The mobile money industry in Africa is more popular and more successful than traditional financial services. However, the AML (Anti-Money Laundering) and KYC (Know Your Customer) requirements placed upon mobile money operators across the continent do not always result in effective compliance measures that combat money laundering and terrorist financing.
The rise of mobile money industry in Africa
Mobile money is a technology that enables people to receive, store, and spend money using a mobile device, such as a smartphone or tablet. There are more than 270 different mobile money services worldwide, with the majority of users located 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 in the mobile money industry. The accelerated usage of mobile money services emerged not just because of Covid-19 in the early 2020s, but also Africans are now more connected through mobile phones. Mobile money is an attractive alternative to both cash and banks as it can be used anywhere with a mobile signal and offers simple person-to-person transactions.
With that being said, 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.
The need for robust identity and KYC checks
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, including money laundering, extortion, human trafficking, people smuggling, the illegal wildlife trade, firearms availability, the drugs trade, stolen motor vehicle trade, and terrorist financing.
Weak identification systems foster criminal activity
The laws governing mobile money services in Africa are still disjointed. Anti-money laundering (AML) reporting requirements apply to all mobile money operators (MMOs) in Africa. In most African countries, KYC obligations usually start at the point of registration, where clients must present identification and a mobile number in person. Others impose extra requirements like proof of address. But according to a review by the Financial Action Task Force (FATF), current institutions and laws frequently fail to be implemented effectively. Because the KYC procedure depends on identification documents, it can be problematic in areas with inadequate ID coverage or unsecure identification systems.
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. Fake IDs and anonymous mobile money accounts are made possible by weak ID systems and uneven KYC standards in many African nations. Although the broad range of acceptable documents promotes service expansion, it also makes fraud more likely. To carry out illegal activities, criminals take advantage of these gaps and regulatory loopholes.
The need for a centralized KYC and AML compliance provider
Mobile money plays a prominent role in African societies and economies. Therefore, operators and other providers of mobile money services in Africa need to invest in proper KYC measures as the continent gradually becomes less fragmented in terms of KYC and AML legislative standards. This is especially important for cross-border compliance, as many international mobile money transaction corridors connect African countries to the rest of 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 were 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 across the country.
How G2RS helps
G2RS 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. Contact us and see how we can help.