-Report.pdf

13

purchase at an NFC-equipped point of sale terminal (a POS Terminal). As noted by Vassiliou28

,

customers can make proximity m-payments at either manned (e.g., checkout registers) or

unmanned (e.g., vending machines) points of sale.

Remote m-payments do not require NFC technology or a POS Terminal. Rather, customers use

phones equipped with either short messaging service (SMS), i.e., text messaging, or wireless

application protocol (WAP) technology to make payments any time, any place to either other

individuals or to businesses/merchants.29

On this note, it is important to remind that in Rwanda,

remote mobile payment is the popular payment system with the use of mobile phone; proximity

mobile payment has not been introduced yet.

I.1.3. Mobile phone messaging as means of payments

Several initiatives have emerged for initiating e-payments from mobile phones by using short

messages (SMS). These have also been referred to as mobile payments.30

Vassiliou further

indicates that most m-payments initiatives follow a simple model where the customer (payer)

first identifies him/herself to the merchant by providing his/her phone number or by calling the

merchant.31

Telephone banking or tele-banking is a form of virtual banking that delivers financial services

through telecommunication devices. Under this mechanism, the customer transacts business by

dialing a touch-tone telephone connected to an automated system of the bank. This is normally

done through Automated Voice Response (AVR) technology”.32

Payment-Business-Model-Research-Report.pdf, (hereinafter M-Payments Business Scenarios), visited on

10/05/2014. 28

Vassilliou, C. (2004). Electronic Payment Systems and Marketing: A literature review, Oxford University press,

p. 87. 29

Claire, A. (2011). Regulating New Banking Models that Can Bring Financial Services to All, Challenge

Magazine, Vol. 54, No. 3, May/June 2011, pp. 116-134. 30

Vassilliou, C. (2004). Electronic Payment Systems and Marketing: A literature review, Oxford University press,

p. 131. 31

Id., p. 132. 32

Balachandher, K. G., Santha, V., Norazlin, I. & Prasad, R. (2001). Electronic banking in Malaysia: a note on

evolution of services and consumer reactions. Journal of Internet Banking and Commerce, vol. 5, no. 1, p. 19.

14

Tele-banking has numerous benefits for end users. For the customers, it provides increased

convenience, expanded access and significant time saving. Instead of going to the bank or

visiting an ATM, retail banking serves the same purpose for customers to get the services at their

offices or homes. This saves customers time and money, and gives more convenience for higher

productivity.33

This system has been adopted by many banks in Rwanda, whereby one can send

money to another person, pay invoices, pay various services (electricity, air time, subscription on

Star times, DSTV, etc.).

I.1.4. Importance of introduction of electronic and mobile payments in transactions in

Rwanda

In general, the electronic payment systems are more efficient than the traditional paper- or

account-based payment systems owing to the lower transportation and storage costs (no

significant costs for transport or insurance policies, only communication and storage space

costs). The introduction of electronic payments in Rwanda is viewed to yield these significant

benefits.

In comparison to cash or Check payments, the electronic payment system is faster, safer and

generally more efficient than the manual check system. Electronic payment processing is

automated, so human errors can greatly be minimized. Compared to checks, electronic payments

instructions are safer because a few members of staff handle data entry and processing; data is

secured by passwords and data encryption34

.

Electronic payments provide convenience, so consumers should believe in the convenience of

electronic money35

, whether it means having to visit the ATM to obtain cash or not having to

count out the cash at the point of transaction. This convenience benefits traders as well as banks,

financial institutions, and the service provider institutions. For instance, when consumers swipe

their own cards, use their mobile phones or computers at home and in their offices to pay for a

33

Leow, H. B. (1999). New distribution channels in banking services, banker’s Journal Malaysia, no 110, p. 48-56.

34 E-commerce: Commission proposes a legal framework, Retrieved from

http://europa.eu.int/comm/dg15/en/media/eleccomm/999.htm, visited on 22/04/2014. 35

Groeneveld, H. and Visser, A. et al. (1997). Electronic Money and Financial Independence of Central Banks,

Banca Nazionale del Lavoro Quarterly Review no 200, March 1997, pp. 69-88.

http://europa.eu.int/comm/dg15/en/media/eleccomm/999.htm

15

service, debit or credit an account, it lowers labor costs for these institutions. Electronic payment

gives consumers an alternative to paying bills and debts by cash, cheque, money order, etc. Its

main purpose is to reduce cash and cheque transactions.36

We agree with Pariwat and Hataiseere37

when stating that, for the achievement of effective and

efficient retail payment systems, the following considerations that shape the choice of payment

method for consumers and businesses should be taken into account; the convenience, reliability

and security of the payment method, the service quality, involving such features as the speed

with which payment are processed; the level and structure of fees charged by financial

institutions; taste and demographic; and technological advances which have improve the speed,

convenience and flexibility of different payment systems.38

I.1.4.1. Advantages of mobile payments for the payment service providers

This type of electronic payment provides advantages for both customers and the payment service

providers. For the banks, mobile payments provide a unique opportunity to build customer

loyalty, unlock cross-selling propositions and create a more efficient and effective interface for

processing transactions.39

For the telecoms companies, mobile payments offers a viable path for

moving further up the mobile value chain by providing payment and data services40

.

36

Isern, J. & Louis de Koker, (2009). AML/CFT: Strengthening Financial Inclusion and Integrity. CGAP Focus

Note No. 56, August 2009, p. 12. 37

Pariwat, S. & Hataiseree, R. (2004). The use of cash, cheques and electronic payment services in Thailand:

Changes and challenges for efficiency enhancement, Working paper, Payment systems Groups, p.2-73. 38

Cobb A. (2004). The money in circulation. Available at: http://www.ameinfo.com/50050.html, accessed on

26/01/2014. 39

Andrew, M. (2009). Card Fees Pit Retailers against Banks, NEW YORK TIMES, Jul. 2009 16, p. 1. 40

Dahlberg, T., et al. (2003). Trust Enhanced Technology Acceptance Model- Consumer Acceptance of Mobile

Payment Solutions, Presentation at Stockholm Mobility Roundtable Stockholm Sweden May 2223:10, available at:

http://www.citeseerx.ist.psu.edu/viewdoc/pdf, visited on 10/07/2013.

http://www.ameinfo.com/50050.html

http://www.citeseerx.ist.psu.edu/viewdoc/pdf

16

I.1.4.2. Advantages of mobile payment for traders and consumers

Digital money has significant benefits for financial institutions, banks and e-merchants.41

Digital

Money is an electronic payment technology, which can provide anonymous flexible electronic

payment, like paper cash, but with added security requirements needed for internet transactions.

For merchants, mobile payment solutions increase average transaction revenues, increases

customer throughput and provides a more information-rich experience for loyalty and targeting

propositions than other instrument. Mobile devices are increasingly being used during the whole

shopping cycle – to compare prices, view product information, get store locations, and download

coupons.42

Let it be concluded that merchants benefit because there is less cash and check

handling in the system as they have access to a large pool of customers with guaranteed

payment.

I.1.4.3. General challenges of mobile Payments

In the details above, we studied different concepts related to electronic and mobile payments as

well as numerous benefits of electronic payments. Despites these benefits, this new system come

with its own challenges even in the developed world. In Rwanda, many of these challenges are

related to the newness of this system, lack of adequate and modern infrastructure including

computer mobile network used for mobile phone (these will be discussed in depth in chapter II).

It has to be reminded that many amongst the Rwandan population neither have nor operate a

bank account, although the majority of the "un-banked" are economically active in either the

formal or informal sectors of the economy.43

National, regional or international set of laws, rules

and other regulations are important requirements for the successful implementation of mobile

payment schemes. In Rwanda, a regulation on electronic funds transfer has been put in place.

41

Fiallos, F. Wu, L. (2005). Digital Money: Future Trends and Impact on Banking, Financial Institutions, and e-

Business, 2nd

ed., Oxford University press, pp. 23- 31. 42

See also, Oscar H., and Gandy, Jr. (1993). The panoptic sort: a political economy of personal information-critical

studies in communication and in the cultural industries, West view, p. 7. 43

Pousttchi, K. Conditions for Acceptance and Usage of Mobile Payment Procedures, in Giaglis, Werthner, G. M.,

et. al. (2003). M-BUSINESS- The Second International Conference on Mobile Business, Vienna 201-210 (2003),

pp.11-13.

17

I.1.5. Evolution of mobile payment system in EAC region

In the early 2000s, mobile payment services became rapid payment mechanisms, hundreds of

mobile payment services, including access to electronic payments and Internet banking, were

introduced all over the world. Strikingly many of these efforts failed. For example, most, if not

all, of the dozens of mobile payment services available in EU countries and listed in the e-PSO

database in 2002 have been discontinued.44

Initially, fixed-line telephony billing systems were modified to charge mobile telephony. Later,

mobile telephony billing systems were introduced, and used also to charge various mobile

services when such services emerged.45

Rwanda has not made significant difference from other member states of East African

Community in terms of mobile payment system. Considered as a whole regional integration, it is

worth noticing that electronic payment system is a new initiative in the area of economic

development in East African Community46

. Kenya, Rwanda, Tanzania and Uganda all have a

mobile money model led by MNOs.

A study by IFC (2012) reveals that until recently, all four countries’ mobile money systems have

operated only domestic transfers. International transfer from mobile phones has not been allowed

although in Kenya, Tanzania and Uganda, international transfers from Western Union can be

received in mobile money accounts. However, starting October 2012, M-PESA customers in

Kenya are able to transfer money directly to 35 countries through the international remittance

hub Home-Send, which connects M-PESA with 21 international money transfer platforms.47

In Rwanda, Tanzania, and Uganda, mobile money services are straightforward as are the

regulations; in Kenya, a few more complex services have been developed. In Rwanda, Tanzania,

and Uganda, MNOs’ mobile money services basically relate to storage and transfer of funds as

44 Carat, G. (2002). E-payment systems database – trends and analysis, Technical report, Background Paper No. 9,

Electronic Payment Systems Observatory (ePSO), EUR 20264 EN, Seville, Spain, p. 71. 45

Peirce, M., and O’Mahony, D. (1999). Flexible real-time payment methods for mobile communications, IEEE

Personal Communications 6 (6), pp. 44–55. 46

M-PESA in Kenya is taking the lead in terms of mobile payment in the region. 47

Mwakilishi. (2012). Vodafone takes M-PESA Global, Mwakilishi, October, 2012. Retreived on 23/11/2013 from:

www.mwakilishi.com/vodafone-takes-m-pesa-global.html.

http://www.mwakilishi.com/vodafone-takes-m-pesa-global.html

18

well as some basic bill-payment services (e.g. electricity, air time, subscription on television

channels, etc.). Transfers are usually the largest individual transactions, and are an important

benefit for the low-income and rural population.48

In Kenya, the same services are offered, but some other services have evolved including

payments into bank accounts, withdrawals from ATMs, small loans and via partnership with

Equity Bank, access to an interest bearing deposit account (M-KESHO). Electronic payments

especially Mobile payments in Rwanda are still operating on small operations of paying services

such as water, electricity, airtime transferring money to a third person’s account or to the mobile

banking user’s account, etc. Across the EAC, but in Kenya in particular, the success of mobile

money has been widely attributed to the light touch approach to regulation.49

In Rwanda, a

regulation has entered into force since December 2010.

I.2. Literature review on regulation of mobile payments

Every research project, no matter what methodology is being used, needs a literature review as a

precursor to further study; a nexus to that which has been done before. To facilitate the

development of better regulation of mobile payment services, this literature review will help to

understand the lessons of this history by learning what previous studies have discovered about

mobile payments and about the regulation of mobile payment services markets, as well as what

issues have remained unanswered. The aim of this section is to summarize findings from past

mobile payments research, and to suggest promising directions for future research.

There are a number of factors that highlight the significance and usefulness of this literature

review. Firstly, the field has seen a poor number of publications in Rwanda, so, a thorough

review of existing work is missing. Speaking of which, the lack of published literature reviews

48

Neil, D. and Pénicaud, C. (2011). State of the Industry: Results from the 2011 Global Money Adoption Survey,

Mobile Money for the Unbanked, GSMA, p.67. 49

Heyer, Amrik and Ignacio Mas .(2011). Fertile Grounds for Mobile Money: Towards a Framework for Analyzing

Enabling Environments, January 2011. See also Donovan, Kevin. (2012). “Mobile Money for Financial Inclusion.”

In Maximizing Mobile, The World Bank, p. 92.

19

impedes the progress in the field; review articles are critical to strengthening an area as a field of

study.50

Secondly, reviewing existing literature not only leads to a better understanding of the state of the

research in the field, but it also discerns patterns in the development of the field itself. Finally, a

synthesis of existing findings allows researchers not to repeat similar work, and discover

important gaps. In other words, it closes areas where an excess of research already exists, and at

the same time uncovers those areas where research is lacking.51

Another contribution of this literature review is the proposed theoretical framework, around

which the review is organized since the area is still lacking noticed studies in Rwanda. However,

the lack of studies in this field in Rwanda shall not leave the researcher in a closed box.

Therefore, as this study aims at guiding the Rwandan law-maker, a comparative study of existing

findings at the international level will serve of a great importance.

I.2.1. Framework for the literature review

Webster and Watson recommend that the best reviews need to be conceptually structured, and

based on a guiding theory.52

Our framework provides a guiding structure that allows us to

effectively accumulate knowledge, and to interpret previous findings. Because the framework

itself aims to explain relevant factors in the mobile payment systems, basing the literature review

on the framework ensures that the review is comprehensive and holistic, and reveals research

gaps that could otherwise be overlooked.53

This framework will not only help to explain the existing body of knowledge on each factor of

the framework, but, more importantly, it will also provide an overview of the mobile payment

services market, illustrating how the various perspectives and research findings fit together as

50 See also S. Webster, R. Watson. (2002). Analyzing the past to prepare for the future: writing a literature review,

MIS Quarterly 26 (2), xiii–xxiii. 51

S. Webster, R. Watson. (2002), op. cit., p. 3. 52 Ibid.

53 Zmijewska, A. Lawrence, E. (2005). Reshaping the framework for analyzing success of mobile payment

solutions, in: Proceedings of the IADIS International Conference on E-Commerce, Porto, Portugal, December 2005,

pp. 15–17.

20

part of the big picture.54

This framework will also be used to classify past research, to analyze

research findings of classified studies, and to propose meaningful mechanisms that future

research for each factor shall base on.

I.2.1.1. Actors in mobile payment services market

The prime actors in the mobile payment services market are mobile payment service providers

and their customers. Various parties assuming these roles in the market include consumers,

merchants, financial institutions and telecom operators. Additional parties, typically vendors of

handsets, software, networks and other technologies may also be involved. The power and the

interests of these parties impact how technologies and other resources are orchestrated into

mobile payment services, and how these services are offered to and used by the market.

Moreover, mobile payment services compete for the attention of customers and other parties

against physical and electronic payment services.55

Mobile payment services are a natural choice

to pay for mobile services. Yet, to succeed, mobile payment services may have to offer added

value and be available for other relevant payment environments as well.

I.2.1.2. The payment service providers in a competitive market

The competitive factors strategy model studied by Porter, describes both the key role of a mobile

payment service provider, and other market factors. The model applies insights from industrial

organization theory to analyze the competitive environment on the level of business units56

, and

relates the average profitability of the participants in an industry to competitive forces.57

54 Mallat, N., Rossi, M., Tuunainen, V.K. (2004). Mobile banking services, Commun. ACM 47 (5), pp. 42–46. 55

Pousttchi, K., and M. Zenker, M. (2003). Current mobile payment procedures on the German market from the

view of customer requirements, in: Proceedings of the International Workshop on Mobile Commerce Technologies

& Applications (MCTA 2003), Prague, Czech Republic, September 2003, p. 5. 56

Breedveld, E., Meijboom, B., and de Roo, A. (2006). Labor supply in the home care industry: a case study in a

Dutch region, Health Policy 76 (2), p. 144. 57

Karagiannopoulos, G. et al. (2005). Fathoming Porter’s five forces model in the Internet era, The Journal of

Policy Regulation and Strategy for Telecommunications 7, p. 66.

21

In addition to the competitive forces within the mobile payments services markets, given also the

main focus of this research, other factors are believed to impact these markets as well, for

example, technology and standards, regulatory activities and legislation, established purchase

and payment habits, or national economy infrastructures.58

I.2.1.3. Application of contingency theory in mobile payment regulation

If we regard a mobile payment services market as the unit of analysis (organization), these other

factors become contingency factors, which influence the performance of the unit but are beyond

the influence and control of that unit, as mobile payment system is a newly introduced payment

system in Rwanda, and its regulatory framework is still at its infancy stage.

In that regard, many unforeseen events may happen, this work had played a preventive role of

these events. Contingency theory therefore is also well suited to classify mobile payments

research and to capture the environmental factors which are characteristic to the mobile payment

services markets.

In the context of mobile payment system, staying focused on the main objectives of this research,

it is natural to stress on regulation, jurisdiction and standardization factors too because financial

services and telecommunication are among the most regulated industries, and the use of

standards is characteristic to telecommunication.

I.2.1.4. Review of the findings of related studies and publications in the area of mobile

payment system

Mobile Payment Services Market and Providers, Merchant Power, Legal/Regulatory and

Standards, as well as New E-Payments have each been the focus of just a few studies in

developing world59. Some articles have studied many factors simultaneously, which may be

important to discover how the factors influence each other. The present section will go through

58

Johnson, G. Scholes, K. (2002). Exploring Corporate Strategy, sixth ed., Harlow, Financial Times, Prentice Hall,

p. 76. 59 Bohle, K. and Krueger, M. (2001). Payment culture matters – a comparative EU-US perspective on Internet

payments, Technical report, Background Paper No. 4, Electronic Payment Systems Observatory (e-PSO), EUR

19936 EN, Seville, Spain, 2001, p. 38.

22

these studies and will try to elaborate gaps related to regulation of mobile payment systems, as

well as possible directions for improvement of this area.

