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One of the reasons mobile banking has quickly penetrated developing countries such as Kenya and the Philippines is because the formal financial sector has failed to tap into a huge market composed of the unbanked population. While this phenomenon does wonders for improving financial access for the poor, it also threatens the stability of the social and financial markets by increasing the mobile banking solutions’ vulnerability to misuse by individuals and shady outfits.
A recent article published at the CGAP Blog explores this risk of fraud, money laundering and terrorism when it comes to mobile banking in the developing world. Regulations are already pretty loose in these countries which are why illegal activities are rather prevalent. However, regulators and mobile banking providers are faced with a dilemma:
preventing fraudulent behaviour is vital, and strict Know Your Customer procedures and customer screening can help achieve this end,
it is also a priority to amass as many individuals into the mobile banking net (in order to include them in the formal financial sector) and lengthy procedures can put off potential customers.
One possible solution to this predicament is to tighten post-approval monitoring procedures that attempt to raise red flags when unusual behaviour is spotted:
- Regular data mining can compare a customer’s transaction size and frequency to his/her profile in order to determine if those activities are consistent with the reported income, and
- Prompt notifications can be sent to the registered user each time his/her mobile wallet is accessed in order to catch thieves as soon as possible.
These techniques are a step in the right direction even though they are far from fool-proof. You may be interested in reading the full article to better understand the predicament.