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The 2019 Report of the Bank of Central African States (BEAC) on the status of electronic money payment systems in the CEMAC Member States is yet to reveal other astonishing statistics!





A LAW FOR FINTECH COMPANIES WITHIN THE CEMAC ZONE: THE RIGHT INNOVATION AT THE RIGHT TIME

Authors:

Danielle Moukouri Djengue
Managing Partner at D. MOUKOURI AND PARTNERS

Epanty Mbanda
Senior Associate at D. MOUKOURI AND PARTNERS

On December 31, 2018, the electronic money transactions in the CEMAC zone in terms of number and value are illustrated as follows:

  • Number: 572,362,635 transactions
  • Value: 8,296,166,023,386 CFA Francs.

The number of financial transactions in electronic money increased to 572 million as against 303 million in the course of the year 2017, reflecting the fast growth of this activity in the Central African sub-region[1].

In terms of value, electronic money transactions that globally amounted to 4,700 billion CFA Francs in 2017 exceeded 8,296 billion CFA Francs at the end of the year 2018. 

As concerns amounts held by users in electronic wallets and customers cash deposits in points of sale, they reached 125, 733, 842, 074 CFA Francs in 2018, as compared to 88, 764, 400,613 CFA Francs in 2017.

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 the CEMAC Member States is yet to reveal other astonishing statistics!

Such impressive records called for an adequate regulatory framework and led to the adoption of Regulation No. 04/18/CEMAC/UMAC/COBAC on payment services within the Economic and Monetary Community of Central African States (CEMAC) by the Ministerial Committee of the Central African Monetary Union (UMAC), on the 21st of December 2018 in Yaoundé.

This CEMAC Regulation that entered into force on January 1, 2019, introduced a plethora of innovations, some of which we shall address in this article.

The increased use of technology in an era referred to as the fourth industrial revolution has been the game-changer in financial activities and is significantly reducing the financial inclusion gap in the Central African sub-region. 

This technology-driven change has also seen the emergence of several companies putting in place digital platforms and offering software solutions that use E-money for various transactions. These new companies at the intersection between Finance and Technology are known as Fintechs.

In 2018, 99 % of E-money transfers in Central Africa were done through Mobile Money[2]. Daily, the transactions completed using Mobile Money in the CEMAC Member States include:

  • payment of transport fares,
  • payment of water and electricity bill,
  • payment of telephone and satellite television subscriptions,
  • shopping at supermarkets, entertainment, feeding, distance sales,
  • payment of school fees,
  • payment of accommodation.

Before the 2018 CEMAC Regulation on payment services, only credit or microfinance institutions were authorized to issue E-money according to the banking model adopted and authorized by the Central Bank.[3]

The diagram below illustrates how a typical Mobile Money transaction operated before the 2018 CEMAC Regulation on payment services:

As from January 1, 2019, the major innovation operated by the new CEMAC Regulation is a shift from the banking model of the Central Bank whereby the issuance 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 issuance of E-money can now be entrusted to a non-banking institution called a Payment Institution[4].

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 look at those services considered as payment services (I) as well as the payment services providers instituted by the 2018 CEMAC Regulation (II). 

     I.          SERVICES CONSIDERED AS PAYMENT SERVICES

The 2018 CEMAC Regulation defines payment services as the issuance, provision or management of payment instruments or means of payment or the execution of payment orders[5] . 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 any person 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 authorized 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 a credit: direct debits, including unitary authorized 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;
  • the issuance and management of E-money[6].

   II.          THE NEW ACTORS IN THE PAYMENT SERVICES INDUSTRY

In addition to the traditional players in the payment services industry, the new CEMAC regulation has included new actors, namely:

  • approved or authorized payment institutions;
  • distributors and sub-distributors of payment services.

A. APPROVED OR AUTHORIZED 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[7].

Also, payment institutions 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[8].

It is worth noting that, the services provided by payment institutions are limited to the CEMAC zone[9].

It is also important to recall that, before the coming into force of the 2018 CEMAC Regulation, Mobile Money transactions were mostly powered by Telecom companies, based on a technical partnership agreement with a licensed Bank authorized to issue E-Money.

With the 2018 CEMAC Regulation, the exercise of the activity of payment services is subject to an authorization issued by the National Monetary Authority of the CEMAC Member State where the company (Applicant) was incorporated upon the approval of the Banking Commission of Central Africa (COBAC)[10].

With the coming into force of the new CEMAC regulation, Fintech companies can now carry out the activities of the issuance of 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 shall also require an authorization for the use of the specific technology[11].

B.   DISTRIBUTORS AND SUB-DISTRIBUTORS OF PAYMENT SERVICES

During the performance of its activities, the payment service provider shall be entitled to use, within the limits of its authorization, 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 authorized payment service providers[12].

Before the coming into force of the 2018 CEMAC regulations, 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.

Before the coming into force of 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 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 those payment services as provided by law.[13]

Regulating the Fintech sector has set the tone for the expected success of Fintechs within the CEMAC zone.



[1] 2018 Report of the Bank of Central African States (BEAC) on the status of electronic money payment systems in the CEMAC zone

[2] 2018 Report of the Bank of Central African States (BEAC) on the status of electronic money payment systems in CEMA, p.4.

[3] Article 3 of CEMAC Regulation No 01/11-CEMAC/UMAC/CM of 18 September 2011 on the activity of the issuance of Electronic Money

[4] Article 3 (6) of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[5] Article 2 (17) of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[6] Article 3 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[7] Article 7 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[8] Article 8 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[9] Article 12 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[10] Article 23 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[11] Article 9 of COBAC Regulation R-2019/01 of 23 September 2019 on the authorization and change in the situation of payment services providers

[12] Article 2 (9) of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

[13] Article 63 of CEMAC Regulation N° 04/18/CEMAC/UMAC/COBAC of 21 December 2018 on payment services

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