Rwanda is one of the countries in the developing world where new electronic payment systems

are being introduced at an increasing rate. By predictions, the researcher assumes that this trend

will continue for foreseeable future. Early research by IFC Mobile Money Scoping60

undertook

a series of six mobile financial services (MFS) market scoping studies across Sub-Saharan Africa

to identify two countries in which it will provide broad and deep support to accelerate the uptake

of branchless banking services. Rwanda was one of the six countries in which the study was

conducted. A similar study by Ignacio Mas and Dan Radcliffe61

concerned Mobile Payments in

Kenya (M-PESA).

These two studies concluded that information technology has appreciable positive effects on

bank productivity; cashiers’ work, banking transaction, bank patronage, bank’s services delivery,

and customers’ services.62

Margarete Biallas, had conducted an extensive survey of the mobile

payments overview and provided a brief perspective on regulations, financial infrastructure,

payment services provider snapshot, and mobile financial service implementation.63

This study

aimed at identifying efforts and developments of the country in order to partner with the country

for the progress of mobile payments.

The study by IFC on mobile payment in Rwanda focused on several factors mentioned above,

but not on any in details, which called for a new categorization of multiple categories. It also

presented market overviews, summarizing the state of mobile payments, its challenges or

potentials. However, these potentials and challenges were limited to infrastructure and factors

that can make the system operational. If the system is not effectively operational, it may pose

some risks to the users who need protection from the regulatory regime. This aspect had not been

analyzed in that study by IFC.

60

Biallas, M., Ngahu, J. and Stefanski, S. (2012), IFC-World Bank, Mobile Money Scoping Country Report:

Rwanda, February 12-18, p. 1. 61

Mas, I., and Radcliffe, D. (2010). Mobile payments go viral : M-PESA in Kenya, Gates foundation, p. 18. 62

Balachandher, K. G., et al. (2001). Electronic banking in Malaysia: a note on evolution of services and consumer

reactions, Journal of Internet Banking and Commerce, vol. 5, no. 1, p.8. 63

Biallas, M., et al., op. cit., p. 12.

23

I.2.2. A comparative study of the factors influencing the mobile payment development in

Rwanda

Mobile payment research is expected to compare the characteristics of various social, regulatory,

and cultural environments, and to examine which characteristics affect the development and

success of mobile payment system.64

Unfortunately, we did not identify enough academic papers

that would have investigated the development of mobile payment system and its regulation in

Rwanda.

In other different countries, relevant research reports and studies within related fields (other

payment services or wireless communication) have identified specific social and cultural issues

that may be important to mobile payment studies. These include distinguishable payment

cultures in various countries, industry strengths, electronic banking readiness of consumers,

strong mobile phone inclination of certain nations65

; cultural similarity and adoption timing66

;

demographics and lifestyle characteristics, or cultural differences in developed and developing

countries.67

Since we found very limited studies on mobile payment system in Rwanda that would have

addressed such issues, it is especially important for the current and future research to study how

these factors and especially effective regulation can influence the development of mobile

payments system.

I.2.2.1. The role of improved legal, regulatory, and standardization environments in mobile

payment systems in Rwanda

Improvement of legal, regulatory and standardization environment deals with evolving

jurisdiction, regulations and other norms with requirements to comply. These contingency items

64

Takach, G. S. (2004). Computer Law, 2nd

ed., Torofito: Irwin Law, 2003 at 517. T. Scassa & M. Deturbide,

Electronic Commerce and internet Law in Canada, Toronto: CCH Canadian Limited p. 3-22. 65

Bohle, K., Krueger, M. (2001). Payment culture matters – a comparative EU-US perspective on Internet

payments, Technical report, Background Paper No. 4, Electronic Payment Systems Observatory (e-PSO), EUR

19936 EN, Seville, Spain, P. 8. 66

Sundqvist, S. et al. (2002). The effects of country characteristics, cultural similarity and adoption timing on the

diffusion of wireless communications, Journal of Business Research 58 (1), pp. 107–110. 67

Mahmood, M.A. et al. (2004). On-line shopping behavior: cross-country empirical research, International

Journal of Electronic Commerce 9 (1), p. 30.

24

may trigger needs for new or enhanced payment services, and drive or hinder the development of

mobile payments68

. Mobile payments research on this factor is expected to examine the impact

of regulation, legislation and standardization on the development and success of mobile payment

services markets in Rwanda.

Cross-border mobile transactions can be complex due to a complicated web of law and

regulations in the region.69

Previous studies on the regulation of international mobile payment

services suggest that unifying regulation and legal frameworks (we can consider the example of

EU directives in the European Commission) may reduce complexity and support the

development of international mobile payment services.70

Karnouskos and Vilmos present the

Secure Mobile Payment Service (SEMOPS) initiative as an example of an international mobile

payment project that aims at responding to the challenges presented to an international mobile

payment service.71

The process of standardization for mobile payments has been another focus of the prior mobile

payment research.72

The cited studies identify various organizations that aim at standardizing and

developing mobile payment services but also note that none of these organizations has a

dominant role in standardization and that there are differences in the requirements and in the

preferences they set for standards.73

Some studies which have looked at the mobile payment services market from the point of view

of multiple actors have discussed the standardization of mobile payments and emphasized the

need for a technological and organizational consensus between the players in the industry.74

68

Hunter, W. C. & Stephen, G. T. (1991). Technological change in large commercial banks, Journal of Business,

64, no. 3, pp. 331-362. 69

Rawson, S. (2002). E-commerce mobile transactions: mobility and liability: the hazards of handhelds, Computer

Law & Security Report 18 (3), p. 172. 70

Karnouskos, S., and Vilmos, A. (2004). The European perspective on mobile payments, in: Proceedings of the

IEEE International Symposium on Trends in Communications (Sympo TIC), Bratislava, Slovakia, and October 24–

26, 2004. 71

Ibid. 72

Lim, A. (2005). Standardization for different systems of mobile payments: inter-industrial battle, in: Presentation

at Hong Kong Mobility Roundtable, Hong Kong, China, June 1–3, 2005, p. 11. 73

See Lim, A. (2005). Pre-standardization of mobile payments: negotiations within consortia, in: Proceedings of the

Fourth International Conference on Mobile Business (ICMB), Sydney, Australia, July 11–13, 2005, p. 39. 74

See for example, Ondrus, J., and Pigneur, Y. (2006).Towards a holistic analysis of mobile payments: a multiple

perspectives approach, Electronic Commerce Research and Applications 5 (3), p. 246.

25

The current research on regulation of mobile of mobile payment system in Rwanda provides an

informative description on the complexities and problems surrounding these topics. Yet, there

are no good solutions to solve these legislation and standardization issues. Therefore, the current

and future research will focus on how much and kind of legislations needed to support mobile

payment system in Rwanda, and also at the regional level.

I.2.2.2. Regulatory bodies having the authority to regulate mobile payment system locally

and internationally

Previous studies have emphasized the need to unify laws and regulations to facilitate the

developments of international mobile payment services. It may be complicated, however, to

determine the responsibilities and division of work between the national and international

legislative bodies75

.

So far, there are no unified regulatory bodies of mobile payment systems at the international

level; mobile payment markets are still regulate and monitored by local laws.76

Future research should therefore address this question and examine the most optimal

mechanisms and bodies for regulating international mobile payment services.

I.2.2.3. Power of Consumers and service providers in mobile payment system in Rwanda

The truth is that the payment service providers will be able to keep control over the payment

process and mobile network operators will create the new channel by providing mobile network

infrastructure77

. We expected to find research on mobile payment services industry competition

and on the capabilities or lack of capabilities of various players.

75 Dahlberg, T. and Mallat, N. (2002). Mobile payment service development –managerial implications of consumer

value perceptions, in: S. Wrycza (Ed.), Proceedings of the 10th European Conference on Information Systems

(ECIS), Gdansk, Poland, June 2002, pp. 6–8. 76

Andrew, M. (2009). Card Fees Pit Retailers against Banks, NEW YORK TIMES, Jul. 2009 16, p. 1. 77

Dahlberg, T., et al. (2003). Trust Enhanced Technology Acceptance Model- Consumer Acceptance of Mobile

Payment Solutions, Presentation at Stockholm Mobility Roundtable Stockholm Sweden May 2223:10, available at:

http://www.citeseerx.ist.psu.edu/viewdoc/pdf, visited on 10/07/2013.

http://www.citeseerx.ist.psu.edu/viewdoc/pdf

26

Considering the lack of vigilant studies in the field of regulation of mobile payment system in

Rwanda, we have emphasized that the regulation of mobile payment in place in Rwanda had

focused more on the Business-To-Consumer (B2C) and C2C scenarios, while B2B mobile

commerce may also need mobile payment services. By mentioning this deficiency in the

literature, we hope that future researchers will open new paths of research addressing the mobile

payment issues related to B2B services and the Rwandan legislator will take account of this in

order to empower the consumers in this payment system.

I.2.3. Gaps in Rwandan governmental institutions to cooperate for a better implementation

of the existing mobile payment regulations

In Rwanda, there are different institutions in charge of implementation of regulations of

electronic payments, improvement of which should be profitable to the most vulnerable citizens.

To this end, there should be effective mechanisms of handling conflicts associated with

electronic and mobile payments78

, establish clear rules regulating market competition because

once it is left in vacuum, it is highly detrimental to the consumers.

As it will be discussed in depth in chapter four, implementation and follow up system of mobile

payments remains unclear since it lies under responsibilities of two distinct institutions, namely

BNR and RURA. This causes consequences to the consumers of this payment system because it

is confusingly to them about how to preserve their rights and interests once they are breached.

I.2.3.1. Failure of National Bank of Rwanda to set out clear mechanisms of implementation

of regulation governing electronic payments

By overseeing payment systems, the National Bank of Rwanda helps to maintain systematic

stability and reduce risk in order to maintain public confidence in payment and settlement

system. The National Bank of Rwanda has the duty to supervise and regulate payment systems,

the last one is to supervise and regulate the activities of financial institutions notably banks79

,

78

Brozolo, L. G. R. D. (2000). International Payments and Conflicts of Laws, 48 Am. J. Comp. L. 307, p. 308. 79

see art. 6, para. 3 of the Law n° 55/2007 of 30/11/2007 governing the Central Bank of Rwanda.

27

micro-finance institutions, insurance companies, collective placement companies and pension

funds institutions.

First and foremost, it is worth noticing that the Central Bank’s directives shall be orders or

prohibitions of acting in a certain manner designed for one or more private individuals or legal

entities. The Bank’s regulations, directives and decisions shall be respected by the concerned.80

The National Bank of Rwanda has done notable work of establishing requirements for granting a

license; these include capital requirements81

, strategies for prevention of money laundering and

financing terrorism82

, evidence that RURA (Rwanda Utilities Regulatory Agency) certified the

technology infrastructure for Payment Service Provider operating their network83

, but, it should

put in place the regulation and requirement for using the mobile payment system. In addition, the

Central Bank should also require to the payment service providers, effective mechanisms of how

the consumers will be protected.

I.2.3.2. Failure of RURA in enforcement of regulations of electronic payments in place in

Rwanda

The law regulating the functions of RURA states that the public utilities that will be under

supervision of RURA include telecommunications, information technology, broadcasting and

converging electronic technologies including the internet and any other audio-visual information

and communication technology.84

In this regard, RURA must fully understand the needs of

service providers and users regarding the efficient interoperability of all national networks and

utility service delivery systems.85

80 See article 56, para. 5 of Law n° 55/2007 of 30/11/2007 governing the Central Bank of Rwanda. 81

See art. 7, Law no 03/2010 of 26/02/2010 concerning the payment system, O.G.R.R n° 9 of 01/03/2010.

82 See art. 4 (9), Regulation n° 06/2012 of 21/06/2012 of the National Bank of Rwanda governing Payment Services

Providers, O.G.R.R n° 29bis of 16/07/2012. 83

See art. 4 (13) Regulation n° 06/2012 of 21/06/2012. 84

See art. 2, law n° 39/2001 of 13th

September 2001 establishing the Rwandan Utility Regulatory with the mission

to regulate certain public utilities. 85

Interoperability is provided for by article 21 of Regulation n° 06/2012 of 21/06/2012 of the National Bank of

Rwanda governing Payment Services Providers.

28

In that regard, the Regulatory Authority may investigate at any time the quality of service

measurement; reporting and recording procedures of a Licensee. In so doing, the Regulatory

Authority may exercise its powers of monitoring and enforcement of obligations.86

As it will be detailed in chapter four, mechanisms for conflicts resolution that arise between

payment service providers and consumers are still questionable. Thus, RURA and BNR will

need to ensure that all stakeholders take responsibility for consumer protection and provide for

the timely resolution of consumer complaints and disputes. Depending on the circumstances,

RURA may act as adjudicator, mediator or arbitrator in disputes that arise between payment

service providers, consumers and other stakeholders.

I.2.3.3. Weakness of telecom companies to comply with obligations specified in license

The liability of telecom companies shall apply to creation, publication and dissemination of

electronic messages on the network, use of such electronic messages in a way that is contrary to

the law is a breach of contractual obligations.87

However, the communication network service

shall continue to fulfill contractual obligations, and obligations specified in the license for

provision of communication network service granted by the Controller.

Even if the law no 18/2010 of 12/05/2010 is relating to the electronic transaction, signature and

electronic signature, the Rwandan legislation still has gaps in putting in place the law regulating

electronic transactions including mobile payments. As there are many specified laws for a

precise matter, considering also that the issue of mobile payment service is getting more

complicated, there should be a specific law on mobile payment system with more focus on the

protection of consumers of this service.

I.2.3.4. Challenges related to security payments

Mobile payment uses technological devices that pose various risks including security risks. The

security challenges that this payment system poses are related to authentication and non-

86

RURA: Regulations for Quality of Service of cellular mobile and fixed networks services, Article 8: Investigation

of the quality of service. 87

See also Bruno-Britz, M. (2005). Is the end of cash at hand?, Bank Systems & Technology no 42, p. 29.

29

repudiation, integrity and privacy. In this regard, it has to be noted that security breaches could

occur at the level of the consumer, the merchant or the issuer, and could involve attempts to steal

consumer or merchant devices, to create fraudulent devices or messages that are accepted as

genuine, to alter data stored on or contained in messages transmitted between devices, or to alter

the software functions of a product. Security attacks would most likely be for financial gain, but

could also aim to disrupt the system.88

Additionally, Loretta J. Mester89

considers that security breaches essentially fall into three

categories: breaches with serious criminal intent (e.g. fraud, theft of commercially sensitive or

financial information), breaches by “casual hackers” (e.g. defacement of web sites or “denial of

service” - causing web sites to crash), and flaws in systems design and/or set up leading to

security breaches (e.g. genuine users seeing / being able to transact on other users’ accounts). All

of these threats have potentially serious financial, legal and reputational implications (these will

be analyzed deeply in chapter II and III).

More importantly in Rwanda, technology is gradually developing with new crimes that the

country has never regulated. Therefore, it is worth mentioning that the more technology

improves, the more crime committed in this sector which are considered as the cyber crime will

improve. To prevent these crimes, the government should put more emphasis in elaborating

specific laws especially for the mobile payment system as it is increasing very fast in our

country.

I.2.3.5. Challenges related to infrastructure in mobile payment

First and foremost, we agree with Olivier Hance and Suzan Dionne Balz when stating that “for

electronic payments to be successful there is a need to have reliable and cost effective

infrastructure that can be accessed by majority of the population”.90

88

Furash & Company. (1994). Banking's Role in Tomorrow's Payment System, Overview 1, p. 29. 89

Loretta J. Mester, The Changing Nature of the Payments System: Should New Players Mean New Rules, Bus.

Rev., (Fed. Res. Bank of Philadelphia), March/April 2000, p.11. 90

Hance, O. and Dionne Balz, S. (1999). The New Virtual Money: Law and Practice, Kluwer Law 423, p. 180.

30

On this consideration, it has to be pointed out that the first focus should be the communication

infrastructure, banking activities and operations that need to be automated. A network that links

banks and other financial institutions for clearing and payment confirmation is a pre-requisite for

mobile payment systems.

However, one can realize that in developing world and in Rwanda in particular, mobile networks

and internet are not easily accessible. “Poor communication infrastructure is one of the reasons

that hinder the e-payment system in Africa”.91

I.2.3.6. Challenges related to the regulatory framework

Differing national views of the nature of electronic money (and what it means to issue electronic

money) have produced fundamentally different approaches to regulation. To some states,

electronic money is the electronic equivalent of a national currency and, therefore, should be

issued only by the state, through its central bank or designees. Widespread use of a "virtual

currency" would raise issues of money supply as well as stability of the currency.92

To others, “electronic money” may be only one piece of the service of moving value from one

owner to another. That service may be composed of a number of steps, some of which could be

carried out by banks or non-banks who bring efficiencies to the process.93

Under this view, the

goals of regulation would be to ensure the safety and soundness of the entire payment system,

consumer protection and other fundamental social policies.

Issues include determining the location of virtual services and appropriate jurisdiction among

government agencies (e.g., banking vs. telecom), as well as with respect to courts. Transparency

of financials is paramount. For services with a cross-border aspect, international harmonization,

such as adoption of treaties or conventions, may come into play.

91

Alan L. Tyree, op.cit. p. 140. 92

Roth, D. (2010). The Future of Money: Cash, Checks, and Credit Cards - Who needs them? The new global

currency is flexible, frictionless, and (almost) free, Wired, March 2010, pp. 70-79. 93

See for example Bass, Thomas A. (1996). The Future of Money, Wired 4.10 (October 1996), available at:

http://www.wired.com/wired/archive/4.10/wriston.html, accessed on 24/11/2013.

http://www.wired.com/wired/archive/4.10/wriston.html

31

I.2.3.7. Anticipated effects of e-money on monetary policy

There are different views on adoption of cashless system in line with the monetary policy.

