In the 12 months to 31 December 2018, the electronic money transactions in the Central African Economic and Monetary Community (the CEMAC zone) accounted for 572,362,635 transactions valued at XAF 8,296,166,023,386 (or over US$14bn).
During the course 2017 the number of financial transactions in electronic money increased to from 303m to 572m, reflecting the rapid growth of this activity in Central Africa.
In terms of value, electronic money transactions that globally amounted to XAF4,700bn (US$7.9bn) in 2017 exceeded XAF8,296bn (US$14bn) at the end of the year 2018.
In 2018 amounts held by users in electronic wallets and customers’ cash deposits at points of sale reached XAF125.73bn (US$212.37m), an increase of over 40 per cent on the previous year.
This exceptional increase in e-money transactions is one of its kind in sub-Saharan Africa and the 2019 Report of the Bank of Central African States (BEAC) on the status of electronic money payment systems in CEMAC Member States has yet to reveal other astonishing statistics.
Such impressive amounts sparked calls for a regulatory framework, leading to the adoption of Regulation No 04/18/CEMAC/UMAC/COBAC on payment services within the CEMAC by the Ministerial Committee of the Central African Monetary Union (UMAC), at Yaoundé, Cameroon, on 21 December 2018. This CEMAC Regulation which came into force on 1 January 2019, introduced a plethora of innovations, some of which this article addresses.
The increased use of technology in an era referred to as the ‘fourth industrial revolution’ has been the game-changer for financial activities and is significantly reducing the financial inclusion gap in the Central Africa. The technology-driven change has also seen the rise of several companies setting up digital platforms and offering software that uses e-money for various transactions. These new companies at the intersection between finance and technology are known as Fintech.
In 2018, 99 per cent of e-money transfers in Central Africa were carried out via Mobile Money. Daily transactions completed with Mobile Money in CEMAC Member States include:
• payments for transport fares;
• payments for utility bills,
• payments for phone and satellite television subscriptions;
• supermarket shopping, entertainment, dining, long-distance sales;
• the payment of school fees; and
• payments for rent/accommodation.
Before the 2018 CEMAC Regulation on payment services, only credit or microfinance institutions were authorised to issue e-money according to the banking model adopted and authorised by the Central Bank.
As of 1 January 2019, the major innovation brought about by the new CEMAC Regulation is a shift from the Central Bank’s banking model whereby the issuing of e-money was the sole responsibility of a credit or a microfinance institution, whether or not in partnership with a technical operator (usually a telecom operator); to a non-banking model, whereby the issuing of e-money can now be entrusted to a non-banking institution called a Payment Institution. In other words, the 2018 CEMAC Regulation enables entities other than credit or microfinance institutions to issue e-money.
It will, therefore, be interesting to outline below, services considered as payment services as well as the payment services providers instituted by the 2018 CEMAC Regulation.
Services considered as payment services
The 2018 CEMAC Regulation defines ‘payment services’ as the issuing, provision or management of payment instruments or means of payment or the execution of payment orders. In this regard, payment services within the meaning of the new Regulation include the following activities relating to the provision or management of instruments that enable anyone to transfer funds, regardless of the medium or technical process used:
• services which permit payment and withdrawal of cash into a bank or payment account and the related management operations;
• the execution of the following payment transactions associated with a bank or payment account –
- direct debits, including individually authorised debits;
- payment transactions carried out with a payment card or similar device enabling such transactions to be carried out;
- and one-off or permanent transfers
• the execution of the following payment transactions associated with credit – - direct debits, including unitary authorised debits;
- payment transactions carried out with a payment card or similar device enabling such transactions to be carried out;
- one-off or permanent transfers;
• the provision of payment instruments or the acquisition of payment orders;
• money transmission services, not involving an account of either the payer or the payee or both; or
• the issuing and management of e-money.
New players in the payment services sector
In addition to the traditional players in the payment services sector, the new CEMAC Regulation has included:
• approved or authorised payment institutions;
• distributors and sub-distributors of payment services.
Approved or authorised payment institutions
According to the 2018 CEMAC Regulation, ‘payment institutions’ are institutions that, as a normal profession, provide exclusively payment and related services. These institutions may neither make available nor manage foreign exchange payment instruments, in particular cheques, promissory notes, bills of exchange and documentary credits.
Payment institutions also do not carry out any deposit collection activities. The funds they receive from customers remain the property of the customers. These are not funds collected with the right to dispose of them. It is worth noting that, the services provided by payment institutions are limited to within the CEMAC zone.
It is also important to recall that, before the 2018 CEMAC Regulation came into force, Mobile Money transactions were mostly powered by telecom companies, based on a technical partnership agreements with a licensed bank authorised to issue e-money. With the 2018 CEMAC Regulation, the execution of payment services is subject to an authorisation issued by the National Monetary Authority of the CEMAC Member State where the company (applicant) was incorporated on the approval of the Banking Commission of Central Africa (COBAC).
Since the CEMAC Regulation came into force, Fintech companies can now carry out the same activities of issuing e-money as payment institutions with no obligation of being technical partners with credit or microfinance institutions. However, companies offering payment services through a mobile phone technical platform also require an authorisation for the use of the specific technology.
Distributors and sub-distributors of payment services
Whilst carrying out its activities, the payment service provider shall be entitled to use, within the limits of its authorisation, under its responsibility and control, the services of one or more legal or natural persons, called distributors or sub-distributors, for the purpose of marketing contracts and the provision of certain payment services. The distributor or sub-distributor shall act in the name and on behalf of the payment service provider.
A distributor or sub-distributor shall be any natural or legal person offering payment services to its customers, in the name and on behalf of one or more authorised payment service providers.
Prior to the 2018 CEMAC Regulation, the distributor or sub-distributor was operating as a mobile money agent under an agreement with the telecom operator and was issued a bank account linked to the telecom operator’s third-party (or escrow) account set up by a licensed bank.
The mobile money agent had to deposit a minimal amount into the escrow account. The same amount was transferred to the agent’s phone as e-money or float. The agent could then use this e-money to send to other mobile money users as instructed or exchange it for physical cash.
Under the old system, the distributor or sub-distributor was operating as a mobile money agent under an agreement with the telecom operator and was issued a bank account linked to the telecom operator’s escrow account set up by a licensed bank. The mobile money agent had to deposit a minimal amount on the escrow account. The same amount was transferred to the agent’s phone as e-money or float. The agent could then use this e-money to send to other mobile money users as instructed or exchange it for physical cash.
With the 2018 CEMAC Regulation, two categories of agents have been instituted, a distributor and a sub-distributor. While the intervention of the distributor is larger in scope and scale, the sub-distributor can only perform some of the payment services as provided by law.
Regulating the Fintech sector has set the tone for its anticipated success within the CEMAC zone.
Article compiled by Danielle Moukouri Djengue (Managing Partner) and Epanty Mbanda (Senior Associate) at D. Moukouri and Partners
