CGAP Group, CGAP

Date Posted: Thursday, January 13, 2011

http://www.mobile-financial.com/node/13392/Tackling-fraud,-money-laundering-and-terrorism-financing-in-mobile-banking

CGAP recently surveyed 11 mobile operators to help them better understand how they can ensure that their mobile banking services are not used for money laundering or terrorism financing as well as preventing incidents of fraud against the company. The operators we surveyed had between one and 15 full time staff dedicated to monitoring and investigating suspicious or unusual transactions on their platform.

CGAP has long argued for a “proportionate” approach to regulation in branchless banking. When the requirements that are placed on a customer for opening an account or making transactions are too cumbersome, customers will continue to use informal, unregulated services to meet their needs. Reducing the barriers to having an account can therefore contribute to both financial inclusion and financial integrity objectives.

An example of this is seen in an increasing number of countries that allow a new class of account where account opening requirements are relaxed, but limits are applied to the balance and the number and size of transactions permitted. Many mobile operators make use of these regulations to offer mobile wallets. Mobile financial service providers are required to report any transaction that they think might be related to money laundering or the financing of terrorism to the authorities in their country.

But what do these “suspicious” transactions look like and how can they be spotted? While the risks of money laundering might be correlated with transaction size, this might not be the case for terrorism financing.

1. One way to spot suspicious transactions is to build a profile of each customer and look for activity that is outside of the expected range of transaction activity. For example, a customer who has declared that they are unemployed when they opened their account, but who starts to deposit large amounts of money into their account might be deemed to be worthy of further investigation. But the very low limits on accounts in some countries prevent these large transactions that might be considered “suspicious”.

 Perhaps the most useful piece of information that can be used by a mobile financial services provider to build a profile is the customer’s employment status or sources of income. This information alone can allow them to categorize the customer under one of several different profile types around which they can build a model of the range of transactions they would expect to see. Income data can also be useful if the mobile financial services provider wants to offer more complex products, such as credit.

2. Most mobile financial service providers use techniques that have been employed by banks such as protecting accounts with personal identification numbers to prevent fraudulent use. All of the mobile operators that we spoke to also provide updates via SMS anytime an account is used which could make fraudulent activity more quickly detectable.

Nearly all of the mobile financial service providers that we interviewed had been able to spot some types of unusual activity on their systems, usually related to fraud by either customers or agents. It is inevitable that attempts will be made to use branchless banking systems for criminal activity in the future. Mobile operators will need to continue to innovate to find new ways of detecting this activity – to build trust in their systems among both customers and regulators that they present no more risk than traditional banking services. This will ensure that providers can continue to offer services to the majority of users who have legitimate uses for mobile banking services.