According to Walter Wriston94

, digital currency carried on smart cards was “the revolution that’s

waiting in the woods” and a “technology … on the verge of exploding”. The predicted explosion

has yet to happen. Many monetary economists95

foresee that the demand for central bank money

will not only drastically fall, but also probably disappear altogether, over a foreseeable horizon.

The report of BIS96

postulates that e-money innovations “have the potentials to challenge the

predominant role of cash for making small-value payments” by impression of their greater

convenience, but worries that therefore “they also raise a number of policy issues for central

banks because of the possible implications for central bank’s revenues and monetary policy and

because of central banks' general interest in payment systems.” 97

This chapter on conceptual framework and literature review reviewed an extensive amount of

existing mobile payment studies, proposed a conceptual framework with focus on the theory of

contingency, at the same time, it analyzed possible gaps outlined in the studies related to the

regulation of mobile payment in Rwanda, and a roadmap for future research has been designed.

94

In Bass, Thomas A. (1996). The Future of Money, Wired 4.10 (October 1996), available at:

http://www.wired.com/wired/archive/4.10/wriston.html, accessed on 24/11/2013. 95

Cronin, David, and Kevin Dowd. 2001. “Does Monetary Policy Have a Future?,” Cato Journal 21 (Fall), pp. 227-

244. 96

BIS. (1996). Implications for Central Banks of the Development of Digital Money, Basel: Bank of International

Settlements, p. 2. 97

See also King, Mervyn. (1999). Challenges for Monetary Policy: New and Old, in New Challenges for Monetary

Policy (Kansas City: Federal Reserve Bank of Kansas City), pp. 11-57.


32

CHAPTER II: ANALYSIS OF EFFECTIVENESS OF REGULATION OF MOBILE

PAYMENTS IN RWANDA

This chapter has critically analyzed the effectiveness of regulation of mobile payment system in

Rwanda. Therefore, following the literature review and a description of the research

methodology, this chapter concentrated on a critical study of the problematic related to the

regulation of mobile payment system, it explored the lacunae and imperfections as identified by

data collected from fields. The chapter then presented hindrances to the effectiveness of mobile

payment, which is an important aspect to gain in order to formulate the conclusions and

recommendations.

Beforehand, it is worth reminding that as the participants in mobile payment system have

different interests, they may face conflicts each other that require legal solutions. Especially

regulating rights and liabilities of participants in this sphere, interconnection between the

payment service providers, availing the regulatory regime at the regional level, are important

aspects that have been addressed in this chapter.

II.1. Problems related to the regulation of rights and liabilities of operators of mobile

payments and protection of customers

There is a variety of consumer (and business) protection concerns, though these may vary based

on social expectations. General concerns include the relative obligations of the counterparties,

banks, and mobile service providers, which should be clearly set forth in contracts, system rules,

or regulations.98

Notable among these obligations are loss allocation, as well as the establishment

and maintenance of other appropriate protections against fraud, user error, delays and system

error or loss.

98

The Consumer Perspective, available at: http://dcmscommsreview.readandcomment.com/consumers/, accessed on

12/06/2014.

http://dcmscommsreview.readandcomment.com/consumers/

33

II.1.1. Liabilities of financial institutions for the loss incurred by customers in mobile

payment transactions

The provisions of regulation in place in Rwanda oblige the financial institutions to execute the

payment order made by the sender in a reasonable time.99

It provided that the defaulting

institution, either receiving or beneficiary, will be liable. However, this regulation in place is not

specific on liability of the financial institution in case of non-compliance with this provision. In

this regard, it can be seen that the provision is a simple declaration of obligations of financial

institutions without any binding force.

Considering the point that mobile financial transactions are concluded in a non-facing and

automated manner, given also that it is almost impossible for customers to prove intention or

negligence of the payment service provider, and the point that payment service providers

determine the authentication procedures they have prepared to implement, it would be desirable

to make financial institutions bear all the risk of an unauthorized mobile financial transactions

and loss caused by long delays in executing the transaction, except that financial institutions

prove intention or gross negligence of customers.100

In the case Judd v Citibank101

, though Citibank (the defendant) produced computer printouts

documenting the withdrawals in issue, which printouts were explained (translated) by the bank's

witness, the branch manager, by saying funds were withdrawn at a "cash machine" by either

plaintiff or someone authorized by her to do so, judgment was awarded to plaintiff in the amount

of $800 plus interest and disbursements, because the plaintiff had proven not having withdrawn

the funds, she testified and produced a letter from her employer to the effect that she was at work

on both occasions and could not have made the said withdrawals.

99 Art. 3 on the “execution” provides that payment transfer to beneficiary’s account shall not exceed 72 hours

following the time of receipt by the receiving institution. 100

Article 9 of the regulation no 07/2010 bind the banks to provide procedures for acknowledging loss or theft by the

customers, but it does not clarify liabilities of the institutions in this matter.

101 Dorothy Judd (Plaintiff) v Citibank (Defendant), Civil Court of the City of New York, Queens County,

November 3, 1980, 107 Misc.2d 526 (1980).

34

II.1.2. To what extent are the mobile network operators liable for the loss incurred by

customers in mobile payments in Rwanda?

As mobile financial transactions are concluded through mobile network installed by mobile

network operator, in case of transaction errors arising in the course of electronically transmitting

or processing the conclusion of a transaction, there may be cases where not financial institution

but mobile network operator shall be liable for the loss.102

However, in reality, it is almost impossible for customers to clarify whether error was caused by

financial institution or mobile network operator. It would be desirable to make financial

institution compensate customer for damage caused by transaction errors arising in the course of

electronically transmitting or processing the conclusion of a transaction, and then allow financial

institution to exercise right of indemnify over the mobile network operator by proving the

intention or negligence of the mobile network operator.103

II.1.3. Effects of lack of interoperability between operators of mobile payment service

providers to the consumers

Until now in Rwanda, especially for mobile money users, e-money can be transferred between

users of the same network, which does not bring particular newness to the payment methods.

Important concern in this section resides in thinking of ways by which the electronic payment

institutions can be interoperable with capacity to prevent issues resulting from lack of

interoperability.

102

The regulation no 07/2010 of BNR is silent on this aspect of liabilities of network providers for the loss incurred

by the customers. See also 260 CCLIII par 3. 103

Consider for example, Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 916,

437 N.W.2d 213,215, (1989). See also, NORTH CAROLINA: Atl. Coast Mech., Inc. v. Arcadis, Geraghty &

Miller of N.C., Inc., 623 S.E.2d 334, 340 (N.C. Ct. App. 2006). Considering the latter case, the service provider

(network provider) should also compensate damages incurred by its customers due to the malfunction of the system.

35

II.1.3.1. Possible problems caused by interoperability of mobile payment service

providers104

Interoperability may complicate settlement of complaints and fraud issues, as it may prove

difficult to identify the responsible network. Prompt settlement of complaints is important in

establishing the credibility of a network and depends on clear responsibility.105

In the current

(closed) system, there is only one network that can be responsible in the case of a complaint, and

MNOs have strong incentives to deal with these. Thus, in a system with interoperability, disputes

relating to cross-network transfers may be challenging to deal with.106

In other countries, bill payment services like utilities are already available from MNO’s – so

MNOs are already able to provide a form of bank interoperability to businesses. Businesses can

also set up their own mobile money accounts to receive payments, without the need for

interoperability with banking.107

II.1.3.2. Interoperability is not considered as a binding obligation to the payment service

providers in Rwanda

Interoperability between payment providers refers to the ability of participants to make payments

across systems. There are two types of interoperability that are relevant here – interoperability

between Mobile Network Operators (MNO) payment systems (e.g. payments from a MTN

Mobile Money user to a TIGO Cash user), and interoperability between MNO payment systems

and the banks (e.g. transfers from a Bank of Kigali account to an MTN Mobile Money account).

While the latter has already developed in several countries (e.g. M-PESA in Kenya, Airtel in

104

There is no provision on interoperability between the payment service providers in the current regulation

governing electronic fund transfers and electronic money transactions in Rwanda. The regulation of BNR on

payment service providers obliges interoperability between the payment service providers (art. 21). 105

Hughes, S. J. (1996). A Call for International Legal Standards for Emerging Retail Electronic Payment Systems,

15 Ann. Rev. Banking L. 197, pp. 47-48. 106

Heeks, R. (2002). Information Systems and Developing Countries: Failure, Success and Local Improvisations, p.

67. 107

UNCITRAL (United Nations Commission on International Trade law). (2010a). Possible future work on online

dispute resolution in cross-border electronic commerce transactions, Note by the Secretariat, UNCITRAL

Convention, available from http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-

commerce/2005.Convention.html, visited on 19/05/2014.

http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-commerce/2005.Convention.html


36

India), none of them has been achieved in Rwanda, though it is provided in the regulation

governing Payment Services Providers.108

One good step made so far in Rwanda the interconnection through mVisa. I&M Bank & BK and

UOB are interoperable through mVisa. Airtel and I&M Bank are interconnected to provide card

less services more others are in pipeline to interconnect.109

The regulations from the BNR state

“Contracts with exclusivity are not permitted by this regulation unless they are authorized by the

Central Bank”;110

(non-exclusivity has been regulated by the BNR since the beginning of mobile

payment systems in Rwanda).

In an interconnected environment, a customer affiliated with one operator’s mobile money

service would have the ability to send money electronically to the wallet of a customer affiliated

with another operator’s service. It is seen that achieving this level of cooperation can be

challenging: not only can it involve gaining agreement between competitors, but it must also

comply with relevant competition regulations.

II.1.3.3. The way forward for implementation of interconnection between payment service

providers in Rwanda

In Rwanda today, most mobile payments services are closed-loop systems whereby one customer

cannot send a payment to a customer in another system, even within one country. Kenya is a

good leading example on interconnection between mobile payment service providers. For

example: G-Cash has bilateral agreements with several other systems. Western Union links to M-

PESA; BICS’ Home Send is a hub that includes communication protocol as well as FX

conversion; India’s IMPS is multi-bank by design and underpinned by the country’s ACH.111

108

Art. 4 for Application for a license, 6 (c) obliges the applicant to explain how the system is interoperable with

other existing electronic payment systems. See art. 4, Regulation n°06/2012 of 21/06/2012 of the National Bank of

Rwanda governing payment services providers, O.G.R.R n° 29bis of 16/07/2012. 109

Respondent: the National Bank of Rwanda, department of payment 110

Interview with John Bosco SEBABI, D.G. Operations, BNR on November 1, 2013. Article 4 of regulation n°

05/2010 on application for a license, para. d) (i) provides that “description of policies and/or procedures of the system, including: the criteria established for direct and indirect participation into the system, to be safe and non discriminatory”. See regulation n°05/2010, of 27/12/2010 of the national bank of Rwanda relating to the licensing

criteria of operating payment and securities settlement systems, O.G.R.R n° special 30/12/2010. 111

Dunn & Company, Global Payments Survey 2011, Edgar, Reports/3Q-2011, available at: //

https://www.iemarketresearch.com/Members/, visited on 21/03/2014.

https://www.iemarketresearch.com/Members/

37

The National Bank of Rwanda had partnered with Visa Rwanda Ltd112

to meet this end. In the

return, Visa Rwanda Ltd has developed Mobile Visa (m Visa), products that allow mobile

banking service interoperability.

II.1.3.4. Implementation of interconnection between payment service providers for

promotion of customers’ interests

An important note is that on the side of customers, competition is seen as a good advantage by

which they get better services on low costs. In terms of interconnection of mobile payment

service providers, customers can, at low cost, affiliate with multiple mobile money

services. The proponents of banning agent exclusivity generally appeal to increasing competition

in a mature market.113

In the developed world, most mobile accounts are post-paid, so affiliating with multiple

networks implies a doubling of monthly costs. For this reason, it is uncommon for customers to

affiliate with more than one mobile network at a time. In most of the developing world, the

situation is different.

Since opening a new pre-paid mobile account is very inexpensive, and cost is tied directly to

consumption, customers routinely maintain connections with multiple mobile operators, behavior

which is often referred to as “multi-SIMing”114

. In this way, they can avail themselves of

promotions that different mobile operators offer, and select the account that offers them the best

rates or coverage depending on their requirements for each call.115

In addition, in many cases, operators make it possible for registered mobile payment customers

to send money to customers who have not registered for this system (indeed, in most cases, they

need not even have a phone): when they initiate the transfer, they are issued a secret code which

112

Visa is a global payments technology company that connects consumers, businesses, financial institutions and

governments in more than 200 countries and territories to fast, secure and reliable digital currency. 113

Klein, M., and Colin, M. (2011). Mobile banking and financial inclusion. The Regulatory Lessons, the World

Bank, Policy Research Working Paper 5664, May 2011, the Information Society, vol. 18, no 2, 101-112.

114 A June 2010 survey indicated that 43% of mobile money users in Uganda were multi-siming, while the

proliferation of dual-, tri-, and even quad-SIM phones around the world provides anecdotal evidence for the trend. 115

Ndiwalana, A., Morawczynski, O., and Popov, O. (2010). Mobile Money Use in Uganda: A Preliminary Study,

available at: http://www.mmublog.org/wp-content/files_mf/m4dmobilemoney./pdf, visited on 04/05/2014.

http://www.mmublog.org/wp-content/files_mf/m4dmobilemoney./pdf

38

they can convey to the recipient and which can be used to collect the transfer at an agent.116

We

call this transaction type an off-net transfer. End-to- end, off-net transfers are usually more

expensive than on-net transfers.

These capabilities are important, because they mean that customers are not restricted to

transacting only with customers affiliated with their own network—or indeed any network at all.

This is the case for mobile banking by which a customer of Banque Populaire du Rwanda may

send money to a third person who does not necessarily have an account in any bank; the later can

withdraw money via “easy cash system”. For the mobile payment service providers, it can be

widely understood that doing so has the potential to deter investment.117

Mandating interconnectivity would presumably be undertaken to promote customers’ interests.

The regulation of BNR provides that “Financial institutions and Mobile Network Operators shall

be interconnected to offer services to virtually all banked and unbanked customers in order to

achieve interoperability and to substantially increase the financial services outreach to the

unbanked communities”118

. This is a simple declaration of obligation because the financial

institutions and Mobile Network Operators in Rwanda provide payment services independently.

II.1.3.5. Payment service providers take advantage of weakness of regulatory framework to

create indirect restrictions

When looking at the reality of things, one can realize indirect exclusivity in electronic money

transfers between operators who are on different networks. Mobile operators intentionally create

significant financial incentives for the senders and recipients of transfers to affiliate with the

same mobile payment network. As an example, for an average-size transfer, MTN Uganda

charges $1.44 for an off-net transfer and $0.31 for an on-net transfer. Transactional partners with

any degree of price sensitivity who transact more than once will find it most economical to pay

116

This system known as “easy cash” has so far been popular in Banque Populaire du Rwanda. It is a way by which

the mobile banking user can send money to a third person without necessarily being a customer in any bank-there is

a need on a registered mobile device. 117

Reserve Bank of India, “Mobile Banking transactions in India - Operative Guidelines for Banks”, October

2008. Available: http://www.rbi.org.in/Scripts/, accessed on 28/09/2013. 118

See art. 21, para. 2, Regulation no 06/2012 of BNR.

http://www.rbi.org.in/Scripts/

39

the upfront cost of registering for a new SIM and wallet in order to take advantage of lower per-

transaction costs.119

II.1.4. Limited awareness of consumers in mobile payment services of their right and

liabilities

It is important to notice that key information on consumer rights and potential liabilities

associated with online and mobile payments is not always provided to consumers in a clear,

timely, and transparent manner. Moreover, it is often not clear which of the entities involved in a

payment transaction should be providing information to consumers, what type of information

they should provide, and when, during the payment process, they should be doing so.

In order to solve this issue, information on delivery times, any rights of withdrawal and available

dispute resolution and redress mechanisms (including online and alternative dispute resolution

programs) should be provided to consumers prior to making a payment. In the event of problems

with a transaction, clear information on whom to contact, and how, should also be available to

consumers, by phone, for example, or through a link to a website accessible through the

merchant’s e-commerce platform.120

The regulation of National Bank of Rwanda requires a bank or other payment service provider to

inform the customer for any malfunction of equipment through notices at ATM, POS or other

electronic terminals, notice at its branches or any other mode it deems suitable.121

However, this

article is still silent about notification to be done in relation to mobile payment transactions.

Instead, the regulation governing the payment services providers obliges applicants for a license

to produce signed document describing the contingency and disaster recovery plans for

electronic payment facilities and event scenario/problem management plan/program to resolve or

119

Neil, D., and Leishman, op. cit., p. 26. 120

Mark Flaming, et al., (2011), Consumer Protection Diagnostic Study Kenya, available at:

http://www.fsd.kenya.org/pdf-documents/11-02-22-Consumer-diagnostic-study-pdf/, accessed on 16/06/ 2014. 121

Art. 10, para. 2 (a, b, and c)), Regulation no 07/2010 of BNR

http://www.fsd.kenya.org/pdf-documents/11-02-22-Consumer-diagnostic-study-pdf/

40

address problems, such as complaints, errors and intrusions and the availability of back-up

facilities.122

II.1.5. Lack of services of deposit and withdrawal of money in mobile payment system in

Rwanda

When launching the Airtel money, it was expected that Airtel Cash was going to introduce

communicability between what is known as the mobile wallet (mobile account) and one’s bank

account, by which the Airtel cash client will be able to withdraw or deposit money from or onto

the mobile wallet and the bank account respectively.123

For instance, with this target of Airtel, one will be able to withdraw money from their mobile

wallet using an ATM card or even to top up the wallet through their bank account. Also it makes

possible the transfer of money from one’s mobile account to any bank account.124

Until the date

of this research, we have not found any services of deposit and withdrawal of money through

mobile payments.

