WHEN British telecoms giant Vodafone developed the M-Pesa mobile money transfer and payments system and chose Kenya as its trial market, it had no idea that the service would grow exponentially, attracting 18.1 million customers in just over eight years.
M-Pesa was designed as only a value-added, SMS-based service for subscribers of Vodafone-owned networks around the globe.
Nearly a decade after launch of the now globally famous service in Kenya, telecommunication system operators have scented money in the business, having watched M-Pesa grow into a behemoth through which transactions adding up to over a quarter of Kenya’s $50 billion Gross Domestic Product are transacted every year.
M-Pesa’s main competitors in Kenya, France Telecom’s Orange mobile and India’s Bharti Airtel and Essar Group, are insisting that mobile money systems have to be “open”, just as commercial banks communicate to each other through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system.
They argue that a closed network with no interoperability has helped early adopters such as Safaricom (which owns M-Pesa) to grow into a monolith that controls more than 80% of Kenya’s market, locking out rivals.
Three months ago, on April 30, the GSMA (an international association of mobile operators that develops global standards for mobile telephone system operators) announced that nine telecommunication firms had agreed to jointly develop standards for interoperable mobile money services across Africa and the Middle East regions.
The operators appending their signatures to the GSMA commitment included Bharti Airtel, Etisalat Group, Millicom, MTN Group, Ooredoo Group, Orange, STC Group, Vodafone Group and Zain Group.
Together, these mobile network operators account for 582 million mobile connections across 48 countries in Africa and the Middle East, according to GSMA data.
Protect competitive edge
They are expected to come up with regulations for an interoperable mobile money system that could help the likes of Safaricom open up their mobile cash system to rivals, without losing its competitive edge.
The projection is that the operators will draft initial regulations for the industry by the end of 2015.
In its financial year ended March 2014, M-Pesa contributed $322.3 million to Safaricom’s revenue; a significant addition to the bottom line of the company that is 40% owned by UK’s Vodafone.
M-Pesa like services are also doing well in other countries including Tanzania, Afghanistan and India.
In all, mobile money users in Africa and the Middle East, the two regions where the system has gained most traction, accounted for 77% of global transaction value as at June 2013, according to the latest GSMA survey data, performing 341 million transactions that totalled $5.7 billion.
The GSMA estimates that 2.5 billion people in lower to middle income countries lack access to financial services, of which 1.7 billion that have mobile phones could be helped to be active participants in their economies by signing them onto mobile money services.
The number of active mobile money users stood at 61 million as at end of 2013, with sub-Saharan Africa (SSA) home to more than half (52% of these accounts.
Subjected to higher costs
Given the initial design of the world’s first mobile money service—as an in-house system that was to be used as a way to lock customers into Vodafone networks—its developers did not seek openness and inter-operability with other operators.
This resulted in a system where in Kenya, for example, Safaricom has more than 85,000 agents spread out across the country just like a commercial bank would have branches, but unlike a bank the M-Pesa outlets cannot serve customers of the other three Kenyan companies that also offer mobile phone cash transfer and payment services.
The approximately 10 million Kenyans who are subscribers of Orange Money, Indian-owned Airtel and Essar networks cannot freely transact with M-Pesa users.
Subscribers of rival mobile money networks would have to pay more to withdraw their cash, since the telecommunication companies classify them as ‘un-registered’ customers who are then subjected to higher service costs.
Across Kenya’s border in Tanzania, three telecommunication companies—Airtel, Tigo and Zantel—signed a unique agreement in June that allowed their customers to freely send and receive money, as if they were all subscribers of one giant mobile phone company.
The agreement set the stage for a more balanced growth of mobile money business in Tanzania, where all operators have a level playing field to grow their business without encountering the undue advantage of a dominant first-to-market operator.
In Zimbabwe, mobile communications operator Econet Wireless also faced a unique problem, after commercial banks ganged up to deny its banking subsidiary access to their payments system.
Econet wanted its subsidiary, Steward Bank, to access the ZimSwitch platform that would offer it a link to automated teller machines, point of sale terminals and other financial transactions.
The Zimbabwe case
The banks, which eventually agreed to end the standoff with Econet, were miffed that the telecommunications firm had denied them access to their network.
Though Safaricom in Kenya has numerous “working arrangements” with commercial banks for mobile banking services, the Zimbabwe case offered a glimpse into a potential future problem.
As mobile money expands, the line between telecommunication firms and commercial banks could become increasingly blurred, necessitating yet another interoperability agreement between commercial banks and telcos.
The agreement signed by Tanzania’s telecommunication firms provides a model that GSMA could replicate in future, helping to unlock the full potential of a globally interconnected mobile money industry.
“This is the first agreement in Africa to adopt such inter-operability whereby mobile network operators allow their customer to send and receive money across their networks and the e-money goes directly to the respective customer’s e-wallet account,” noted Airtel, Tigo and Zantel in a joint statement issued after signing of the deal.
With mobile money moving beyond simple cash transfers to the more complex international payment gateways, the GSMA’s leadership on the interoperability question has become all the more relevant to future growth of the industry.. .