Africa's new thin SIM cards: The line between banks and telcos just got thinner

And you thought the Apple SIM was disruptive...

Africa's mobile operators, accustomed to fierce competition and a rapidly changing industry, are used to looking over their shoulders. But it isn't often that their biggest threat comes not from another telecom company but from a bank.

Kenya's dominant operator, Safaricom, found itself facing down Equity Bank earlier this year as the two battled it out in through the regulators over Equity's new 'thin SIM', a chip embedded into a thin plastic sheet that sits on top of an ordinary SIM card, making two services available simultaneously. Safaricom claimed the new technology, produced by Taiwanese firm Taisys, was unsafe, and could lead to fraud for the 15 million Kenyans using M-Pesa, the company's massively successful mobile money system.

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But in September, after months of legal wrangles and a hearing before a Parliamentary Committee on Energy, Information and Communications, the Communications Authority of Kenya (CAK) gave Equity Bank the green light to roll out its thin SIM cards in a year-long pilot scheme. Assuming it goes without a hitch, thin SIMs could shake up not only Kenya's telecom industry, analysts say, but the world of mobile money across Africa.

A challenger arrives

Equity Bank was licensed as a mobile virtual network operator (MVNO) in Kenya earlier this year under the name Equitel, making it the latest entrant into a market that has long been dominated by Safaricom. But with its focus on mobile money – and its declared intention to offer money transfer services at dramatically lower rates than its competitors – industry watchers see in the bank what could be M-Pesa's first serious challenger.

"We are reducing the charges to a sixteenth of the current charges," said Equity Bank CEO James Mwangi, speaking before the Kenyan parliamentary committee in September. In a press release, he added: "In this venture of enhancing our mobile banking offering, we are, as always, driven by our focus of making financial services convenient, accessible, affordable, and inclusive."

In a market in which brand loyalty is practically nonexistent, price wars can be devastating, argues Danson Njue, telecoms analyst for the London-based research firm Ovum. "If Equity is going to come up with a low-priced model, then Safaricom has every reason to fear," he says. "In such a market customers are very sensitive to prices. They are not tied to one network, so they can change."

This has led to speculation that Safaricom may indeed see the thin SIM as risky, but the risk is mostly to its own business.

"The reason why we feel some people have concern is because this is a disruptive technology that we have brought," Equity Bank's Mwangi told the parliamentary committee. "Every time you bring disruption, it changes the status quo, and those who have been well-positioned before can really find themselves gazing to a threat of even survival."

Real concerns

But Safaricom executives maintain that the company's concerns are real, citing a GSM Association (GSMA) report which states that "use of the technology has the potential to introduce a range of new security risks due to its ability to observe sensitive data in transit between the mobile device and the original SIM... The Overlay SIM has the potential to facilitate a man-in-the-middle attack by observing collecting and revealing sensitive data such as PINs, encryption keys, etc."

Steven Chege, Safaricom's head of regulatory services, said during the parliamentary committee hearing: "We are saying that that step of transferring money from the bank to your mobile wallet is visible to the thin SIM. The PINs that you put in are visible to the thin SIM. And for that reason it adds a new layer of uncertainty, a new layer of possibility for fraud, a new layer of possibility for interception by third parties who may have malevolent desires to access your money."

Reacting to the CAK's decision to give thin SIMs the go-ahead, Safaricom issued a statement saying it would be "reviewing its legal commitments to its customers" in relation to the new technology, particularly with regards to mobile banking.

Since the thin SIM has never been used before for mobile money services, Safaricom's concerns are purely theoretical, Ovum's Njue points out. The mobile industry's trade association the GSMA stresses the same point in its report. But security risks aside, thin SIMs do indeed promise to be disruptive.

This isn't the first time a device has come out that allows customers to access two competing networks at once; dual-SIM handsets do the same thing. But the handset market in Kenya is increasingly controlled by the operators themselves, says Njue. Operators' shops are considered more trustworthy than other retailers, who often refuse to carry dual-SIM phones.  A thin SIM, on the other hand, is impossible for an operator to block, thus giving customers more choice than ever.

Looking ahead to mobile payments

But Equity Bank may well be looking further into the future, when M-wallets and mobile payments are likely to develop even further, says Njue. And as the sector grows, the regulators may well decide to step in.

"We are looking at banks obtaining licenses for telecommunication services. And we know that mobile operators don't have licenses for banking. So I think from that you can clearly see who the winners will be," he points out. "If a regulation comes that restricts [mobile operators] from introducing certain services that look more like a bank, then we will have banks with telco services actually being left to rule the market."

So far Equity is the only bank in Africa to start a mobile network of its own, but with so much at stake it will be closely watched, says Njue. The advent of thin SIM cards provides an easy entry point for new players whose core business is not telecommunications, including other banks looking to expand their own offerings.

In the mean time Equity Bank's thin SIM has one year to win the hearts, minds, and wallets of Kenyans. "It's a very important development," says Njue, "because its success or failure in this case is going to determine so many things."

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