In Kenya for example, based on SMS technology, M-PESA lets users make mobile payment

transactions including cash deposits and withdrawals at designated outlets; and loan receipts or

repayments. In this system, cash deposits are converted into a commodity called “e-float” that is

denominated in the same units as the domestic currency.125

Agents facilitate the conversion of

cash to e-float and vice versa. M-PESA users can then use their mobile phone to transfer money

to another mobile phone user, regardless of the recipient’s mobile operator.

122

See art. 4, (8), law no 06/2012 21/06/2012 of the National Bank of Rwanda governing payment services

providers. 123

RWAHIGI, M. (2013).Lack of regulatory framework hampering regional mobile money movement, in the

Independent, available at: http://www.independent.co.ug/rwanda-ed/rwanda/7471-airtel-mtn-want-cross-border-

cash-transfer-pdf/, visited on 17/09/2014. 124

Mr. MASEKA in an interview with the Independent, website pre- cited. 125

Okoth, J. (2009). Regulator gives M‐PESA a clean bill of health, the Standard, 27 January 2009, p.9.

http://www.independent.co.ug/rwanda-ed/rwanda/7471-airtel-mtn-want-cross-border-cash-transfer-pdf/

http://www.independent.co.ug/rwanda-ed/rwanda/7471-airtel-mtn-want-cross-border-cash-transfer-pdf/

41

II.1.6. The problematic of protection of consumers engaging in mobile payment system in

Rwanda

By analyzing the Rwandan regulation in place, it is still questionable about the protection of

consumers as parties standing on unequal power in mobile payment transactions. The lack of

understanding resides in the fact that the different bodies (banks, MNOs and agents) whose

operations are often overseen by different regulatory bodies also operate under different sets of

regulations.126

Consumers are therefore unclear over what redress rights they have which entity

to turn to if there is a payment-related problem.

In this regard, awareness makes it pertinent for organizations and regulators to emphasize

customer protection especially with the new type of customer being reached innovatively. On a

simple example, the regulation stipulates that “the payment orders sent by the sender or on his

behalf are final and irrevocable. The sender shall not revoke a payment order once it has been

received by the receiving institution, unless otherwise provided by agreement”.127

In

consideration of this article, it is simple to conclude that the legislator has put the consumer in a

closed box with total impossibilities to revoke any undue payment, such as payment order sent to

the wrong receiver.

Rwanda does not make any difference on this issue that has become general in many countries. It

clearly seen that most countries do not provide consumers with many legally binding rights to

remedies and redress in case of defective or undelivered mobile content products.128

In the

United Kingdom, the question as to whether mobile payments, which allow the consumer to

spend up to a certain amount and pay later, may be regarded not as a payment service, but as a

credit agreement, is being considered. If the latter solution was favored, consumers may benefit

126

Banks and financial institutions, and MNOs are regulated by the National Bank of Rwanda for their financial and

payments services, MNOs are regulated by RURA for their communication services. However, the payment agents

are bound by contracts between them and the telecommunication companies. 127

See art. 5. This article contradicts with art. 7 on “erroneous payment orders” given that the later exempt the

solvens (sender) for liability of payment to the wrong accipiens, the greater amount than that intended or duplicate

payment. Once the sender discovers all these scenarios, this regulation should give possibilities of revocation to the

solvens in order to protect his rights. 128

Consumer Focus. (2009). Pocket Shopping, Consumer Focus, December 2009, available at: http:

//www.consumerfocus.org.uk/assets/1/files/2009/06/Pocketshopping./pdf, visited on 26/05/2014.

http://www.consumerfocus.org.uk/assets/1/files/2009/06/Pocketshopping./pdf

42

from the chargeback protections offered by the country’s Consumer Credit Act 1974129

, as well

as from the anti-fraud protections.

II.1.6.1. Protection of customers in case of unauthorized mobile payments130

In many countries where e-payments, especially mobile payments have gradually evolved,

strictly regulate unauthorized mobile payments. Rwanda is at a good starting point of regulating

unauthorized electronic funds transfers, but there is still a wide room for improvement in relation

to refunds and revocability of any payment made without attention or authorization of the

payer131

.

In the United States, for example, under the Fair Credit Billing Act (FCBA), consumer liability

for lost or stolen credit cards is very limited. In a case where only the consumer’s credit card

number has been used without any authorization, zero liability applies.132

The settlement requires

the company to credit a consumer’s bill or immediately investigate a consumer’s report that the

calls were made after the phone was lost or stolen.

In the European Union (as well as in Iceland, Liechtenstein, and Norway), in accordance with the

Payment Services Directive, consumers are entitled to an immediate refund for unauthorized

charges or billing errors.133

It should be noted, however, that the PSD introduces a balance

between consumers and merchants’ liability.

Under this Payment Services Directive, consumers are not held liable only if they notify the

trader as soon as possible or within 13 months of the fraudulent transaction. In France, under the

Monetary and Financial Code, a cardholder is not held liable for a payment which has been made

without his authorization, at a distance, and without any physical usage of the card. As a result,

129

Consumer Credit Act, 1974 130

See also McEvans v Citibank, 96 Misc.2d 142, and Ognibene v Citibank, 112 Misc.2d 219. In this case, bank

customers who were tricked into permitting others to use their bank cards were granted recovery. So, the court

concluded that plaintiff was the victim of a scam which defendant has been aware of for some time. 131

See also art. 5, para.1 of the Regulation of BNR 132

See Goldman, D. (2012). Mobile Pay War: Wal-Mart and Others vs. Google, CNNMONEY, available at:

http://www.money.cnn.com/2012/08/15/technology/mcx-mobile-wallet.doc/, visited on 11/10/2013. 133

(EC, 2007)

http://www.leagle.com/get_cited/96%20Misc.2d%20142


http://www.money.cnn.com/2012/08/15/technology/mcx-mobile-wallet.doc/

43

the issuer is liable to compensate the mobile phone holder for any loss caused by unauthorized

use.134

In Rwanda, banks and financial services are obliged to provide for effective means by which

customers can notify loss, theft, misuse, unauthorized use of cards, written acknowledging

receipt of notifications that enables the customers to verify that he has made a notification and

when such notification was made.135

However, delays in notifications make the customer liable

for the actual loss which occurred136

, except when that portion of the loss exceeds the daily

transaction of the card or an amount of funds standing in the customer’s account.137

II.1.6.2. Cases of non delivery, late delivery, and non-refunds

Problems related to non-delivery, late delivery, non-conforming and faulty products have been

linked to payments through government regulation and/or by payment providers, particularly in

the area of dispute resolution in many countries.138

In Korea, both credit and debit cardholders

can refuse payment if goods are not delivered. In Rwanda, the situation is controversial because

the mobile user pays for the service first, by the use of his mobile device.

In the European Union, under the Directive on Consumer Rights, where a trader has failed to

fulfill his obligations to deliver a product, a consumer is entitled to a refund by the merchant of

any sums paid within seven days from the due date of delivery.139

In Rwanda, there are many

cases of services paid via mobile devices while they are not obtained, long delays in transferring

funds to the beneficiary, transfer of funds greater or lesser than that ordered by the sender, etc.

There is a high contradiction between the consumers and payment service providers in line with

claims related to m-payment: eight out of ten interviewed customers responded that they

experienced cases of non-reception of funds while the operation was successfully done by the

134

OECD, 2007c, op. cit., p. 27.

135 See art. 9, para.1-3, Regulation no 07/2010 of 27/12/2010 of BNR, governing electronic fund transfers and

electronic money transactions, O.G.R.R no special of 30/12/2010.

136 art. 13, para.1, Regulation no 07/2010 of 27/12/2010 of BNR, Law pre-cited.

137 Regulation Regulation no 07/2010 of 27/12/2010 of BNR, art. 14, para.1, (a) and (b), and art. 15

138 (Consumer Focus, 2009).

139 EU Directive 2007/64/EC, article 9.1(c) incorporated by reference from Article 7.1 of EU Directive 2009/110/

EC (2009).

44

sender, four respondents stated that free call line had never given positive response to their

claim, six respondents stated that it took more than two weeks to pursue their claims. However, it

is surprising to see that there are no complaints addressed to the MNO, nor appealed to BNR or

courts.

The regulation in place requires the payment services providers to inform the customers that they

have right to appeal to BNR in case if they are not satisfied with the outcome of his complaint.140

However, under BNR, there is no particular procedure for handling the third party complaints by

BNR. In practice, if any case could be lodged before BNR, it analyses the case and requests the

payment service providers to resolve the complaint. Simply, this clarifies that consumers are not

aware of the procedure for claims and redress, and again, the power to settle any disputes is

conferred to the payment service providers.

In the case Porter v Citibank141

, the plaintiff had proven that “... he had tried to withdraw money

with no success. On two occasions this was done, no money was received, and yet his account

was charged”, the court ruled in favor of the plaintiff. In Japan, for example, Rakuten, the

country’s leading online commerce platform, introduced mandatory escrow payment services

(Rakuten Anshin Kessai Service, for which there is a charge) for all C2C transactions to address

issues of merchandise non-delivery.142

Interestingly, under this system, payment is not released

to the seller until the buyer actually receives the purchased item.

II.1.6.3. Quid of fraudulent or negligent behaviors of agents of mobile payment service

providers having caused undue payment?

Fraudulent or negligent conducts of officers or agents of financial institutions, merchants who

are linked to the cards or other communication system and mobile operators, are the

140

See article 23 of regulation n°07/2010 of 27/12/2010 of BNR on electronic fund transfers and electronic money

transactions, O.G.R.R no special of 30/2012/2010.

141 Robert Porter (Plaintiff) v Citibank, N. A., (Defendant), Civil Court of the City of New York, New York County,

February 24, 1984, 123 Misc.2d 28 (1984). 142

Mac Carthy, M. and Hillebrand, G. (2010). Viewpoint: Mobile Payments Call For Clear Consumer, in

MARINA, S. and ZERZAN, A. (2009). Groupe speciale mobile assn, Mobile money: methodology for assessing

money laundering and terrorist financing risks, available at: http://www.gsma.com/development.fund/wp-

content/uploads/2012/03/amlfinal35.pdf./, accessed on 20/06/2014.

http://www.gsma.com/development.fund/wp-content/uploads/2012/03/amlfinal35.pdf./


45

circumstances where customer is not liable.143

Regardless of the payment context, there is general

agreement that protection against fraud is a shared responsibility between payment providers and

merchants.144

The latter should in particular ensure that their e-commerce systems are adequate,

transparent, and safe.

Some countries have already taken measures in this regard, implementing regulations, for

example, that limit consumer liability in the case of fraud. Obviously the provider can seek redress

against the agent, but the customer should be able to file a complaint with the provider, who should be

responsible for ensuring data privacy and security.

Thus, providers’ liability for the acts of their agents is a fundamental principle for outsourcing in

financial services.145

With a specific focus on the agents’ actions related to delivery of mobile

payments, ensuring that mobile network providers are liable does not create unlimited liability

and should not create unreasonable burdens on providers.146

On a critical note, it has to be noticed that MNOs do not publicize the recourse options for

lodging complaints against their agents with the same clarity or ubiquity as the pricing structure

or customer service channels. For example, SAFARICOM claims to intervene on customers’

behalf in complaints against agents; nevertheless because their relationship with their agents is

not a legal one, they are only liable to a certain point and not when there are instances of agent

fraud or loss of funds.147

143 Art. 15 of regulation no 07/2010 of BNR on electronic fund transfers and electronic money transactions,

O.G.R.R. no special of 30/2012/2010.

144 BIS Papers no 62 Financial Sector Regulation For Growth, Equity And Stability. Proceedings of a conference

organized by the BIS and CAFRAL in Mumbai, 15–16 November 2011, Monetary and Economic Department

January 2012. 145

Dias, D. and Kate McKee, Protecting Branchless Banking Consumers, available at:

http://www.cgap.org/publications/protecting-branchless-banking-consumers.pdf, accessed on 16/052014. 146

See also Kennison v. Daire, High Court of Australia [1986] HCA 4; (1986) 160 CLR 129, February 20, 1986. 147

Lyman, T., Pickens, M. et al. (2008). Regulating Transformational Branchless Banking: Mobile Phones and

Other Technology to Increase Access to Finance, Focus Note 43, Washington DC: CGAP.

http://www.cgap.org/publications/protecting-branchless-banking-consumers.pdf

46

II.1.6.4. How does the regulation in place govern the burden of proof for consumers’

claims?

Evidence is an essential element in the case ruling, and it is the demonstration of the truth. This

means that the evidence will be necessary in order to show the truth in the case ruling.148

The

other case is that the burden of proof shall be for the plaintiff who has claimed for his/her rights

(actori incumbit probatio).149

This being said, every plaintiff must prove a claim. Failure to obtain proof, the defendant wins

the case. Likewise, a party who alleges that he/she has been discharged from an obligation that

has been established must prove that the obligation no longer exists (reus in expiendo fit actor).

Failure to do so, the other party wins the case.

In a civil case, the plaintiff has the burden of proving the facts and claims asserted in the

complaint. If the respondent, or defendant, files a counterclaim, the respondent will have the

burden of proving that claim. When a party has the burden of proof the party must present,

through testimony and exhibits, enough evidence to support the claim.

In mobile payments, sometimes, the sender receives an SMS that shows that the transactions

have been completed. However, the big concern remains on how the sender of electronic money

may have access to these document while complains occurred.

The regulation of BNR requires the payment service providers to provide effective and

convenient means by which customers can notify loss, misuse, theft, or unauthorized use and

breach of security code.150

They are also required to provide procedures for acknowledging

notifications, and give facilities to the customers to verify whether the notification was

received.151

148

See also, art. 2, Law n° 15/2004 of 12/06/2012 relating to evidence and its production, O.G.R.R special no of

19/07/2004. 149

See art. 9, law no 21/2012 0f 14/06/2012 relating to the civil, commercial, labour and administrative procedure,

O.G.R.R nº 29 of 16/07/2012. 150

In a questionnaire addressed to MTN, Question 1 “How does MTN investigate alleged errors, notify consumers

of the results, and, when appropriate, rectify the errors?”, MTN responded: “ Normally it takes us one day to

investigate any issue escalated by the customer we can notify then through calls or by email or by visiting them.” 151

See art. 9, Law no 07/2010 of BNR on notification of loss, theft or unauthorized use.

47

II.1.6.5. Lack of fixed physical address of MNO Agents as a challenge to the burden of

proof for the consumers

In this section, it has to be reminded that many MNOs Agents do not have the fixed and

registered places where consumers found them for access of data information kept in operating

systems. Moreover, they are considered to be unknown relating to their status in the commerce.

Relating to the ambiguous workers (agents) of the companies in performing their duties, the

Rwandan legislator should elaborate the rules to be followed in order to protect the vulnerable

citizens against the loss as the payment service providers and consumers are on unequal power in

the production of evidences.

II.1.6.6. Effects of anonymity on burden of proof for claims arising in mobile payments

In order to understand how the burden of proof is challenged in electronic and mobile payments

whereby the user stays anonymous in his transactions, it is important to consider the case

Dorothy Judd v Citibank.152

In this case, Judd (plaintiff) was issued a “citicard”, at the time of

validation of this card; the customer had chosen a "personal identification code" which was

known only to the customer.

The issue in this case is whether the testimonies and letter produced by Judd from her employer

to the effect that she was at work on both occasions and could not have made the said

withdrawals is enough to act as evidence of non-withdrawal of the claimed funds. In this regard,

as testified by the bank branch manager, only the customer knew this number — not only was it

known only to the customer, but it was impossible for anyone to retrieve it from the computer,

including employees of the bank.

Referring to US Code, tit 12, § 2403, the court judged in favor of the plaintiff and decided the

following:

152

Dorothy Judd v Citibank, civil court of the City of New York, Queens County, 107 Misc.2d 526 (1980),

November 3, 1980.

48

“An EFT account holder should have no liability for an unauthorized use of his account

unless the depository institution can prove, without benefit of inference or presumption,

that the account holder's negligence substantially contributed to the unauthorized use and

that the depository institution exercised reasonable care to prevent the loss. Negligence in

this instance should be limited to writing the PIN on the card, keeping the PIN with the

card, or voluntarily permitting the account accessing devices, such as the PIN and the

card, to come into the possession of a person who makes or causes to be made an

unauthorized use.”

II.1.6.7. Impact of different regulatory bodies of m-payment on consumer protection in

Rwanda

Before hand, it is important to notice that the inherent problem in Rwanda in the matter of

mobile payment is that there is a lack of coherence in consumer protection and market oversight.

These transactions are driven by different legal duties and powers of individual regulators such

as RURA and the National Bank of Rwanda. Having two regulatory regimes for what is often

from the consumer’s perspective a single product or service can result in different rights and a

divergence in protection for personal and small business153.

As discussed in the details above, mobile payment users may not fully understand which regulations

apply to a payment transaction and how these may differ depending on the possibilities to resolve any

issues arising between them. The lack of understanding results from the fact that a number of

financial and non-financial institutions may be involved in a given payment transaction,

including banks and alternative payment providers, such as MNOs, and other non-bank

institutions operating on the internet.154

As seen above, their operations are often overseen by

different regulatory bodies, which operate under different sets of regulations.

153

Cartwright, P. (2007). The Vulnerable Consumer Of Financial Services: Law Policy And Regulation; and T

Wilhelmsson “The Informed Consumer v the Vulnerable Consumer in European Unfair Commercial Practices Law

– A Comment” in G Howells, a Nordhausen, D Parry and C Twigg-Flesner (eds.) Yearbook of Consumer Law 2007

(Ashgate, 2007) 211, p 213. 154

Cartwright, P. (2007). The Vulnerable Consumer of Financial Services: Law, Policy and Regulation, T

Wilhelmsson “The Informed Consumer v the Vulnerable Consumer in European Unfair Commercial Practices Law

– A Comment” in G. Howells, a Nordhausen, D. Parry and C. Twigg-Flesner (eds.) Yearbook of Consumer Law

2007 (Ashgate, 2007) 211, p. 213.

