Part two: Mobile money in Kenya and Zimbabwe

Lebogang Nleya and Genna Robb

In the April edition of this Review, we discussed some emerging competition issues with mobile money in Africa. In a number of countries the telecoms companies that provide the mobile payments service have established positions of significant market power which have raised concerns of potential abuse of dominance. Since then, there have been several interesting developments in Kenya and Zimbabwe, on which this article focuses. 

The Competition Authority of Kenya (CAK) recently investigated Safaricom, the largest mobile network operator (MNO) in Kenya, for charging unregistered users of Safaricom’s M-Pesa high fees and allegedly threatening M-Pesa agents who offer rival products. In 2012 Airtel filed a complaint with the CAK to force Safaricom to remove the exclusive arrangements that it held with agents in its agent network to allow access by rival MNOs. Airtel also argued that by charging twice the amount for mobile cash transfers to Airtel customers than it charged for Safaricom-to-Safaricom transactions, Safaricom was abusing its dominant position in terms of mobile subscribers and mobile money transfer services. In its defense Safaricom argued that forcing it to open up its agent network would be unfair because it had invested billions of shillings to develop it.1 Having investigated the case, the CAK ordered Safaricom to open up its M-Pesa agent network to rival mobile money firms. In its judgment, the CAK did not rule on the cost of transactions, which would require further inputs from the Central Bank of Kenya and the Communications Authority.2

The high prices that Safaricom was charging customers to send and receive cash from other networks were illustrative of the effects of the high barriers to entry and the exclusion of competitors, which inhibited the growth of rivals. Given Safaricom’s position of market power, it has a strong incentive to maintain proprietary control of the use of its platform and the results of this could be monopoly profits, exclusion of competitors, and high switching costs for consumers considering a switch away from Safaricom. While Safaricom should be given the opportunity to earn returns on its investments, these returns should have a direct relationship with the level of investment made and should not amount to an accumulation of additional monopoly rents for the dominant incumbent. The recent collaboration of Airtel with Equity Bank (Kenya’s biggest lender by market value) to offer a mobile banking service is set to present a competitive threat to Safaricom.3 Equity Bank’s 9.1 million customers are expected to gain access to their bank accounts via their mobiles once its Mobile Virtual Network Operation (MVNO) launches.4 In addition three new players, Tangaza, Finserve and Zioncell, have also acquired MVNO licences and will soon introduce a mobile money offering, resulting in a further threat to M-Pesa’s dominance. The three will be hosted by Airtel and can offer customer registration, SIM card issuance, billing and customer care, as well as mobile money services.5

Interestingly, soon after this announcement was made Safaricom announced new tariffs that took effect from the 21st of August 2014 which saw tariffs for transaction values ranging between KSh 10 and KSh 1500 being reduced by 67%. Tariffs for sending higher amounts exceeding KSh 1500 will now be an average of 0.8% of the transaction value but withdrawal fees will remain unchanged. Safaricom states that the rationale behind revising the tariffs is that 65% of all person-to-person transactions are within the low to medium tiered bands and this reduction in tariffs is set to provide more Kenyans with affordable access to financial services.6

The timing of this intervention suggests, however, that this is likely to be a competitive response to the new entrants to the market. The new tariffs are shown in tables 1 and 2 together with a comparison of tariffs for P2P transactions in different African countries. M-Pesa’s tariff reduction in Kenya means that they are now the cheapest in the $1 to $10 range for transfers to registered recipients but not so cheap for unregistered recipients. Zimbabwe (especially Econet) is relatively expensive for transactions of $10 and upwards to both registered and unregistered recipients but relatively cheap at very small transaction sizes of $1 for registered recipients only. In Tanzania, both providers charge the same to both registered and unregistered users whereas MNOs in the other countries charge more to unregistered recipients. This is consistent with the fact that in a market where providers are of a similar size rather than having one much larger player, the MNOs have a greater incentive to promote interoperability to gain customers and they don’t have the market power in either the voice or mobile money market to charge more aggressive rates to unregistered users.

In Zimbabwe the Competition and Tariff Commission (CTC) is investigating whether Econet through its Ecocash mobile money transfer service has contravened the competition law in its dealing with banks and suppliers. Econet refused to allow banks access to its Unstructured Supplementary Service Data (USSD) platform for channeling their mobile banking service.8 Instead, it encouraged them to use its Ecocash platform although it has since agreed to allow them access but on a separate USSD code from the one it uses and at a higher charge for the use of the platform. Banks are of the view that not only are the prices too high but they are also discriminatory against non-Ecocash users. This conduct may be part of a strategy by Econet to protect Ecocash’s market share, in order to maintain its position in the primary market for mobile services (voice, sms, data).

