A report from mobile phone firms Vodafone and Nokia says a new regulatory framework is needed to encourage financial transactions by mobile phones and transform access to financial services in developing countries.

The report claims that lack of access to banking services is currently forcing people to rely on a cash-based economy with little security, a more casual informal labour market and a lower tax base for governments. The report concludes that financial services are critical for economic development and inclusive financial services for the unbanked are essential for poverty reduction.

Over the last two years, pilot programmes in Africa and Asia have highlighted the potential for mobile phones to deliver basic financial services in developing countries, it says. The report shows how these services provide the first real opportunity for many poorer people to get on to a formal “banking ladder” with benefits including reduced threat of crime, time saving and secure savings opportunities. They also facilitate easier and cheaper international payments especially for remittances home, and reduced risk in domestic payments by near real-time transfers.

However, existing banking regulation is currently inappropriate for the growth of m-transaction schemes, it adds. Vodafone, Nokia and Nokia Siemens Networks are calling for regulators to ensure they do not restrict commercial experimentation or limit the schemes to sub-economical scale.

Its recommendations include: ensuring deposit taking regulation allows new entry on a larger scale by m-transaction operators; that m-transaction operators can access the clearing system; KYC and anti-money laundering rules need to be adapted to conditions in developing markets; interoperability of m-transaction schemes must be carefully considered to enable operators to benefit from network effects, but ensure that the intensity of competition in new markets and need for innovation is not stifled.

“The case for mobile transactions has been well proven by recent pilots,” said Vodafone Group Strategy director Alan Harper. “In a country such as Kenya there are 400 bank branches, 600 ATMs and 10 million mobile phones. There is clearly the potential to bring access to finance for hundreds of thousands of individuals for the very first time. However, there is also an increasing need to ensure that current banking regulations do not undermine or limit this growing potential.”

“A regulatory approach that tries to force m-transactions into the existing structure of retail banking regulation and financial supervision could impose high fixed costs and significant compliance problems,” said Diane Coyle, author of the report. “Any new framework needs to be risk based, sensitive to practical issues relating to underserved developing markets, and encourage experimentation and innovation.”

Antonio Torres, business development director, Nokia said, “The growth of mobile phone usage in remote and rural parts of the world is creating many positive opportunities to widen access in an affordable way to other social and economic services. This report highlights the need for some fresh thinking and a new approach if the full potential of this new found mobility is to be achieved.”