49

Consumers may therefore find it difficult to determine: what redress rights they have (relating to

correction of orders, returns, exchanges or refunds), which entity to turn to if there is a payment-

related problem, and which regulatory body to appeal to if a problem cannot be resolved with a

merchant directly.155.

II.1.6.8. Protection of consumers in cross-border m-payments

The situation discussed above on the aspect of consumers’ protection is even more complex

when transactions are cross-border. Consumers engaging in online and mobile commerce do not

benefit from the same level of protection when using different payment mechanisms within

jurisdictions156

, which can complicate obtaining redress when a problem arises. In addition,

protection regimes differ from country-to-country, which could discourage cross-border

transactions.

By considering the example of Kenya where e-money services first emerged and have the

deepest level of penetration, it is easy to realize that Kenya has a very unusual regulatory

structure.157

. While mobile phone companies are licensed and supervised by the Communications

Commission of Kenya, mobile payment services are within the mandate of the CBK.158

Both Uganda and Tanzania take a different approach to regulation. In both countries, e-money

licenses are awarded by the central bank (Bank of Uganda and Bank of Tanzania), and are only

given to commercial banks and not to mobile phone companies.

To be more specific, in each country mobile phone companies (such as MTN in Uganda and

Vodacom in Tanzania) manage the network of agents and provide customer services, but are

155

Consider analysis of Giesela Ruhl, G. (2011). Consumer Protection in Choice of Law, 44 CORNELL INT’L L.J.

569 156

Payment News. (2010). MasterCard Releases Prepaid Market Sizing Report, 12 July 2010, available at:

http://www.paymentsnews.com/2010/07/mastercard-releases-prepaid-market-sizing-report.html, accessed on

01/05/2014. 157

Must, B., and Kathleen L. (2010). Mobile Money: Cell Phone Baking in Developing Countries, Policy Matters

Journal, Spring, p. 32.

158 The Kenya Information and Communication Act (1998) Chapter 411A 1(d), available at:

http://www.cck.go.ke/regulations/downloads/Kenya- Information-Communications-Act-Final.pdf, accessed on

20/05/2014.

http://www.paymentsnews.com/2010/07/mastercard-releases-prepaid-market-sizing-report.html

http://www.cck.go.ke/regulations/downloads/Kenya-%20Information-Communications-Act-Final.pdf

50

partnered with commercial banks; which are regulated by the central bank.159

In Burundi, the

mobile money service ECONET is run in partnership with the national postal service, and is

regulated by the central bank. In Rwanda, mobile phone companies provide also the mobile

money services160

, while they are regulated by a different authority.161

Therefore, strengthening education and awareness is seen as helping in this regard. Beyond this,

it is important to establish a minimum level of consumer protection across the EAC member

States that would apply no matter regulatory framework is being used within a jurisdiction. The

minimum level of protection could be established by laws and regulations or be less formal.

Until now in Rwanda, individuals who need to transfer money across the world use means like

international money remittance companies, long distance buses or bank transfers.162

In order to

solve this issue, the National Bank of Rwanda (BNR), the regulator of the financial sector and

payments services needs to work on cross border mobile money payment to supplement existing

channels.

II.1.6.9. Lack of international customer protection benchmark in mobile payment system

UNCITRAL adopted its Model Law on International Credit Transfer (MLICT)163

in 1992 in

response to two main changes: the increasing of electronic means in payment orders, and the

shift from a prevalence of debit transfers to a prevalence of the credit transfers. The MLICT is

compatible with paper-based payment orders, but was actually designed with particular reference

to “high speed electronic credit transfers”.164

In its article 1(2), MLICT specifies that “ this law applies to other entities that as an ordinary part

of their business engage in executing payment orders in the same manner as it applies to banks”.

159 Neil, D. (2011). Regulating nonbank mobile money service providers, available at:

http://mmublog.org/blog/regulating-non-bank-mobile-money-service-providers/, accessed on 13/06/2014.

160 Operating mobile money services in Rwanda include MTN mobile money, Airtel money, and Tigo cash.

161 Telecommunication companies in Rwanda are regulated by RURA in their communication services, and they

are at the same time regulated by the National Bank of Rwanda in their payment activities. 162

John Bosco S., Director of Payment Systems at the BNR, in an interview with the Independent, Sunday 7

February 2013. 163

UNCITRAL Model Law on International Credit Transfers, U.N. Sales No. E.99.V. 11 (1994). 164

See, eg., Shames-Yeakel v. Citizens Fin. Bank, 677 F. Supp. 2d 994 (N.D.III.2009).

http://mmublog.org/blog/regulating-non-bank-mobile-money-service-providers/

51

Legislation based on the MLICT would therefore cover mobile payments affected through a

mobile network operator. On this subject, it is important to notice that the MLICT does not

exclude payments to consumers from its scope of application, but, at the same time, does not

deal with consumer protection, an issue that may give rise to challenges.165

II.1.7. Impact of lack of harmonized regulatory regime on mobile payments in EAC

The EAC region has made huge gains in intra-regional trade and increased movement of workers

and families among member states since 2005 but the lack of a convenient and safe way to make

and receive payments has remained an impediment.

On this, it is added consumer protection issues where disputes resolution will need strong

guidelines as cross-border service involves the institutions which are not supervised by the

central bank of one member state and it complicates the oversight of cross-border schemes.166

Speaking of which, different security protocols and business models of stakeholders may

contribute to the delay of the implementation of cross-border mobile money platforms.

In reality, the interoperability is an urgent matter for EAC as a lot of trade is done within the

region involving money movement. The implementation of the interoperability will help to

increase security of funds but at the same time trade level within the region. To this end, for

BNR, the urgent need that the EAC should address in terms of payment systems is to ensure

interoperability among financial institutions in the region which also includes payment systems

like mobile money. Meanwhile, the East African Payment System (EAPS) has been implemented

to facilitate the development of cross-border payments within EAC region but this also is only

still possible at central bank level.167

165

Man, R. (2005). Making sense of payments policy in the information age, 93 GEO.L.J. 633, p. 52. 166

CIA World Fact Book. (2013). Money Transfer Behavior Before and After M‐payments, available at:

http://www.cia.gov/library/publications/the‐world‐factbook/, visited on 10/07/2014. 167

RWAHIGI, M. the independent, Sunday 17 February 2013, available at: http://www.independent.co.ug/rwanda-

ed/rwanda/7471-airtel-mtn-want-cross-border-cash-transfer#sthash.rbFBAwkf.dpuf, visited on 11/06/2014.

http://www.cia.gov/library/publications/the‐world‐factbook/



52

EAC should learn from other regional integrations. Examples of cross-border cooperation

include168

: Directo a Mexico, which is an international funds transfer service between the United

States and Mexico, the West African Economic and Monetary Union (UEMOA), which

consolidates the market and tries to establish a common currency across several countries, the

Southern African Development Community (SADC), which is a model for financial market

integration; and SEPA.169

This sort of heterogeneity in regulatory environment is needed to be

eliminated in the run-up toward the East African Monetary Union.

Major changes were witnessed by the implementation of the Rwanda Integrated Payment

Processing System (RIPPS). RIPPS has been put in place to reduce time lag in payments and

notably to mitigate systemic risk in the financial system of Rwanda. RIPPS goes even beyond

borders to facilitate trade in the East African and the COMESA regions. It has been upgraded to

enable linkage to Regional cross border Payment Systems, the East Africa Payment Systems

(EAPS) and the COMESA Regional Payments and Settlement System (REPSS).170

II.1.7.1. Regulation of charges in cross-border mobile payment

Developments such as the free movement of labor in the bloc increase the need for simplified

financial communication between the countries and mobile money platforms. However, in EAC,

if one wants to send money to another person in any of the EAC member states, one has to

contact a mobile money agent, and hand over the money plus a commission of at least 15% of

the sum on small transactions.171

It is a long and expensive process of money transfer.

Telecommunication companies in Rwanda are ready to roll of more convenient and cheaper

cross-border mobile money platforms but the absence of a regulatory framework is delaying their

roll out.172

Up today, Airtel operates in all the East African member states except Burundi.

168

Boer, R. and de Boer, T. (2010) Mobile payments: market analysis and overview, Innopay, November 2009; and

A Lim, “Inter-consortia battles in mobile payments standardization”, Journal of Electronic Commerce Research and

Applications, vol. 7, issue 2, 2008. 169

The SEPA (Single Euro Payments Area) Regulation (EC 260/2012) was adopted in 2012. 170

See Matthew RWAHIGI, website pre- cited. 171

Matthew RWAHIGI, website pre- cited. 172

Clain M., the project manager of Airtel Rwanda, in an interview with the Independent, 17 February 2013.

53

It has to be noticed that Regulations for cross-border mobile money operations would require

legislations on good practices, transaction protection, and financial malpractices like money

laundering. To sum up this section, it is worth noticing that in addition to regulatory policy

focusing on the structure of the market and its infrastructure, the mobile payment instruments

require adequate protection of users.

In particular, in addition to transparency requirements, know-your-customer (KYC) guidelines,

and observance of Anti-Money Laundering (AML) regulation, the protection of users’ funds and

their traceability are a must, as well as protection from any risk arising from the use of electronic

means and the intermediation of non-financial agents. Indeed, once service providers are duly

regulated under a risk-based approach and a playing field is ensured in the market to guarantee

competition and competitiveness, all other needs for protection can be addressed under a general

understanding of consumer protection and an adequate consideration of the role of agents.

II.1.7.2. Impact of EAC monetary union on mobile payment system as a newly introduced

payment system in Rwanda

A further and more difficult problem arises in considering how to regulate e-money services that

cross national borders. The EAC Common Market protocol of 2009173

calls for the free

movement of service providers among EAC countries. It is however important to wander

whether this provision applies to telecommunications services, although it would certainly seem

that as the EAC moves toward economic integration, it will be desirable for such services to be

mobile across borders. In this regard, we can conclude that if mobile phone services do cross

borders, it is not hard to imagine that mobile money services will do so as well.

Of course, the existence of separate currencies in the period before full monetary integration

would make the construction of such a system complex, and would introduce new regulatory

issues, and would certainly tax the ability of national regulators to cooperate. This would be all

the more difficult if regulatory structures continued to be a differentiated across countries as they

173

See art. 16 of the Protocol on the establishment of the EAC Common Market

54

currently are. This is another reason why it would be useful to harmonize the form of regulation

of e-money in EAC.

II.2. Effectiveness of mechanisms for disputes resolution in mobile payments available

under Rwandan laws

Effective dispute resolution, minimally at the level of establishing sufficient trust in the system

to encourage its use, is an integral part of any successful payment system (at least any system for

which alternatives is available). An independent and trusted judiciary and/or arbitration-type

process may be called for, especially when considering integration into global markets.

UNCITRAL Convention on the Use of Electronic Communications in International Contracts174

and UNCITRAL Model Law on Electronic Commerce175

are the most important international

instruments covering those issues.

II.2.1. Alternatives for disputes resolution between merchants and consumers in mobile

payment system

Whenever there are disputes between merchant and customer with respect to the receipt, nature

or quality of the good or service purchased, where payment intermediary is only indirectly

involved, there is a serious interrogation about resolution of these disputes since the customer

does not directly interact with the merchant. In this context, some payment providers have

implemented measures to resolve online disputes related to the receipt, nature or quality of

goods.176

Some countries require such measures through their legal regimes, while in other

countries including Rwanda, these initiatives are quietly absent.

174

UNCITRAL Convention, available from http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-

commerce/2005Convention.html, visited on 19/05/2014. 175

UNCITRAL Model Law, available from http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-

commerce/1996Model.html, visited on 19/05/2014. 176

García Álvaro, J. A. (2003). Online Dispute Resolution Uncharted Territory, 7, the Vindobona Journal of

International Commercial Law and Arbitration, p. 180.

http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-commerce/2005Convention.html

http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-commerce/2005Convention.html

http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-commerce/1996Model.html

http://www.uncitral.org/uncitral/en/uncitral-texts/electronic-commerce/1996Model.html

55

II.2.3. Regulation of insolvency of mobile payment service providers under Rwandan

electronic payments regulations

Honestly, mobile payment system is still at the infancy phase. Thus, MNOs generally lack

experience in financial services and payments risk and the regulatory and legal governance of

payment systems. As observed by Bourreau and Verdier177

, MNOs offer mobile money to

consumers through the use of agent networks in absence of a bank partnership; they also provide

the clearing and settlement for the prepaid airtime on the mobile handset.178

Mobile money deposits are already operationally ring-fenced from the MNOs’ accounts in

Rwanda – the regulation requires that they are held in aggregate trust accounts in commercial

banks. However, a legal framework to protect these deposits from the MNO (particularly in the

case of bankruptcy) is not yet in place in Rwanda and would be desirable.

In Rwanda again, the granting of a license to an applicant not being an Institution Supervised by

the Central Bank shall be conditional upon delivering of evidence of an insurance policy

covering 100,000,000 Frw for an applicant wishing to provide remittance services and

200,000,000 Frw for an applicant wishing to provide any other payment service; as security for

the funds channeled through the system.179

In the case where deposits exceed the total deposit

insurance, then there may be an issue as to who would repay depositors in the case of a bank

failure.

II.2.4. Lack of prudential rules imposed on banks and other financial institutions by the

regulation of BNR

In mobile payments, MNOs collect funds in exchange for electronically stored value, without

being subject to the full range of prudential rules imposed on banks. Also, there may be models

177

Bourreau and Verdier. (2010). Cooperation for Innovation in Payment Systems:

The Case of Mobile Payments, Telecom ParisTech, Paris, France, pp. 17-18. 178

Id., p. 21. 179

See art.9, para. 5, Regulation no 06/2012 0f BNR. See also, art. 4, (i),c), and art. 6, para. of regulation n°05/2010

of 27/12/2010 of the National Bank of Rwanda relating to the licensing criteria of operating payment and securities

settlement systems.

56

where even if client funds sit in a bank account, they receive a different regulatory treatment than

those applicable to bank deposits.180

Taking the example of Kenya, Funds collected by SAFARICOM for M-PESA, which customers

increasingly use as a short-term savings mechanism, are deposited in pooled trust accounts at

several commercial banks, for the benefit of the customers. In the event of insolvency however,

there is no mechanism in place for customers to claim trust assets.181

This therefore leaves the consumer with no recourse if the said company becomes insolvent.

Therefore, we consider that this brings forth regulatory challenges in that client assets are left

unsecured due to the lack of an effective regulatory framework. Protecting consumer funds are

measures aimed at ensuring funds are available to meet customer demands for cashing out

electronic value.

II.2.5. Regulation of settlement of disputes in mobile payments with cross-border effects in

Rwanda

For payments having cross-border effects, the situation becomes more challenging, even making

it difficult for consumers to know whom to turn to when problems arise. This can result in delays

in consumers having problems resolved in a satisfactory manner, and, in some cases, failures to

obtain redress as consumers may find it difficult to contact sellers directly, and opportunities for

face-to-face discussions may not be possible.

When problems regarding the purchase of goods or services, or the payment itself arise,

consumers need to know who to contact in order to resolve issues in a cost effective manner. One

of the challenges is to design processes which are viable when low-value products are involved.

Another is to have mechanisms in place to deal effectively with transactions involving cross-

border trade.

180

Morawczynski, O. (2009). Exploring the usage and impact of transformational m‐banking, mimeo, pp. 21-22. 181

Consumer Protection Diagnostic Study: Kenya, Financial Sector Deepening. January 2011, p.7.

57

In Europe, this system has gradually evolved. In 2001, the European Commission launched FIN-

NET182

, a financial dispute resolution network of national out-of-court complaint schemes in the

European Economic Area countries (the European Union Member States plus Iceland,

Liechtenstein and Norway) that are responsible for handling disputes between consumers and

financial services providers (including banks, insurance companies, and investment firms).

This system is a good lesson that EAC member states should take since they are striving to

develop their payment systems. The schemes developed in European Economic Area co-operate

to provide consumers with easy access to out-of-court complaint procedures in cross-border

cases. In the event a consumer in one country has a dispute with a financial services provider in

another country, FIN-NET members will put the consumer in touch with the relevant out-of

court complaint scheme and provide the necessary information about it.183

However, it is possible to realize that many consumers are not well informed about available

dispute resolution schemes, and the potential role of payment providers, particularly in the

mobile payments area184

. In Rwanda, as it has been mentioned above, the situation becomes worse

because consumers are completely unaware of disputes mechanisms that are provided for them (if there

are any).

II.2.6. Jurisdictional issues in mobile payments disputes resolution with cross-border

effects

Beforehand, it is important to remind that many contracts and other forms of legally binding

agreements include a jurisdiction or arbitration clause specifying the parties' choice of venue for

any litigation (called a forum selection clause). Then, choice of law clause may specify which

laws the court or tribunal should apply to each aspect of the dispute. This matches the

substantive policy of freedom of contract.

182

OECD. (2013). Revised Recommendation of the Council concerning Guidelines governing the Protection of

Privacy and Transborder Flows of Personal Data, OECD, Paris, 2013, available at:

http://www.oecd.org/sti/ieconomy/2013-oecd-privacy-guidelines.pdf, accessed on 05/07/2014. 183

OECD. (2013). website pre-cited. 184

OECD. (2009a). Consumer Education, Policy Recommendations of the Committee on Consumer Policy,

OECD, Paris, October, available at: http://www.oecd.org/dataoecd/32/61/44110333.pdf, accessed on 04/07/2014.

http://www.oecd.org/sti/ieconomy/2013-oecd-privacy-guidelines.pdf

http://www.oecd.org/dataoecd/32/61/44110333.pdf

58

In this regard, it can be deduced that when a case comes before a court and all the main features

of the case are local, the court will apply the lex fori, the prevailing municipal law, to decide the

case. But if there are "foreign" elements to the case, the forum court may be obliged under the

conflict of laws system to consider whether the forum court has jurisdiction to hear the case185

or

apply lex loci contractus is one of the possible choice of law rules applied to cases testing the

validity of a contract.

