Game Relationship Between Mobile Payment Regulation And Innovation

As the cash-lite economy developing,an increasing number of small enterprises are also vying for a piece of new world.According to a report released by Topology Research Institute,the market size of global mobile payment will top 1080 billion US dollars in 2019.It is acknowledged that mobile payment can contribute to financial inclusion and improve access to formal financial services in developing countries.It facilitates financial life for all people no matter they are banked or have no access to formal financial service and can consequently drive economic and social growth.In many developing countries,mobile operators have been more successful reaching unbanked consumers than banks.The large scale of cellphone users also shows a bright prospect for mobile payment.According to International Telecommunication Union'report,the number of global cellphone users has reached at 7.1 billion by the end of 2015.The development of the market is still facing challenges.The full potential of mobile money has not yet been realised,with 2.5 billion people in developing countries still lacking a viable alternative to the cash economy and informal financial services.1.7 billion of them have mobile phones,but the mobile payment industry has found it challenging to launch and scale services for the unbanked because yet many policy and regulatory environments are not genuinely enabling.As a kind of financial innovation,mobile payment brings several risks to stakeholders.These typically include fraud(e.g.phishing or smishing),privacy disclosure,money laundry,terrorism financing and so forth.Some experts also pointed out regulators should be alert to the possible systematic risks brought by mobile payment,in addition,the new payment pattern tends to affect the viability of existing payment platforms and stability of banking system.However,there is strong evidence that a risk-based and proportionally oriented regulation can critically balance innovation,competition and stability.Regulation forbearance or prudential regulation?The fact that mobile money is still at the early stage of development and viewed as the most efficient way to facilitate financial inclusion leads to the light regulation on mobile payment in most countries.There is a general debate among both policymakers and scholars on the issue that if deregulation is good for the sustainable development of mobile payment service.Since the development of mobile money is closely bound up with enabling environment created by sound regulation.How to define the optimal regulation scope for mobile money or the optimal relationship between two sides becomes a concern among operators and regulators.In this paper,the author is going to illustrate the relationship between sustainable development of mobile payment and corresponding regulation mechanism by adopting game theory analysis.Several regulation implications will be provided on the basis of research findings.Why choose Kenya and China as the research target?The most striking and legendary case of mobile payment in developing counties is undoubtedly M-PESA,Kenya's world-leading mobile payment system,launched in 2007 by Safaricom,the country's largest mobile network operator.Kenya also earned fame by moderate regulation on mobile payment that does not only reduces risks but also spur the development of the new payment pattern.China's mobile payment market is young but develop at a remarkable speed,and now it becomes the largest mobile payment market in the world.Dong Junfeng,deputy general manager of Internet Finance Department,Bank of China,disclosed that mobile payment regulation is moving from regulation forbearance to prudential regulation in China.Hence the study of mobile payment market in these two countries will offer us a clear idea about optimal regulation scope and lots of useful information to establish enabling environment for mobile payment industry in China.Regulation of mobile payment can help secure trust in new mobile payment schemes.At the same time,regulation may constrain the deployment of a mobile payment application by limiting the scheme operator's freedom in structuring the business model,service proposition,and distribution channels.The strategic policy should ensure the market is under prudent monitoring and review to ensure that the integrity of the financial system is maintained,but allow technological innovations in mobile payment.Appropriate regulatory scheme is a powerful stimulus to further innovation since conducive development environment is essential to the development and diffusion of new technologies.Then the scope and intensity of the regulation become the matter under our close concern.Game theory is a prime tool for modeling and designing automated decision-making processes in interactive environments.As a mathematical tool for the decision-maker the strength of game theory is the methodology it provides for structuring and analyzing problems of strategic choice.In this paper,the author builds two dynamic games in the context of complete information and incomplete information to find out the optimal action strategies for mobile payment innovators and regulator.The findings of game models are regulation benefit and cost,the strength of punishment on irregularities can positively and negatively affect the mobile payment innovation and regulation.In this paper,the author also introduces the Kenya's experience and the status quo of mobile payment market in China.The Kenya's experience with mobile phone banking is testimony to how technological innovations coupled with a supportive policy environment and appropriate oversight can expand the financial services frontier.In contrast,China's central bank is adopting a tightening regulation strategy which has controlled the overheated development trends but also led to the situation that giant firm stands alone,small firms struggle to exit.China's prudential regulation has been exposed to some issues:the overlap of regulatory bodies,lack of market confidence and out of date regulatory methods.These problems will possibly harm the effectiveness of regulation.In the last chapter,the author explores the countermeasures by defining the regulation scope and intensity to achieve the goal of controlling regulation cost and maximizing regulation utility.These countermeasures include tiered regulation scheme and transformed regulation methods.The author will throw light on the research background in the first chapter to make the research questions clear.In the second chapter,a comprehensive introduction to related theories will be conducted.In the third chapter,the author will form 2 dynamic game model according to the difference in information acquirement.Chapter 4 will introduce the statue quo of the mobile payment market in China and Kenya.Through introducing the success experience of Kenya,we will have an idea about the flaws in China's existing regulation mechanism.In chapter 5,implications based on the game analysis will be offered,it mainly includes two matters:the optimum regulation scope and intensity.Corresponding policy recommendations can also be found in this chapter.