Monday, December 2, 2019
By NEIL HARTNELL
Tribune Business Editor
Digital payments solutions providers yesterday gave a mixed reaction to the Central Bank placing a year-long hold on issuing new licences to prevent the market becoming "over-saturated".
Harvey Morris, Omni Financial Services' chief executive, praised the regulator's decision as "an excellent move" that will enable existing Bahamas-based payments operators and money transmission businesses to develop their products/services in a sustainable market environment.
However, other industry sources, speaking on condition of anonymity, criticised the Central Bank's action as an attempt to "artificially control" the fledgling sector rather than encourage its innovation-led development. They argued that the regulator needed to step back and allow consumer-driven "market forces" to determine the best operators, and who succeeds or fails.
The conflicting views came after the Central Bank announced the year-long "suspension" on accepting any new licence applications for non-bank digital payments solutions providers and money transmission businesses late on Friday.
The financial sector regulator added that the "moratorium" will not be reviewed until end-2020, effectively thwarting the hopes and business plans of two digital payments providers whose applications had been submitted - but not approved - prior to last week's announcement.
This leaves the Bahamian non-bank payments market with three licensed digital providers and five approved money transmission businesses, together with the latter's collective 23 agents. The suspension applies only to new licensees, meaning the likes of Cash N'Go, Sun Cash and Omni can still expand via new locations and/or by adding agents once the latter get the necessary approvals.
John Rolle, the Central Bank's governor, could not be reached for comment yesterday despite several calls and messages being sent. However, it appears that the rationale for the regulator's moves lies in fears that the market would become unsustainable and over-saturated if more licences were awarded, with too many players chasing too few customers and undermining its orderly development.
"The moratorium is intended to allow development and introduction of new payments services by non- bank providers in a non-saturated environment," the Central Bank statement said.
It added that the Payment Systems Act and accompanying regulations give it the power "to implement policies that are in the interest of the overall stability of the financial system, controlling risks and promoting the safety and efficiency of the payment systems".
"This moratorium will remain in effect until the end of 2020, at which time the Bank will review its position," the Central Bank said. "In the interim the Central Bank will monitor adjustments among existing licensees to ensure orderly, sustainable developments in the payments and money services space."
Omni's Mr Morris described the Central Bank's action as a "pleasant surprise", explaining that while he was aware the regulator had been considering such a move he did not know it was about to formally announce the suspension of new licence approvals.
He added that the digital payments/money transmission industry is driven by transaction volumes, rather than yields, and argued that the emerging Bahamian industry and its existing operators needed breathing space to examine "the viability" of their business models.
Pointing out that compliance costs are "skyrocketing" for established players, Mr Morris agreed with the Central Bank's logic that permitting too many entrants could undermine market stability and force some to pursue business that "may tarnish the reputation of The Bahamas" and its financial services industry.
"I welcome it," he told Tribune Business of the Central Bank's actions. "The reason being that the margins in this business are very thin... We need an opportunity to be able to assess the viability of the business at this point.
"I think the Central Bank made an excellent move to put a moratorium there until the end of next year. It gives everybody the opportunity to get the business going, and because we're competing for a limited market, to ensure that we will all be competing properly and not going after business we don't really want in the payments industry than can tarnish the reputation of The Bahamas."
Mr Morris said that when the non-bank digital payments/money transmission services market was opened up initially by the Central Bank, some three providers were all licensed at the same time two years' ago.
"We recognise that created some challenges," he added. "The costs of doing business are very high. The compliance costs alone are skyrocketing. I think it's the right move. There are enough players in the market to allow competition without people going overboard to recoup their investment. There's also no restriction on opening up new agents. Persons can make a business decision."
The Omni chief's views were not universally shared, though. Another digital payments industry source argued that the Central Bank should leave well alone, and allow market forces to take their course rather than stifling new entrants by blocking off innovation.
"If you look at any market - the US, the UK, Europe - the reality is that mobile digital payments have to be given the chance to find their own way," the source said. "Those who have the best mouse trap, deliver the best, most reliable service and timely service will win the market.
"The Central Bank is trying to control the market artificially, like they always do.... Let the market find its way. The Bahamas is an ideal market for this, as it's small and the results are seen very quickly. Right now we need digital payments solutions as the banks have failed to provide payment services in the Family Islands.
"The good thing is these are all Bahamas-based or owned businesses," they continued. "It's an ideal medium where you let the market filter out who's best. What the Central Bank should be doing as the purveyor of financial services in the country, it should be encouraging and supporting the development of mobile payment services rather than police them.
"They should be patient over their development. This is one area where The Bahamas, because of technology, can be a major player in the market, leapfrogging the US, Canada and Europe."
The source pointed out that in China, where the majority of financial transactions are conducted over digital platforms, the country went from 16 providers initially to just two. The remaining duo now share 2bn customers after the market was allowed to consolidate naturally.
The same technology platforms, they added, can be employed in The Bahamas to improve access to financial services and move money across the island archipelago from Grand Bahama to Inagua using a cell phone.
"Let the market find its way," the source argued. "PayPal found its way, and it is now one of the biggest in the world despite starting as a very dinky little company. We've got to let the market find its way."