In many mobile payment cases however, the locus contractus is difficult to determine, for

example if the contract was concluded at sea or on a moving train, or if the details of the contract

signing were not well documented.186

In this case, it is recommended to have a strong system of

online cross-border disputes resolution. Normally the country in which the defendant lives is the

country with jurisdiction to process the case. In any regional integration, people who normally

live in a particular Member State must, whatever their nationality, be sued in the courts of that

Member State.187

In Europe, if a dispute is against a person or business in a different Member State, the claimant

has to find out which Member State’s courts have jurisdiction to deal with the case. Jurisdiction

in cross border cases is governed by EU Council Regulation (EC) no 44/2001188

on jurisdiction,

and the recognition and enforcement of judgments in civil and commercial matters (otherwise

known as the Brussels Regulation).

As observed in this research, the regulatory framework of mobile payments in Rwanda is still at

an infancy stage, thus putting consumers and users of mobile payments on their own risks when

it comes to determining the source of a problem and following up with the company concerned,

many consumers are unaware of the regulations in place. In addition, Mobile Network Operators

work separately; which, apart from complicating access to this modern payment model by

185

Starr Printing Co. v. Air Jamaica, 45 F.Supp.2d. 625 (1999 U.S. Dist.). See also Oceanic Sun Line Special

Shipping Co Inc v Fay (1988)165 CLR 197; 79 ALR 9. In this case, the court tested the DOCTRINE OF FORUM NON

CONVENIENS- the forum is inconvenient; the ends of justice would be best served by trial in another forum; the

controversy may be more suitably tried elsewhere. 186

See Lorenzen.(1919). Conflict of Laws Relating to Bills and Notes, pp. 111-119. 187

Dicey and Morris. (2000). The Conflict of Laws (13th edition) (edited by Albert V. Dicey, C.G.J. Morse,

McClean, Adrian Briggs, Jonathan Hill, & Lawrence Collins). London: Sweet& Maxwell 2000, pp. 87-91. 188

Consider European Council Regulation (EC) no 44/2001 of 22 December 2000 on jurisdiction and the

recognition and enforcement of judgments in civil and commercial matters, Official Journal L 012 , 16/01/2001 P.

59

requiring the possession of many SIM cards, it is also quite possible that none of the companies

would be willing to take responsibility for addressing a complaint or rectifying the situation

when an issue arises.

CHAPTER III: MEASURES TO BE ADOPTED FOR EFFECTIVE REGULATION OF

MOBILE PAYMENT SYSTEM IN RWANDA

The details above discussed the lacunae and imperfections of regulation of electronic payments

including mobile payment system in Rwanda in comparison with developed mobile payments in

other countries. This last elaborated the measures to be adopted as solutions to be above

mentioned problems in order to improve the potentials of the Rwandan regulatory system in

dematerializing electronic and mobile payments. Mainly, these consist of preventive and

regulatory measures.

III.1. Preventive measures

The telecommunication industry in most countries is regulated on the basis of a public utility,

whereas the banking sector is regulated on the basis of safety and soundness and capital

adequacy. The telecom industry in most countries lacks experience in financial services and there

are possible business risks associated with this expanded role. Furthermore, the regulatory

infrastructures for mobile carriers in many countries are in nascent stages of development with

respect to mobile financial services.189

This section will focus on important measures to be

adopted in order to prevent these risks.

III.1.1. Measures for prevention of possible risks of interoperability between m-payment

service providers in EAC region

Theory and practice suggest that interoperability for mobile money should be approached

carefully. Requiring interoperability while the Rwandan mobile money market is in its infancy,

189 GSM Association (GSMA). (2007). Regulatory Framework for Mobile Money Transfers, available at:

http://www.mobilemoneyexchange.org/Files/8e31752b, accessed on 12/06/2014.

http://www.mobilemoneyexchange.org/Files/8e31752b

60

with the lowest penetration and highest fees in the EAC, involves significant risks.190

If well-

orchestrated this could benefit the market; but adequate lead-time, support from industry players,

and the right structure will be crucial to success. We can simply deduce that, if these conditions

are not met, Rwanda will run a chance of repeating the mistakes of other countries, with higher

fees and slow growth.

To the extent that agents are shared among MNOs, there may be complications relating to

liability in the case of fraud or misconduct, since the monitoring of the agent is no longer the

responsibility of just one party. There may be a need for guidelines and perhaps arbitration for

dispute resolution. While this does not seem to be a big issue at present (perhaps due to the very

low level of agent sharing), it may yet emerge as one in future.191

By harmonizing the regulatory framework under EAC, there will be a need to ensure that redress

is possible where Regulation has been incorrectly applied, Member States should establish

adequate and effective complaint and redress procedures for settling any dispute between the

payment service users and the payment service providers.

It is also essential to ensure that the competent authorities and out-of-court complaint and redress

bodies, within the Community, actively cooperate for the smooth and timely resolution of cross-

border disputes.192

It should be possible for such cooperation to take the form of an exchange of

information regarding the law or legal practice in their jurisdictions, or a transfer or takeover of

complaint and redress procedures if appropriate.

III.1.2. Educational measures of the risks associated with mobile payments to the

customers

Mobile payment service providers and other regulated entities should take measures of

improving customer due diligence, particularly for higher risk dealings with particular customers

190 Heyer, A. and Mas, I. (2011), Fertile Grounds for Mobile Money: Towards a Framework for Analyzing

Enabling Environments, January 2011, 17.

191 Heyer, A. and Mas, I., op. cit., p. 21. 192

See also, art. 11 of the Regulation (EC), no 924/2009 of the European Parliament and of the Council of 16

September 2009 on cross-border payments in the Community.

61

and cross-border correspondent banking and other relationships.193

In this regard, MNOs should

take measures for the risks of money laundering or terrorist financing by taking into account the

nature and level of understanding of their customers and agents.

These educational mechanisms will help the customers, not only to be aware of their rights and

liabilities, but also to make informed choices. It is important here to remind that it is also often

difficult for consumers to know what protections they have when purchasing products from

another country. Some governments have alerted consumers about the potential differences in

the protections that may be attached to, respectively, domestic and cross-border online

purchases.194

It is worth noticing that consumers’ capacity to protect themselves from payment fraud and

related security threats should not be overestimated. More may need to be done to ensure that

education is being provided to consumers and that such education is understood and acted on.

There are, however, some weaknesses related to the effectiveness of awareness and education

initiatives. Consumers, and, in particular, children and other vulnerable or disadvantaged

consumers, oftentimes do not know how to stay safe online, despite numerous consumer

education and awareness campaigns.195

III.1.3. Availability of measures of risk assessment by mobile payment service providers

Mobile payments are an area of new technologies where financial institutions (and perhaps other

entities developing such new mobile payments) must take appropriate measures to analyze,

manage, and mitigate risks regarding money laundering and terrorist financing risks.196

193

FATF RECOMMENDATIONS, supra note 62, at 14-15. For a discussion of international standards in justified

low risk scenarios, see FIN. ACTION TASK FORCE, ANTI-MONEY LAUNDERING AND TERRORIST

FINANCING MEASURES AND FINANCIAL INCLUSION (2011), available at:

http://www.fatf.gafi.org/media/fatf/content/images/AML%20CFT%20measures%20and%20financial%20inclusion.

pdf/, accessed on 04/05/2014. 194

See OECD, 1999, Section IV, C. 195

EC, 2008, p. 27. 196

See solin, M. & zerzan, A. (2009). GROUPE SPECIALE MOBILE ASS’N , Mobile money: methodology for

assessing money laundering and terrorist financing risks, available at: http://www.gsma.com/development.fund/wp-


http://www.fatf.gafi.org/media/fatf/content/images/AML%20CFT%20measures%20and%20financial%20inclusion.pdf/




62

Thus, the financial institutions as well as the MNOs are required to “identify and assess the

money laundering or terrorist financing risks that may arise in relation to the development of

new products and new business practices, including the new delivery mechanisms, and the use of

new or developing technologies for both new and pre-existing products.”197

In that regard, mobile payment service providers should conduct an anti-money

laundering/counter terrorist financing risk assessment prior to the launch of new products,

business practices, or the use of new or developing technologies. The major focus of the

Rwandan legislator should therefore be how mobile payment service providers are monitored in

line with available assessment of risks associated with foreign correspondent banking, pre-paid

cards and mobile banking, cash-intensive businesses, remote deposit capture, private banking,

and other higher risk products, services, customers or geographies.198

The regulation of BNR requires applicants for a license to produce Proof of ability to comply

with all applicable Anti- Money Laundering and Combating of Financing of Terrorism

(AML/CFT) laws, standards and measures, it also requires the applicant to produce an evidence

that RURA (Rwanda Utilities Regulatory Agency) certified the technology infrastructure for

Payment Service Provider operating their network.199

III.1.4. Measures for prevention of money laundering and terrorism financing under the

Rwandan mobile payments regulatory framework

There are many concerns about risks of money laundering and terrorist financing that may be

associated with new payments methods including online and mobile payments.200

Money

launderers and terrorist financiers can attempt to gain access to a mobile banking account by

stealing a mobile phone with inadequate security features, or by attempting to hack transactions

as they occur via a wireless network, or by tricking customers to disclose their financial account

197

FATF RECOMMENDATIONS, supra note 62, at 17. 198

PIERRE-LAURENT CHATAIN et al., (2011), Protecting mobile money against financial crimes: global policy

challenges and solutions, p. 16 and 17. 199

See art. 4 (9-13), Regulation no 06/2012 of BNR.

200 FIN. ACTION TASK FORCE [FATF], international standards on combating money laundering and the

financing of terrorism & proliferation – the FATF recommendations (2012), available at

http://www.fatf.gafi.org/media/fatf/documents/recommendations/pdfs/FATF%.20Recommendations%20(approved

%20February%202012)%20reprint%20May/, accessed on 02/05/2014.

http://www.fatf.gafi.org/media/fatf/documents/recommendations/pdfs/FATF%25.20Recommendations%20(approved%20February%202012)%20reprint%20May/


63

information via “mishing”201

attacks or fake bank apps. As telecom firms engage in financial

services across shared networks in cross-border jurisdictions, the benefits of mobile payments,

ubiquity, and rapid settlement may also increase the risk of money laundering in mobile transfer

services.

With potential gaps in regulatory oversight in Rwanda and across EAC, mobile payment actors

may find it possible to evade detection and use multiple mobile phones and accounts to finance

terrorism. Since mobile technology-enabled payments do not require the face-to-face interaction

that takes place with traditional banking, a more opaque and anonymous experience is created

that may permit the opportunity for criminal activity.202

This is increasingly important as mobile

retail payments can occur rapidly and in cross-border environments.

Anecdotally, we can find that there is limited expertise in identifying electronic payments crime

in the communication systems among the EAC member states, therefore, the potential for abuse

should be considered. It is therefore required to have a service-based risk analysis by regulators

to determine new approaches to the oversight of money laundering risk.203

Money-laundering

and terrorism-financing mitigation programs require service providers to institute a meaningful

KYC process that is trusted by all parties to the mobile payment transaction.204

Rwanda is at a good stage in preventing and penalizing money laundering and terrorism

financing crimes. In this regard, the new Penal Code provides for measures of penalizing the

201

A “mishing” attack consists of a text message sent to a mobile phone stating something like “Notice: Issues

Found on Your Account. Please Call this number urgently”. See for eg. Fraud Alert/ID Theft, LINN CNTY, STATE

BANK, available at: http://www.linncsb.com/fraud.asp/, accessed on 03/05/2014. Also, Humberto Saabedra, Fake

Mobile Banking App Discovered in Android Marketplace, MOBILE-FINANCIAL.COM (Jan. 11, 2010), available

at: http://www.mobile-financial.com/news/fake-mobile-banking-app-discovered-android-marketplace/, accessed on

03/05/2014. 202

See also, Cheng, R. (2012). PayPal brings digital wallet to merchants through discover, CNET (Aug. 22, 2012),

available at: http://www./news.cnet.com/8301-1035_3-57497979-94/paypal-brings-digital-wallet-to-merchants-

through-discover/, accessed on 19/06/2016. 203

Chatain, P. L., et al. (2008). Integrity in Mobile Phone Financial Services: Measures for Mitigating Risks from

Money Laundering and Terrorist Financing, World Bank Working Paper No. 146, p. 21. 204

For the Inter-state partnership for prevention of crime of money laundering and financing terrorism among EAC

member states, Rwanda has applied for membership in ESAAMLG and procedures for that application are

underway (FIU-Rwanda National Police).

http://www.linncsb.com/fraud.asp/

http://www.mobile-financial.com/news/fake-mobile-banking-app-discovered-android-marketplace/

http://www./news.cnet.com/8301-1035_3-57497979-94/paypal-brings-digital-wallet-to-merchants-through-discover/


64

crimes of money laundering and terrorism financing205

, and an Anti-money laundering law206

was enacted in 2009.

As mobile commerce advances, it will be necessary for mobile payment service providers to

establish integrated systems of internal controls that respond quickly to suspicious activities. The

risk of anonymity in mobile payments may require the mobile payment service providers to

establish new authentication technologies such as voice recognition and fingerprinting to verify

identification and to employ appropriate know-your-customer programs, particularly at

vulnerable points of a transaction when cash withdrawals may be conducted.207

III.1.4.1. Developing Customers Due Diligence measures for prevention of money

laundering and terrorism financing

In this perspective of customers due diligence, it must be understood that three core notions of

“identification”, “verification” and “monitoring”208

have to be taken into consideration and are

intended to reinforce each other so that the financial institution builds knowledge of the

customer that is crucial from an AML/CFT perspective.

Under the FATF Standards, financial institutions must perform due diligence in order to identify

their clients and ascertain relevant information pertinent to doing financial business with them.

Therefore, customer due diligence policy objectives are to ensure that financial institutions can

effectively identify, verify and monitor their customers and the financial transactions in which

they engage, in accordance to the risks of money laundering and terrorism financing that they

pose.

205

See art. 523, and art. 652-659 of the Rwandan Penal Code, Organic Law n° 01/2012/OL of 02/05/2012

instituting the penal code, Official Gazette nº Special of 14 June 2012. 206

Law no 47/2008 of 09/09/2008 is on prevention and penalizing the crime of money laundering and financing

terrorism and the Presidential Order n°27/01 of 30/05/2011, determines the organization, functioning and mission of

the financial investigation unit, which is under Rwanda National Police. 207

Edgar, Dunn & Company (EDC). (2009). Realizing the Full Potential of Mobile Commerce: Orchestrating

Mobile Payments and Money Transfers, available at:

http://www.paytriot.net/files/ampDRIVE/1/mCommerce9050301.pdf/, visited on 20/06/2014. 208

De Koker, L. (2006). Money laundering control and suppression of financing of terrorism: some thoughts on the

impact of customer due diligence measures on financial exclusion. Journal of Financial Crime. Vol. 13(1). Emerald,

pp. 26-50.

http://www.paytriot.net/files/ampDRIVE/1/mCommerce9050301.pdf/

65

Some of the measures that businesses and financial institutions have to take into consideration

include the following:209

a) Identifying the customer and verifying that customer’s identity using reliable, independent

source documents, data or information;

b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the

beneficial owner such that the financial institution is satisfied that it knows who the beneficial

owner is. For legal persons and arrangements this should include financial institutions taking

reasonable measures to understand the ownership and control structure of the customer;

c) Obtaining information on the purpose and intended nature of the business relationship;

d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions

undertaken throughout the course of that relationship to ensure that the transactions being

conducted are consistent with the institution’s knowledge of the customer, their business and risk

profile, including, where necessary, the source of funds.

Let it be stressed that banks should make reasonable efforts to determine the true identity of all

customers requesting the institution’s services. Therefore, it should be a bank’s explicit policy

that significant business transactions are not conducted with customers who fail to provide

evidence of their identity.210

In order to happen, banks should ensure that business is conducted in conformity with high

ethical standards and that banks should adhere to laws and regulations pertaining to financial

transactions.211

Here, banks should not offer services or provide active assistance in transactions

where the bank has good reason to believe they are associated with money laundering.

More importantly, banks should cooperate fully with national law enforcement authorities to the

extent permitted by local laws or regulations relating to customer confidentiality. No support or

209

Isern, J., and De Koker, L. (2009). AML/CFT: Strengthening Financial Inclusion and Integrity, Focus Note 56.

CGAP, Washington, DC, available at: http://www.cgap.org/gm/document-1.9.37862/FN56.pdf/, visited on

20/07/2014. 210 Guy Stessens. (2000). Money Laundering: A New International Law Enforcement Model. Cambridge, England,

and New York, New York, United States: Cambridge University Press, p. 92. 211 De Koker, L. (2006), Money laundering control and suppression of financing of terrorism: some thoughts on the

impact of customer due diligence measures on financial exclusion. Journal of Financial Crime, vol. 13(1). Emerald.

pp. 26-50.

http://www.cgap.org/gm/document-1.9.37862/FN56.pdf/

66

assistance should be provided to customers seeking to deceive law enforcement authorities

through altered, incomplete or misleading information. Where a bank has a reasonable

presumption that funds on deposit are from criminal activity or that transactions entered into are

for a criminal purpose, the bank should take appropriate measures, including denial of assistance,

severing of the customer relationship, and closing or freezing the account.212

The main issue remains for mobile money transfers done between consumers themselves without

capacity to verify identity of the receiver. This situation becomes more complex when it is cross-

border mobile payments because countries have different policies of registration and supervision

of mobile phone holders.

