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Mobile Money and Interoperability: A Blessing or Curse?

BY Soko Directory Team · April 17, 2018 06:04 am

Mobile money comes as a relief to many individuals, but the same cannot be said for the competition if one telecommunications company is leading. The recent controversial Analysis Mason Report clearly shows that Safaricom PLC is the market leader amidst the growth of mobile money.

In 2017, the Communications Authority of Kenya (CA) reported that mobile money platforms in Kenya had handled a total of 1.2 trillion shillings between April and June 2017 with M-Pesa channeling 903 billion shillings during the period.

The report further disclosed that mobile money users had made 480 million withdrawals and deposits and purchased goods and services amounting to 692 billion shillings using mobile phones.

The Analysys Mason notes that there have not been any other mature multi-player mobile money markets where one player has as high a market share as Safaricom across the various measures of market share. Given the importance of mobile money in Kenya, it appears very likely that Safaricom’s high share of mobile money transactions is supporting its high share of mobile communications.

According to the report, more than 80 percent of mobile money transfers in the country is done through M-PESA. Safaricom’s M-Pesa agents account for 67 percent of all mobile money agents in Kenya, although this percentage has slightly fallen from 73 percent in 2Q 2014, perhaps because of an intervention by the CAK in relation to Safaricom’s imposition of exclusivity obligations on its resellers.

Safaricom’s share of mobile money transactions by volume (82 percent in 3Q 2016, down from 91 percent in 1Q 2015, when the CA started collecting this data) is significantly higher than its share of mobile money subscribers. This decline is largely a result of the growth in Equitel’s transaction volumes.

On average, a Safaricom M-Pesa subscriber makes 6 transactions per month, whereas an Airtel Money subscriber makes 0.6 and an Orange Money subscriber makes 0.1. However, the average Equitel subscriber makes 10 transactions per month. And the Mason report believes that this happens because a large majority of Equitel subscribers are Equity Bank customers who acquired their subscription primarily because of the banking features that Equitel offers.

Although Safaricom is licensed to operate a mobile telecoms network under a network facilities license, and with the Applications Service and a Content Service license holds, it is only logical, as some people would note, that the CA keeps it in check.

The regulator has all the necessary powers under KICA to regulate mobile money services as a telecoms service and as a platform because it has authorized the use of the platform for content services.

But for the existence of the Safaricom network, it would be unable to provide either applications or content services under those licenses. The definitions of services in these licenses have never been challenged by Safaricom. The CA does not, of course, regulate the financial transactions that take place over the Safaricom network by virtue of its licenses.

The CA can determine whether the mobile money market is susceptible to ex-ante competition regulation to assess if it is a relevant market for ex-ante regulation and if any operator has SMP. Market power or dominance, as defined in the Competition Act, can be determined by assessing the level of market share of each licensee.

Analysis Mason made some recommendations, which it says should be adopted to curb the dominance issue. It had suggested several measures like making M-PESA an independent entity and the creation of a mobile money wallet platform to be shared by all telecommunication companies in Kenya offering mobile money services.

Interoperability is new in the Kenyan mobile banking market. To others, it will bring efficient services and lower prices for consumers. But for others, it means something negative – more costs, threats to competitive advantage and less profitability.

Let’s look at the downsides, the government clearly will have to struggle to understand a regulatory approach that will balance the interest of customers with those of market players. Sometimes, the nature of the market is ignored. For example, the implications of the approach on Safaricom customers might cause another debate that will linger for a while.

The telecommunication companies, just like other businesses typically expect to interoperate their systems eventually but don’t want to do it without recouping the substantial investments they have made in developing services and related infrastructure.

Predominant members, like Safaricom, are already perturbed by the remedies suggested by Analysis Mason report. Although the CEO of Safaricom PLC, Bob Collymore said interoperability can exist without harm, the truth is that it might lead to unexpected reactions.

On the brighter side, wallet-to-wallet interoperability will benefit consumers in terms of convenience (avoiding the need to withdraw cash from an agent of the sender’s network and pay it back in at an agent of the recipient’s network) and potentially increased competition amongst providers on transfer fees, leading to lower fees overall.

Additionally, it will benefit the smaller mobile money providers as it would reduce the ‘club effect’ currently enjoyed by Safaricom as the provider of the dominant platform.

The move will go a long way in ensuring not only inter-operability on the platforms but also foster growth in the number of portability platform which is slowly gaining traction in the market. Allowing this kind of service will also allow deepening and wider outreach thus strengthening financial sector deepening.

The interoperability initiative will only be successful if certain things are put in place. For instance, the CA should set a firm timetable for the implementation of wallet-to-wallet interoperability between all licensed mobile money platforms in Kenya and work with the licensees, the Competition Authority of Kenya (CAK) and the CBK to ensure that this timetable is adhered to.

In the event that the timetable is not adhered to and the CA has reasonable grounds for believing that this is due to actions or lack of action by one or more licensees, the CA should take appropriate measures against licensee or licensees concerned.

Also, it would be desirable to set up a system under which agents can support multiple mobile money platforms using a single float, something which the report termed as ‘agent-to-agent interoperability’.

Regarding interoperability, the telecommunications companies have to foot their own costs of operation during the pilot period. This should determine how a price structure is conceived once the idea has been fully rolled out nationally. Also, they won’t feel like they are being forced to give up their competitive advantage.

Meanwhile, the mobile penetration in the country continues to improve. At 58 percent, Kenya has the highest penetration in the world, although Tanzania is catching up. Also, countries with higher smartphone penetration than Kenya are starting to use mobile banking apps for some of the same purposes.

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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