The evolution of mobile money in Africa lacks proper AML and KYC safeguards

The mobile money industry in Africa is more popular and more successful than traditional financial services. But the AML and KYC requirements placed upon mobile money operators across the continent do not always translate into having effective compliance measures that combat money laundering and terrorist financing.

The African mobile money industry needs robust identity and KYC checks

Mobile money is a technology that enables people to receive, store and spend money using a mobile phone. There are more than 270 different mobile money services worldwide, and most users can be found in Asia, Latin America, and Africa. Accounting for nearly half of all registered mobile money accounts globally, approximately 70 % of the mobile money transactions, and two-thirds of the transaction volume by value, the African continent is the frontrunner of the mobile money industry. The accelerated usage of mobile money services has emerged not just due to Covid-19 but also because of Africans becoming more connected through mobile phones. Mobile money is an attractive alternative to both cash and banks as it can be used anywhere there is a mobile phone signal and offers simple person-to-person transactions.

Virtually anyone who has a mobile phone can have a mobile money account, making these services extremely useful in remote parts of Africa where the population largely lack availability to traditional financial services. The ongoing work to overcome local challenges with low penetration of cellular and internet networks, particularly in rural Africa, indicates that mobile money services still have significant growth potential in the region. Additionally, the demographics of the African continent are excellent, with a median age of 20 as its potent tax base, a growth of middle-class consumers and an increasingly healthier population that is set to double by 2050. If you work in mobile money in Africa, business is good now and even better ahead.

Although mobile money has proven to be a positive force for financial inclusion and economic development in many African countries, a lack of KYC measures and robust identity checks to verify users has created a financial system vulnerable to criminal infiltration. The most common crimes facilitated by mobile money services are various types of fraud, money laundering, extortion, human trafficking and people smuggling, the illegal wildlife trade, firearms availability, the drugs trade, stolen motor vehicle trade and terrorist financing.

Weak identification systems without KYC safeguards enable criminal activity

The regulatory framework as regards mobile money services is fragmented in Africa. Most of its countries have a clearly defined regulatory framework, a few countries currently have no regulations, and some are in transitional situations to eventually adopt a regulatory framework. All African mobile money operators (MMOs) have AML reporting obligations. Identifying customers pertains to operators’ KYC obligations and is carried out when customers register and open a mobile money account and when customers use mobile money services. To get a mobile money account, people need to appear in person at an agent or MMO service centre to complete the registration process.

In most African countries, this requires an ID and a mobile number for those customers who already subscribed to phone services with the MMO. Some African countries include additional identification elements, such as proof of address, whereas others allow operators to set the minimum KYC requirements. However, the Financial Action Task Force (FATF) review of money laundering and terrorist financing countermeasures in African countries shows that the required laws and institutions do not always translate into effective implementation and technical compliance of the said regulatory framework.

ID documents are the cornerstone of the KYC and customer identification process, which causes issues in African countries with lower national ID registration rates or insufficiently secured ID documents. It is reasonable to assume that low national ID coverage enables the use of fake IDs. Also, there are no set standards for what types of ID documents are required to register for a mobile money account due to the early stages of the national identification systems. The broad spectrum of acceptable documents, ranging from national identity cards to company IDs, tax certificates and driver’s licenses, certainly benefit the growth of mobile money services, but it also enables criminal activity. Criminals can exploit weaknesses in regulatory compliance, regulations, or lack thereof and the anonymity that mobile money services in Africa too often allow. Criminality facilitated by and attached to the execution of mobile money operations in Africa mainly stems from the lack of reliable KYC measures and weaknesses in the identification systems.

A centralized provider for KYC and AML compliance sorely needed

Mobile money plays a prominent role in African societies and economies. Thus, operators and other actors offering mobile money services in Africa need to invest in proper KYC measures as the continent gradually becomes less fragmented regarding KYC and AML legislative standards. Not least in terms of cross-border compliance as there are numerous international mobile money-enabled transaction corridors connecting African countries to the world. International money transfers are among the fastest-growing mobile services on the African continent, constituting additional money laundering and terrorism financing risks. Such transactions enable criminal earnings to be relocated from the territory where the funds got generated to another jurisdiction to be cashed out, possibly with further criminal intent. The mobile money industry in Africa faces challenges of cross-border compliance, an inconsistent regulatory landscape, a wide range of poorly secured ID documents and various identity system types and different levels of development among the continent's countries.

ZignSec is the optimal one-stop-shop for the African mobile money industry. We provide a comprehensive range of compliance solutions that, when combined, constitute complete KYC processes following global and local regulations. Companies connected to our platform can choose from a myriad of trusted compliance products. We continuously add new technical solutions that facilitate organisations to stay ahead of regulatory changes. ZignSec compiles the best compliance solutions for each market – all via a single interface to our API or our Compliance orchestration platform.

If the regulatory framework changes, which it does from time to time, our clients can rapidly alter, optimise, and roll out their KYC workflows without the need for development work to remain regulatory compliant. Companies utilising the services of ZignSec secure and streamline their processes for customer onboarding, due diligence, and monitoring across international borders as they can meet the KYC requirements for each market with ease.