III.1.4.2. Improvement of requirements for eligibility of agents as measure of money

laundering and terrorism financing

In the matter of electronic money transaction, an agent is any person who provides money or

value transfer service under the direction of or by contract with a legally registered or licensed

remitter (for example, licensees, franchisees, concessionaires).213

Many countries permit a wide

range of individuals and legal entities to be agents for financial institutions. Other countries limit

a list of eligible agents on the basis of a legal form.

For example, India permits a wide variety of eligible agents, such as certain non-profits, post

offices, retired teachers, and most recently, for-profit companies, including mobile network

operators. Kenya requires agents to be for-profit actors and disallows non-profit entities. Brazil

permits any legal entity to act as an agent, but prevents individuals from doing so.214

It seems essential for countries that have different regulatory concerns to balance agent eligibility

requirements (that are essential from an AML/CFT perspective) with the financial inclusion

objective. This question may also require some discussion and consultation with the financial

212 Isern, J., and De Koker, L. (2009), AML/CFT: Strengthening Financial Inclusion and Integrity,

Focus Note 56. CGAP, Washington, DC, available at: http:// www.cgap.org/gm/document-1.9.37862/FN56.pdf/,

accessed on 26/07/2014. 213

John McDowell and Gary Novis .(2001). Economic Perspectives, U.S. State Department, May 2001, p. 8. 214 Cummings, L. and Stepnowsky, P.T. (2011). My Brother’s Keeper: An Empirical Study of Attorney Facilitation

of Money Laundering through Commercial Transactions, University of Maryland Legal Studies Research Paper No.

2010-32, University of Maryland, College Park, p. 68.


67

sector (in some countries the list of eligible agents may be very extensive but underused by the

financial actors that may be reluctant to engage agents). It must also be emphasized that retailers

are not necessarily agents of the banking institution.215

The principle of ultimate liability of the financial institution for agents‟ compliance with the

AML/CFT requirements seems almost universal although the extent of liability may differ from

one country to another.

III.1.4.3. Making the principal financial institutions liable for acts of their agents in the

matter of money laundering and terrorism financing

The fact that agents act as an extension of the principal financial institution means that the

processes and documentation, notably for AML/CFT purposes, are those of the principal

financial institution. The main role and duties and how agents have to perform those duties will

be determined by the principal financial institution.216

In that context, it is essential that these

duties are clearly specified in the agency agreement in terms of which the retailer is appointed as

an agent of the principal financial institution.

It seems that in practice, the contracts between the principal financial institution and their agents

vary considerably across countries and markets but common clauses seem generally to include

the duty to perform specified AML/CFT checks, record-keeping and reporting obligations.217

In

determining the AML/CFT role and duties of the agents, it is crucial to take into account the

potential practical limitations faced by retailers (often small shops). Retailers generally have a

partial knowledge of the transactions conducted by the customer (i.e., the transaction conducted

in their respective shops). AML/CFT duties of the agents and the principal financial institution

should be seen as complementary and inclusive.

As indicated above, the FATF requires financial institutions to have appropriate systems and

controls to monitor the transactions of each client, and report to the financial intelligence unit

215

Id. p. 70. 216 Bucy, P. H. (1998). White Collar Crime: Case and Materials, 2

nd Edition, St. Paul Minn: West Publishing Co.,

pp. 13-14. 217 Muller, W. H., Kalin, C. H., & Goldsworth, J. G. (2007). Anti Money Laundering: International Law and

Practice. Library of Congress Cataloging in Publication Data: England, p. 29.

68

any transaction or activity that could be suspected to be related to money laundering or terrorism

financing crimes. This monitoring requirement may require some adjustments in principal-agent

scenarios although the models developed in countries under review seem very similar.

In Mexico for instance, according to AML/CFT legal framework, financial entities are required

to establish systems and mechanisms that allow them to receive online all transactions made

through an agent, in the same way as those carried out in banking offices. The operations carried

out by the agent must be monitored by the financial entities and reported to the FIU in case of

suspicion.218

In addition, financial entities must have automated systems that allow them to develop, among

other things, the functions of detecting and monitoring transactions carried out by client and

must have the purpose of detecting possible unjustified deviations in their transactional profile in

order for the Communication and Control Committee (conformed by high ranking employees of

the financial entities)219

to analyze them and if considered, report them to the FIU.

III.1.4.4. Improvement of technology for prevention of money laundering and terrorism

financing

Mobile payments are an area of new technologies where financial institutions (and perhaps other

entities developing such new mobile payments) must take appropriate measures to analyze,

manage, and mitigate risks regarding money laundering and terrorist financing risks.220

The mobile payment service providers are required to undertake a risk assessment prior to the

launch of new products or business practices, or the use of new or developing technologies.

Thus, the financial institutions as well as the MNOs are required to “identify and assess the

money laundering or terrorist financing risks that may arise in relation to the development of

218 Nader, J. C. (1995). Prentice Hall’s Illustrated Dictionary of Computing, 2

nd edition, National Library of

Australia: Australia, p. 107. 219

Ibid. 220

See solin, M. & zerzan, A. (2009). GROUPE SPECIALE MOBILE ASS’N, , Mobile money: methodology for

assessing money laundering and terrorist financing risks, available at: http://www.gsma.com/development.fund/wp-




69

new products and new business practices, including the new delivery mechanisms, and the use of

new or developing technologies for both new and pre-existing products.”221

In that regard, mobile payment service providers should conduct an anti-money

laundering/counter terrorist financing risk assessment prior to the launch of new products,

business practices, or the use of new or developing technologies. The major focus of the

Rwandan legislator should therefore be how mobile payment service providers are monitored in

line with available assessment of risk associated with foreign correspondent banking, pre-paid

cards and mobile banking, cash-intensive businesses, remote deposit capture, private banking,

and other higher risk products, services, customers or geographies.222

The regulation of BNR requires applicants for a license to produce Proof of ability to comply

with all applicable Anti- Money Laundering and Combating of Financing of Terrorism

(AML/CFT) laws, standards and measures, it also requires the applicant to produce an evidence

that RURA (Rwanda Utilities Regulatory Agency) certified the technology infrastructure for

Payment Service Provider operating their network.223

III.1.4.5. Measures of inter-institutions cooperation in the mobile payment services

Considering the example of India, one of the most promising signs of India’s leadership in

mobile payments comes from the high level of cooperation within the industry itself. On both the

banking and the telecoms sides, one can see players come together and put aside their

competitive differences in order to develop common standards and approaches to mobile

payments.

For a comparative purpose, let us consider the example of India in the matter of inter-institutions

cooperation in mobile payment. In India, all stakeholders – banks, telecoms operators,

technology providers, regulators and government organizations – have created the Mobile

Payments Forum of India (MPFI), and are collaborating to address the market needs.

221

FATF RECOMMENDATIONS, supra note 62, at 17. 222

PIERRE-LAURENT CHATAIN et al., (2011), Protecting mobile money against financial crimes: global policy

challenges and solutions, p. 16 and 17. 223

See art. 4 (9-13), Regulation no 06/2012 of BNR.

70

And while this may seem like a portent for a deep division between the telecom carriers and the

banks, the reality is that both are working closely with the Reserve Bank of India (the banking

regulator) and the Telecoms regulator to ensure that the industry is moving towards a level of

standardization and interoperability that should allow the development of an open

and interconnected mobile payment ecosystem across the country.224

III.1.4.5.1. Cooperation with FIU-Rwanda National Police for prevention of money

laundering and financing of terrorism

In order to prevent Money Laundering and Financing Terrorism, Rwanda National Police is

enacting regulations aiming at preventing, detecting, fighting and eradicating the crime.225

More

importantly, the following mechanisms have been put in place:226

Formation of FIU, nomination

of money laundering reporting Officers in each commercial bank, formation of fraud forum. In

addition, the following documents were drafted aiming for money laundering and financing

terrorism prevention waiting for approval:

a. Directive on cross border cash declaration,

b. Directive on suspicious transaction for reporting entities,

c. Directive on identification of customers

d. Directive on Record keeping for reporting entities.

e. Directive on Casinos and other Gaming halls

f. Suspicious transaction report form, this was approved and issued to all banks.

i. Various trainings were conducted for capacity building of FIU staff for effective

performance.

224 Carr M. (2009). Framework for Mobile Payment Systems in India, in “Mobile and Ubiquitous Commerce”,

Advanced E-Business Methods. Edited By: Milena M. Head Eldon Y. Li, Information Science Reference, p. 41. 225

Art. 1, Law n° 47/2008 of 09/09/2008 on Prevention and Penalizing the Crime of Money Laundering and

Financing Terrorism. 226

Respondent: department of Financial Investigation Unity in Rwanda National Police.

71

III.1.4.5.2. Establishing a strong cooperation between public and private sectors for

effective anti-money laundering measures

Building up an appropriate and balanced AML/CFT regime based on domestic circumstances

requires extensive coordination among competent authorities and between public authorities and

the private sector. Effective information exchange between the public and private sectors will

form an integral part of a country's strategy for combating money laundering and terrorist

financing while promoting financial inclusion.

To be productive, information exchange between the public and private sector should be

accompanied by appropriate exchanges among public authorities.227

FIUs, supervisors and law

enforcement agencies should be able to share information and feedback on results and identified

vulnerabilities, so that consistent and meaningful inputs can be provided to the private sector.228

III.1.5. Possible solutions to the consumers in cases of mobile payments errors

As mobile financial transactions are concluded through mobile network installed by mobile

network operator, in case of transaction errors arising in the course of electronically transmitting

or processing the conclusion of a transaction, there may be cases where not financial institution

but mobile network operator shall be liable for the loss.229

However, in reality, it’s almost impossible for customers to clarify whether error was caused by

financial institution or mobile network operator. It would be desirable to make financial

institution compensate customer for damage caused by transaction errors arising in the course of

electronically transmitting or processing the conclusion of a transaction, and then allow financial

227 Chatain, P-L., Hernández-Coss, R., Borowik, K. and Zerzan, A. (2008) Integrity in Mobile Phone Financial

Services: Measures for Mitigating Risks from Money Laundering and Terrorist Financing, Working Paper 146. The

World Bank, Washington, DC, pp. 28-30. 228 Bangko Sentral Ng Pilipinas. (2011). Updated Anti-Money Laundering Rules and Regulations, available at:

http://www.bsp.gov.ph/downloads/regulations/attachments/2011/c706.pdf/, accessed June 2014. 229

Timothy R. McTaggart & David W. Freese, (2010), Mobile Banking: What Banks Need to Know When

Outsourcing Their Platforms, 3 BLOOMBERG L. REP. – BANKING & FIN., no. 11, p. 18.

http://www.bsp.gov.ph/downloads/regulations/attachments/2011/c706.pdf/

72

institution to exercise right of indemnify over the mobile network operator by proving the

intention or negligence of the mobile network operator.230

Given that mobile payment systems are at the infancy stage in Rwanda, they have not reached

the level of direct mobile billing services. In order to prevent possible risks related to direct

mobile billing services, it is important to think of possible preventive measures and regulate the

liabilities of operators in this system.231

Therefore, considering deep involvement of issuer of mobile electronic money and mobile

network operator or payment gateway of direct mobile billing service that are not financial

institution, it would be desirable to categorize them as mobile financial business operator and

impose them the same liability of financial institution in case of unauthorized transaction.232

III.1.6. Measures of protection of minors engaging in mobile payments for effective

protection of consumers

Children are actively engaged in purchasing products online and through their mobile devices

without always appreciating the associated risks, and despite the fact that in most countries they

do not have the legal right to enter into commercial transactions.233

One way to protect them is to

ensure that their age and identity is verified online prior to making a purchase. Research

indicates that this is rarely done, with one report pointing out that 76% of purchases made using

mobile devices do not require any age verification step.234

Even where such steps are included,

unlike face-to-face transactions, it can be relatively easy for children to pose as adults online.

It should be noted, however, that age verification tools may not provide the only way to

effectively protect children in online and mobile payments. Instead, there should be the shared

230

See Goldman, D. (2012). Mobile Pay War: Wal-Mart and Others vs. Google, CNN-MONEY (Aug. 15, 2012),

available at: http://money.cnn.com/2012/08/15/technology/mcx-mobile-wallet/, accessed on 16/05/2014. 231

Smith, J. (2011). 9 Banks With iPhone Remote Check Deposit Apps, GOTTA BE MOBILE (June 13, 2011),

available at: http://www.gottabemobile.com/2011/06/13/9-banks-with-iphone-remote-check-deposit-apps/, accessed

on 16/05/2014. 232

The Future of Money. (2012). Where do Mobile Payments Fit in the Current Regulatory Structure?: Hearing

Before the H. Subcomm. on Fin. Inst. and Consumer Credit, 112th Cong. available at:

http://financialservices.house.gov/UploadedFiles/112-142.pdf/, accessed on 17/05/2014. 233

See article 7 of the law n° 45/2011 of 25/11/2011 on “Capacity to contract”, Official Gazette nº 04bis of

23/01/201. 234

Consumer Focus, 2009, p. 47

http://money.cnn.com/2012/08/15/technology/mcx-mobile-wallet/

http://www.gottabemobile.com/2011/06/13/9-banks-with-iphone-remote-check-deposit-apps/

http://financialservices.house.gov/UploadedFiles/112-142.pdf/

73

responsibility between parents, e-commerce, and mobile service providers and payment

organizations, in educating and raising awareness among children about the potential risks

associated with online and mobile purchases and ways to protect themselves against those

threats.235

III.2. Regulatory measures

As discussed in details above, the main challenges are related to regulatory frameworks, which

involve both legal rules and their relationship to private sector measures. In addition, a number

of parties, including financial institutions and non-financial institutions are involved in e-

commerce payment transactions with consumers. The rules governing their operations, which

cover the telecommunications, competition, and financial services regulations areas, as well as

consumer protection (specific to ecommerce and/or payments) may differ.

The regulatory environment governing mobile payments is still at the infancy stage in Rwanda

given that electronic payment system is new and still evolving. It is crucial to promulgate

specific legislation that applies to online and/or mobile payments, while others apply to general

consumer protection, telecommunications, or financial regulation.

III.2.1. Improving the role of National Bank of Rwanda in conflicts resolution between

customers and mobile payment service providers

Generally, the central bank assesses the adequacy of the scheme’s structure and steps in only if

the scheme owner is not doing its job. The central bank has explicit legislative authority over the

stability, as well as the competition and efficiency, of the payments system.236

In that regard, the

central bank’s main objective has been to introduce contestability into all phases of payments,

from provision of stored value to clearing and settlement.237

235

McKay, C., et al. (2012), The Challenge of Inactive Customers, CGAP presentation, available at: http://www.slideshare.net/CGAP/the-challenge-of-inactive-customers/, visited on 03/04/2014. 236

Green E, J. (1999). Money and Debt in the Structure of Payments, Federal Reserve Bank of Minneapolis

Quarterly Review 23 (spring), pp. 13–29. 237

Cavalcanti, R., and Neil, W. (1999). A Model of private bank-note issue, Review of Economic Dynamics 2

(January 1999), pp. 104–36.

http://www.slideshare.net/CGAP/the-challenge-of-inactive-customers/

74

Therefore, the Nation Bank of Rwanda should aim at establishing a regime in which nonbanks

can have a role, hoping to stimulate competition and improve payment efficiency. As far as the

customers’ protection is evocated in this study, we find that it is not enough for National Bank of

Rwanda to have established a declarative responsibility of services providers to produce details

of the customer protection measures, including consumer recourse mechanisms and consumer

awareness program when applying for a payment license238

; it should however have provided for

means of recourse when the payment services providers are unable to settle the disputes.

III.2.2. Improvement of role of COMESA clearing house to promote cross-border mobile

payments across the region

The COMESA was established to improve the efficiency of clearing operations and complement

the services of commercial banks as well as facilitate monetary and fiscal policy harmonization

within the region.239

Given the limited amount of convertible currencies in the region, the

COMESA Clearing House was to promote cross-border payment and settlement through the

Regional Payments and Settlement System by allowing businesses to invoice their exports in

national currencies as against the scarce convertible currencies like the United States dollars.240

However, up to date, COMESA has not recorded much achievement in promoting the payment

systems of the member countries and clearing activities were suspended due to the disparate

policies and infrastructure of member countries.

III.2.3. Regulatory measures of insolvency of m-payment service providers for the security

of deposits of funds of the public

While the regular prudential regulation of the bank does provide one line of defense here, a more

direct solution would be to require MNOs to maintain deposit insurance up to the total value of

all deposits. Alternatively, the BNR could place restrictions on what these deposits can be

238

See art. 4 (10), Regulation no 06/2012 of BNR, Law pre-cited. 239

Ulrich, B. (2002). The silence of Words and Political Dynamics in the World Risk Society, in Logos. 1, pp. 11-18. 240 Onyeiwu, S. (2002). Inter-Country Variations in Digital Technology in Africa: Evidence, Determinants and Policy

Implications, UNU-WIDER, Discussion Paper no. 2002/72 Helsinki: UNU-WIDER, p. 22.

75

invested in by the bank (e.g. government debt) that is tied to the aggregate deposit. The BNR

could also require MNOs to split their deposits across multiple banks to diversify bank risk.

Such measures typically include also restrictions on the use of such funds, requirements that such

funds be placed in their entirety in bank accounts or government debt and that there should be a

diversification of floats across several financial institutions.241

In this regard, the regulation in

place should require that the funds backing the mobile money stored value are protected from

institutional risks, such as claims made by creditors in cases of issuer bankruptcy.242

III.2.4. Developing online disputes settlement measures for effective cross-border m-

payments

As Internet usage continues to expand, interest has grown in designing efficient mechanisms for

resolving online shopping and payment disputes. More traditional mechanisms, such as

litigation, can be time consuming and expensive for consumers. Online dispute resolution

schemes are increasingly being explored by stakeholders as a means for resolving disputes in

many countries.