Network effects

In our earlier article we defined network externalities as products for which the utility that a user derives from consumption of the good increases with the number of other users consuming the good, which means that it is beneficial for customers to join the dominant network.9 In Zimbabwe, Econet has a high market share in both the mobile services and mobile money transfer markets, with a 65% market share in mobile services and 90% in the mobile money transfer market through Ecocash.10 Econet’s Ecocash is the leading mobile banking platform and its success can be at least partly ascribed to a combination of network effects and lack of interoperability between Ecocash and the other available mobile payments platforms. There is currently no mandated interoperability in the mobile payments market in Zimbabwe. As a result, Econet has chosen to keep its Ecocash platform unintegrated with the other MNO’s mobile payments platforms. This effectively protects Econet’s strong position in the market because if customers want to transact with an Ecocash customer (which is very likely given the market share of Ecocash), they have an incentive to also be with Ecocash.

In markets with network effects where there is one large player, it is rarely in the interest of the large player to interoperate with smaller competitors as it can more effectively protect its strong position by maintaining a separate network. Smaller players on the other hand benefit from interoperability as it reduces the network effects present in the market and allows them to compete for customers more easily. In markets where there is more equivalence of size between the different operators, it is more likely to be in everyone’s interest to allow interoperability, as all can provide a more attractive service to customers through doing so. In this case there is a further advantage to Econet from maintaining Ecocash as a separate platform and not allowing it to interoperate with other platforms. This is through reducing switching in its core mobile services market. Without interoperability, in order to transact with an Ecocash or Econet customer, it is necessary to be an Ecocash subscriber which means also being an Econet subscriber. Thus with network externalities present, Econet can use its ubiquity in mobile money to induce customer loyalty and reduce switching in the mobile services market as it is beneficial for customers to be on a platform/network with more users.

Having said this, in such situations, mandating interoperability involves a tradeoff between allowing firms to recoup initial investments made, particularly when there were risks involved, and reducing the monopoly profits that dominant firms could be accumulating through excluding rivals.11 In both of the cases discussed above, the dominant firms could argue against interoperability on the basis that they invested a substantial amount in the mobile money infrastructure, but the question is - should that come at the expense of competition? And at what point will they have been adequately compensated for any risk incurred? In order to ensure that incentives to innovate and invest are protected, this tradeoff needs to be weighed up, however, firms should not be able to exploit their market power and exclude potential rivals indefinitely on the basis that they once made a risky investment.

In this regard, the CAK decision that has forced Safaricom to open up its agent network to other MNOs will ease the entry of Equity Bank to the market. This speaks to one aspect of interoperability which is likely to benefit consumers. To address monopoly control and other spill-over effects that may arise from strong network externalities competition authorities and sector regulators can also pursue different approaches, such as regulating network and platform interoperability whilst ensuring fair compensation for investments made.12 Such an approach would go some way towards increasing the levels of rivalry to Econet’s offering in the Zimbabwean market.

Please click here for a PDF copy of the article.


Researchers from CCRED have been involved in providing advice on mobile money issues in Zimbabwe and Kenya.

  1. Mutegi, M & Fayo, G. ‘Airtel case over M-Pesa under review by competition board’ (2 July 2014). Business Daily. 
  2. Mwenesi, S. ‘Airtel wins case against Safaricom to open up M-Pesa’ (28 July 2014).  Humanipo.
  3. Wachira, C. ‘Airtel challenges Safaricom supremacy in money-transfer industry’ (4 June 2014). Business Daily. 
  4. Kariuki, J. ‘New York-based agency lauds Kenya’s mobile money growth’ (10 September 2014). Business Daily.
  5. Handford, R. ‘Kenya shakes up mobile money by licensing three MVNOs’ (15 April 2014). Mobile World Live.
  6. Safaricom website
  7. Company websites as at October 2014; prevailing exchange rates as at October 2014.
  8. Business Reporter. ‘Competition Commission probes Econet Wireless’ (15 July 2014). New Zimbabwe.
  9. Paelo, A. ‘Mobile money: taking on the big banks’. CCRED Quarterly Competition Review (April 2014).
  10. Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) website
  11. Andes, S. ‘Making the Market: How Interoperability and Tipping Points Can Influence Network Size’ in The Heinz Journal, 9(2):1-17. 
  12. Anderson, J. ‘Competitive and regulatory implications of mobile banking in developing markets’ (25 August 2011). Technology Banker.