How Kenya's mobile money is opening up now middlemen have been set free

A decision made by Kenya's telecoms watchdog could have profound implications for the country's mobile money market.
Written by Hilary Heuler, Contributor

Over the past several years the green, red and white logo of Safaricom's mobile money service M-Pesa has become all but ubiquitous in Kenyan cities, towns and even villages, as tens of thousands of agents signed up to enable Kenyans to send money through their phones.

Until recently, these agents had been forbidden to sell mobile money services for any company but Safaricom. All of that changed in July, when the Communication Authority of Kenya (CAK) ordered the telco to open up that extensive sales network to competitors.

For Kenya's second biggest mobile money provider, Bharti Airtel, the ruling represents something of a coup. As of June, Safaricom controlled 85,000 of the country's nearly 121,000 mobile money agents; it's a figure that reflects the company's market share, which stands at around 75 percent, said Danson Njue, telecoms analyst for researchers Ovum. "We are looking at a market that has been dominated by just one player," he said.

Airtel had taken its rival to court over anti-competitive practices, and the company's managing director for Kenya, Adil El Youssefi, approved of the decision.

"We salute the gesture by Safaricom to open up its mobile money transfer agent network," he told the Business Daily, a Kenyan publication, last month. "We hope this will be followed by act; our investigations on the ground shows that not all M-Pesa agents are aware of the directive and as such are not willing to host the other operators in fear of their licences being revoked."

El Youssefi said that Airtel intends to continue to fight Safaricom over other practices as well. "The case will continue because at the moment there is a very huge price difference on what Safaricom charges its subscribers for sending money to rivals," he said. "This and the large network effect makes it impossible for consumers to send money outside the network."

Safaricom has argued that its agent network is the fruit of considerable investment, which its competitors have not been obliged to make. Safaricom's parent company, Vodafone, pioneered the concept of mobile money in Kenya and Tanzania in 2007, and since then its growth has been significant. By April 2013 the GSMA reported that there were 23 million mobile money users in Kenya — more than half of the total population — and the vast majority were using M-Pesa.

If mobile money's success propelled Safaricom to the top of Kenya's telecom market, the widespread accessibility of M-Pesa has helped it stay there."These agents are everywhere; even in the smallest shopping centre in the village you will find them. And mostly it's M-Pesa agents, not their competitors," Njue said.

Since 2007, this network of agents has grown at a pace Safaricom's competitors could not match. Agents "used to earn a lot of money in commission. They were looking at signing up with an operator who had a wider reach and more money," he said.

But according to industry experts, things may be about to change. Airtel's case against Safaricom is part of a broader strategy by the Indian company to expand its mobile money operations throughout the region. This required opening up the Kenyan market to what it essentially its first real competition.

The CAK ruling will no doubt put pressure on Safaricom to drop prices, Njue said, pointing out that brand loyalty among Kenyan consumers tends to be low. "If I am sending money to my folks in the village, my concern is that they are able to get the money. I don't really care which provider I use," he said. Since most M-Pesa users are still individuals, this is likely to cut into Safaricom's revenues to some extent.

But given Africa's rapidly evolving mobile money landscape, sharing its agents might not impact Safaricom as badly over the long term as the statistics might suggest. "We expect to see a lot of innovation in this segment," Njue said, adding that it would be premature to assume that the company's profits will decline dramatically.

"Safaricom at this point knows that it doesn't have an added advantage like it had before. So it would be looking at evolving its system to a more integrated mobile money ecosystem, so that it can offer more services and differentiate itself from its competitors."

The company already appeared to be heading in this direction before Airtel brought its case before the CAK. Safaricom has been turning increasingly to mobile payments, evolving its M-Pesa from point-to-point money transfer into an integrated service that can be used to pay for everything from groceries to bus tickets. The newly-launched Lipa a M-Pesa is one example, allowing customers to use M-Pesa to buy goods from merchants without being charged for the transaction.

Njue said that Safaricom has been creating a number of such products to serve companies. "One of their key targets is the SME sector, and they also have a cloud computing service targeted at SMEs. So being in a position to bundle their services is a plus for them," he said. "That's where they are seeing the future."

The CAK ruling has, if anything, come late for Kenya's telecom industry. Despite the fact that in many respects the country has been a technological pioneer in the region, Njue said, Kenya's neighbours have already surpassed it when it comes to cross-network cooperation.

Airtel and Zantel signed an inter-operability agreement in Tanzania in June, while Tigo has launched a cross-border money transfer service between Tanzania and Uganda. "Countries like Tanzania are actually starting at a higher level than us," Njue said, pointing out that outside Kenya operators have shown a greater willingness to work together. "That defines the future of mobile money."

Now that Kenyan regulators have begun to chip away at Safaricom's supremacy in the mobile money market, Njue said he hopes the country will be in a better position to embrace that future. "Kenya has lagged behind, due to the dominance we have seen with one player," he said. "I expected such a thing to have happened a long time ago."

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