Defined as “a means of dispute settlement whether through conciliation or arbitration, which

implies the use of online technologies to facilitate the resolution of disputes between parties,”

online mediation can provide substantial savings when compared with traditional litigation.243

As concluded at an international conference hosted by the United Nations Commission on

241

Tarazi, M., and Breloff, P. (2010). Nonbank E-Money Issuers: Regulatory Approaches to Protecting Customer

Funds, Focus Note 63, available at:http://www.cgap.org/gm/document-1.9.45715/FN_63_Rev.pdf/, accessed on

17/05/2014. 242

Tarazi, M. and Breloff, P. (2010). Non-bank E-Money Issuers: Regulatory Approaches to Protecting Customer

Funds, CGAP Focus Note 63. Available at: http://www.cgap.org/sites/ default/ files/CGAP-Focus-Note-NonbankE-

Money-Issuers-RegulatoryApproaches-to-ProtectingCustomer-Funds-Jul-2010.pdf, accessed 16/05/2014. Art. 7,

Regulation no 06/2012 of BNR requires respectively a minimum capital of 50,000,000Rwf and 100,000,000Rwf for

any other institutions not supervised by the Central Bank and engaging in payment. 243

Neil, D. and Leishman, P. (2011). Building, Incentivizing and Managing a Network of Mobile Money Agents: A

Handbook for Mobile Network Operators, GSMA, London, UK, available at:

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2011/02/Agent-Networksfull.pdf/, accessed on

21/06/2014.

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2011/02/Agent-Networksfull.pdf/

76

International Trade Law (UNCITRAL) on 29-30 March 2010, in a cross-border context, online

mediation tailored to small value transactions may be in fact the only cost-effective option for

consumers.244

Part II, Section III, A i) and iii) of the E-Commerce Guidelines requires businesses to provide

consumers with accurate, clear and easily accessible information about themselves (including

their geographic locations) and ways to resolve disputes. Such information and redress

mechanisms are necessary to help strengthen consumer confidence in cross-border

transactions245

, as also provided for in the Consumer Dispute Resolution and Redress

Recommendation which calls on member countries to enhance the effectiveness of consumer

remedies in cross-border disputes.

III.2.5. The necessity of the Rwandan legislator to be vigilant for the challenges related to

online disputes settlement mechanisms

While recognizing the benefits that online disputes resolution may bring to consumers, consumer

organizations indicate a number of challenges associated with such procedures. These include a

lack of direct interpersonal contact that may limit consumer ability to explain their problem to a

merchant; and a required degree of consumer knowledge and familiarity with sophisticated web

technology that may be an obstacle for many consumers.246

This situation becomes worse in countries like Rwanda and other EAC member states where the

majority of the mobile payment users are not knowledgeable of technological means and where

technology is still developing. Based on these conclusions, UNCITRAL launched work on the

development of a legal standard online dispute resolution related to cross-border e-commerce

transactions.247

In Rwanda, all the financial institutions and mobile operators have the free call

244

(UNCITRAL, 2010a). 245

See Veniard, C. (2010). How Agent Banking Changes the Economics of Small Accounts, Bill & Melinda Gates

Foundation

Paper for the Global Savings Forum, available at

http://www.gatesfoundation.org/financialservicesforthepoor/Documents/agent-banking.pdf/, visited on 21/06/2014. 246

McKay, C., et al. (2012). The Challenge of Inactive Customers, CGAP presentation, available at

http://www.slideshare.net/CGAP/the-challenge-ofinactive-customers.pdf/, accessed on 29/05/2014. 247

The work was held in December 2010 (UNCITRAL, 2010b). Draft procedural rules were discussed at the

Working Group III’s meetings held in May and November 2011 (UNCITRAL, 2011).

http://www.gatesfoundation.org/financialservicesforthepoor/Documents/agent-banking.pdf/

http://www.slideshare.net/CGAP/the-challenge-ofinactive-customers.pdf/

77

centers by which customers can present their claims. However, rare solutions have been given

through these phone calls disputes resolution mechanism.248

III.2.6. The use of connecting factors in cross-border mobile payments disputes settlement

In many of the transactions, the parties use a standard purchase order, sales contract, or other

agreement - the same documents are used when the other party is in exporting countries.

However, there are some important differences between domestic and cross-border purchase or

sale transactions that warrant a special look at international contracts249

, and especially when a

contract consists of online or mobile payment.

Many contracts and other forms of legally binding agreement include a jurisdiction or

arbitration clause specifying the parties' choice of venue for any litigation (called a forum

selection clause).250

Then, choice of law clause may specify which laws the court or tribunal

should apply to each aspect of the dispute. This matches the substantive policy of freedom of

contract. Generally, the court will apply the law chosen by the contracting parties in solving their

disputes; otherwise, the court will apply the connecting factors.251

The court facing this issue will choose among these connecting factors in settling the disputes.

Hence, it will either apply the law of the forum (lex fori) to all procedural matters (including,

self-evidently, the choice of law rules), or lex loci for substance matters. Lex loci includes the

law of the place where a transaction physically takes place or of the occurrence that gave rise to

the litigation (lex loci actus), the law of the place where the contract was made (the lex

contractus), and the law of the place where the contract was intended to be performed (the lex

loci solutionis).252

248

Eight out ten interviewed customers, which is 80%, revealed that the free phone calls have never been successful

to their claims. The infringed customer has to wait until the problem is solved, and in many cases, there is no

respondent on the free call line. 249

Dicey & Morris. (2000). The Conflict of Laws, (13th edition) (edited by Albert V. Dicey, C.G.J. Morse, Mc

Clean, Adrian Briggs, Jonathan Hill, & Lawrence Collins), London: Sweet& Maxwell 2000, pp. 87-91. 250

Briggs, A. (2000). The Conflict of Laws, Oxford: Oxford University Press 2002, p. 39. 251

Ibid. 252

Dicey and Morris. (2000). the Conflict of Laws, (13th edition) (edited by Albert V. Dicey, C.G.J. Morse,

McClean, Adrian Briggs, Jonathan Hill, & Lawrence Collins). London: Sweet& Maxwell 2000, pp. 87-91.

78

III.2.7. Harmonization of regulations governing the Mobile Payment Service Providers in

East African Community

EAC is inspired by the European Community in the matter of regional integration and

harmonization of legislations. The difference in the payment methods across countries has been

identified as one of the barriers slowing the growth of cross-border e-commerce. As regards

mobile payments in Europe, a lack of open standards for interoperability between card issuers

and mobile network operators has been identified by the European Payments Council (EPC) as a

major barrier to successful commercial deployments.253

In European Community, efforts are underway to expand the scope of electronic payment

schemes, through the development of global standards. An International Council of Payment

Network Operators (ICPNO) has been established to build the framework and establish the rules

and standards for joining the global payment networks. As far as the EAC is concerned on

harmonization of regulations governing mobile payments among its member states, key issues

such as technology, international settlement, legal compliance, security, communications, fee

structures and exchange rate mechanisms have to be prior examined.

In so doing, the policy maker and the regulator could help providers to assess the particular risks

and costs of interoperability at the platform, distribution, and customer level. The policy maker

could also help to ensure that interoperability is not removing healthy competition that drives

financial inclusion (e.g. investments in distribution if third party sharing is implemented in an

immature market).254

Among the EAC member states however, it is difficult to predict for certain

whether interoperability would actually lower costs and expand customer choice – the mobile

money industry is still too new.

253

European Payments Council (EPC), 2010a, p. 52. 254

Narda L. Sotomayor. (2012). Setting the Regulatory Landscape for the Provision of Electronic Money in Peru, in

Innovations, Volume 6, Issue 4, MIT Press, available at

http://www.sbs.gob.pe/repositorioaps/0/0/jer/ddt_ano2012/DT-3-2012_Narda_Sotomayor.pdf/, accessed on

29/03/2014.

http://www.sbs.gob.pe/repositorioaps/0/0/jer/ddt_ano2012/DT-3-2012_Narda_Sotomayor.pdf/

79

With this consideration, EAC is advised not to rush because the risk of moving too early (or in

the wrong way) poses two major risks to the industry as a whole.255

These include compliance

costs may increase, making the business case more challenging for providers, and again,

implementing the technical side of interoperability can be complex and distract the operator from

focusing on the basics of the service256

, such as building the distribution network and educating

customers. The timing and cost-effectiveness of any regulatory intervention must be appraised

carefully, and market-led solutions should always be the preferred option.257

Therefore, within the EAC integration, legislators should ensure that consumers are informed

about potential security and privacy challenges they may face in m-commerce and the available

measures which can be used to limit the risks. They should also encourage the development of

security precautions and built in security features.258

Mobile payment operators should be

encouraged to implement data security policies and measures to prevent unauthorized

transactions and data breaches.

III.2.8. The East African Payment System (EAPS) as a solution to cross-border e-

payments

The East African Payment System (EAPS) was launched on November 25, 2013 and links the

Real Time Gross Settlement Systems (RTGSs) of the EAC member States.259

It is also an

initiative of the EAC Central Banks operating in three countries: Tanzania, Kenya, and Uganda

while Rwanda and Burundi are expected to join later.

255

Bankable Frontier Associates (BFA) (2012), Interoperability and the Pathways towards Inclusive retail Payments

in Pakistan,” Washington D.C., available at: http://www.cgap.org/sites/default/files/CGAP-BFA-Interoperability-

and-the-Pathways-Towards-Inclusive-Retail-Payments-in-Pakistan-Jun-2012.pdf/, accessed on 11/03/2014. 256

See also, Matu Mugo. (2011). Regulation of Banking and Payment Agents in Kenya, in “The Fletcher School:

Leadership Program for Financial Inclusion, Policy Memoranda 2011,” Boston, MA, United States, available at:

http://fletcher.tufts.edu/CEME/publications/media/Fletcher/Microsites/CEME/pubs/papers/MEMOS%20Final.pdf/,

accessed on 01/04/2014. 257

See also, Hannig, A. and Jensen, S. (2010). Financial Inclusion and Financial Stability: Current Policy Issues,

ADBI Working Paper 259. Tokyo: Asian Development Bank Institute, available at http://www.adbi.org/working-

paper/2010/12/21/4272.financial.inclusion.stability.policy.issues/, accessed on 29/03/2014. 258 See for example OFT (Office of Fair Trading) (2010a), E-Consumer Protection, A Public Consultation on

Proposals, July 2010, available at: http: www.oft.gov.uk/shared_oft/consultations/eprotection/oft1252con.pdf/,

accessed on 06/06/2014. 259

Neil, D. (2011). Regulating non-bank mobile money service providers, available at: http://mmublog.org/blog/regulating-non-bank-mobile-money-service-providers/, accessed on 13/06/2014.

http://www.cgap.org/sites/default/files/CGAP-BFA-Interoperability-and-the-Pathways-Towards-Inclusive-Retail-Payments-in-Pakistan-Jun-2012.pdf/


http://fletcher.tufts.edu/CEME/publications/media/Fletcher/Microsites/CEME/pubs/papers/MEMOS%20Final.pdf/

http://www.adbi.org/working-paper/2010/12/21/4272.financial.inclusion.stability.policy.issues/


http://www.oft.gov.uk/shared_oft/consultations/eprotection/oft1252con.pdf


80

As explained by Louis Kasende260

, EAPS is a multi-currency system in which payments are

effected using any of the currency of the EAC partner States. In the aspect of cross-border

payments, it is expected to make cross-border payments easier, facilitate safe and efficient

transfer of monetary value within the region, and will be vital in promoting regional trade, as

well as promoting economic integration.

260

Louis K. (Deputy Governor, Bank of Uganda), in a press release of November 25, 2013, available at: https://www.bou.or.ug/bou/media/from_the_bank/EAPS_Goes_Live.html, visited on 16/06/2014.

https://www.bou.or.ug/bou/media/from_the_bank/EAPS_Goes_Live.html

81

GENERAL CONCLUSION

The expansion of digital technologies has dramatically changed the way in which electronic

communication services are delivered to and accessed by consumers. Mobile phones today

perform more like handheld computers. Mobile phones now are poised to function as payment

devices, allowing users to pay for goods and services and transfer funds. This not only promotes

competition of a wide variety of services and applications that was not possible before, but

consequently requires new regulatory frameworks to tackle issues previously managed in the

separate and distinct domains of broadcasting, telecommunication and online services.

Mobile banking and payment services have grown rapidly in recent years. They have the

potential to offer benefits for some consumers in vulnerable circumstances, but only if the

services are designed in an effective way. Mobile phone services can also offer ways of carrying

out online transactions for some who are not otherwise on the internet. However, a number of

significant barriers need to be addressed if mobile payment services are to be of benefit to all

consumers. Furthermore, the developments raise questions about the effectiveness of regulation

and implications for consumer protection.

Rwanda has joined other East African countries in the dynamic mobile payment industry. The

low income and rural population can benefit substantially from the expansion of this payment

system especially for unbanked. The BNR has done an excellent job in regulating the market so

far, but the way in which it manages the more complex issues of regulation emerging, most

particularly those relating to interoperability, will be important for the development of the

industry.

Regulation of mobile payment, a new technology-based, capital-intensive product is

complicated; ineffective regulation can be a big hindrance to the development of this new

payment system. At the same time, there are regulatory issues pertaining to consumer protection

and risk, especially given the association of e-money with the financial system. Regulation of

mobile payment needs to strike a delicate balance between allowing space for investment and

innovation to flourish and concern for competition, financial risks and consumer protection.

82

In many cases, consumers, merchants and other parties involved in transactions may not fully

understand what legal framework applies to a particular transaction, what the responsibilities are

for the parties in the case of fraud or security problems, or what types of dispute resolution

mechanisms or redress rights may be available to consumers in the event of a problem.

Other issues include general consumer issues, such as unauthorized payment charges, non

delivery, late delivery and non conformity of products, as well as dispute resolution and redress.

Closely related are also issues concerning consumer information, empowerment, and education.

On this list of issues studied in regulation of mobile payment systems, it is important to add the

technical payments issues that are related to transactions. These include security-related issues,

such as digital identity management.

If the barriers can be overcome, mobile payment services could offer benefits to a number of

consumers in vulnerable circumstances, including a convenient way to make payments without

having to carry cash. This research has described and analyzed the various resources, strategies

and tools that regulators need to improve for the enforcement of national laws, rules and

regulations governing mobile payment systems.

In this research, we explored the estate of regulation of mobile payments in Rwanda, with focus

on protection of vulnerable people-customers of this electronic payment system. We elaborated

the weaknesses of the regulatory framework in place in Rwanda in comparison with other

international and regulations in countries where this payment model has been developed.

It has been clarified in this research that the opportunity of making payments by mobile phone

appears to be gaining traction with the Rwandan consumers and businesses. Stakeholders in the

traditional payments model like banks, payment brands and merchants, along with new entrants

like Mobile Payment Service Providers, Mobile Network Operators all are beginning to adopt m-

payment business models. Since the Rwandan mobile payment market is still in its nascent stage,

the Rwandan regulators have not explained clearly how existing laws and regulations apply.

While current regulations are adequate to cover many existing and developing mobile payments

offerings, regulators are aware that there may be a need for additional legislative and rulemaking

83

measures to address any gaps in regulatory coverage. These include providing for means of

recourse to the customers when the payment services providers are unable to settle the disputes.

Based on the above conclusions, the following recommendations have been formulated for

improvement in the regulation of mobile payment system in Rwanda:

1. In Rwanda, mobile payment is a simple aspect under the Regulation of National Bank of

Rwanda on electronic fund transfers and electronic money transactions without clear definition.

It is therefore recommended to promulgate a law on mobile payment system with more focus on

protection of the most vulnerable consumers;

2. Telecommunication companies in Rwanda are engaging in banking activities by receiving the

funds of the public and operating in payments and transfers of electronic money. In that

consideration, they should be bound by the requirements imposed to the banks and other

financial institutions; these include the prudential rules, and risk assessment mechanisms;

2. It is therefore recommended to the Rwandan regulators to ensure that the consumer

implications of developments in mobile phone payment services are fully addressed in regulatory

and consumer protection policy and processes, and that they take full account of the interests of

consumers in vulnerable circumstances;

3. Developments in mobile payment services present challenges for regulations because this is a

new payment model in Rwanda wit challenges that cannot be easily anticipated. Thus,

Regulators and consumer protection bodies must monitor patterns of emerging problems, liaise

with each other, and be prepared to act quickly once issues have been identified in order to

update the rules and regulations;

4. Policy-makers in Rwanda need to grasp the opportunities offered by the numerous national

and international reviews and changes taking place, which have implications for mobile payment

services in order to avoid any equivocal related to this payment system. Consumers should be

informed about the different levels of protection offered by issuers and regulation in place;

84

5. Given that all the telecommunication companies are offering the mobile payment services, it is

crucial for the regulator to make interoperability a mandatory inter-companies partnership for an

effective mobile payment system;

6. In order to ensure effective protection of the vulnerable consumers of mobile payments, the

Rwandan legislator should avail possibilities for recourse to the consumers once they are

infringed by the payment service providers. So far, disputes resolution and any recourse by the

customers are still under the power of the payment service providers. Thus, RURA should act as

an adjudicator or arbitrator in disputes arising between payment service providers, consumers

and stakeholders.

Without assuming to be exhaustive in this research, we have brought our intellectual

contribution; minimal may it be, to the doctrinal arsenal in the matter of mobile payments.

Mobile payment system is a new and gradually evolving area in Rwanda; we have opened doors

for the future researchers in this area. We therefore encourage exploring other aspects of

regulation of this new electronic payment model that we have not been able to cover in our

research.

The Rwandan legislator, in enacting the new rules and drafting model disclosures, should be

mindful of both the unique concerns as well as consumer benefits presented by mobile payments,

and seek to formulate rules that protect consumers while also fostering innovation in this

emerging industry.

85

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