The apparent M-Pesa monopoly may be set to crumble

June 27, 2014, 3:04 PM UTC
Residents transfer money using the M-Pesa banking service at a store in Nairobi, Kenya in April 2013.
Residents transfer money using the M-Pesa banking service at a store in Nairobi, Kenya in April 2013.
Photograph by Trevor Snapp — Bloomberg/Getty Images

The world’s leading mobile payments provider, M-Pesa, is about to see competition reach a boiling point in its home market of Kenya for the first time since it was launched seven years ago.

Regulators there have licensed three mobile virtual network operators, or MVNOs—Finserve Africa, Mobile Pay, and Zioncell Kenya—to shake up the near-monopoly that critics say M-Pesa has enjoyed for far too long. The move threatens to knock parent company Safaricom, a Nairobi-based mobile network operator that is 40% controlled by the UK’s Vodafone Group, off its pedestal as the most profitable company in East Africa.

An MVNO is a wireless communications services provider that does not own the network over which it provides those services to customers. All three new MVNOs will have their mobile wallets hosted by Airtel, Kenya’s No. 2 wireless operator behind Safaricom.

At present M-Pesa’s has 15 million users conducting more than 2 million daily transactions, which by some estimates adds up to as much as 60 percent of the country’s gross domestic product. Among the newly license MVNOs, Equity Bank’s Finserve has the best chance of stealing significant market share from M-Pesa. That’s because Equity Bank is Kenya’s biggest lender with eight million account holders.

It has long wanted a piece of the growing mobile money business, but can it expect a majority of its retail customers to switch to its brand of mobile payments when Finserve is launched later this year?

“It’s unclear,” says Michael Fuchs, a veteran of the World Bank and co-author of the newly published Making Cross-Border Banking Work for Africa, “but it’s certainly the best challenge to the quasi-monopoly of Safaricom to date. Equity should be able to make its offerings attractive by providing links to its core banking services, which are not available through M-Pesa.”

Finserve is not Equity Bank’s first foray into mobile money. It previously partnered with Safaricom on M-Kesho, a banking and savings service that proved to be unsuccessful due to complications over revenue sharing between the stakeholders.        Safaricom has since partnered with Commercial Bank of Africa (CBA) to launch a similar product branded as M-Shwari, which has signed up 7 million subscribers. On the strength of this adoption rate, CBA now claims to have overtaken Equity Bank as the lender with the highest number of retail loans.

“For all three new MVNOs the big obstacle will be creating a service that is appealing to the masses and a network that can support it,” says David Sharpe, former manager of mobile financial services at Digicel Haiti, which some consider to be the most advanced mobile payment system in the Americas. “An agent network that can rival Safaricom’s does not happen overnight and it would be expensive to roll out.”

Equity Bank will likely have a hard time persuading its banking clients to experiment with its new mobile wallet, when M-Pesa is already accepted everywhere. But there are ways to around this. “Products and services, beyond the ability to pay for an item will be a strong reason for consumers to levitate to a new payment network,” says Sharpe, who is also a special adviser on mobile finance to USAID in Haiti. “If in addition to the normal features I can receive international remittances and purchase songs from my music app , it might be enough to get me to switch.”

Sandy Shen, a research director for Gartner in Shanghai, concurs. “New entrants such as Finserve can only win if they offer differentiated services or lower prices,” she says.

Kenya’s regulator wants to mandate national roaming among the country’s operators but will have to wait for the court ruling in a case between Airtel and Safaricom. The smaller operator wants access to the M-Pesa platform, which would be a huge win because it would in effect give the new MVNOs access to M-Pesa’s agent network, and vise versa.

“If regulations allow Finserve to interconnect to M-Pesa so that both can process payments from the other’s network, that could be good,” Sharpe says. “If Finserve is not able to process Safaricom transactions, then it will have a hard time gaining significant market share.”

Will banks in other developing countries where the biggest mobile operators is also the provider of the leading mobile wallet—a list that includes Haiti, Afghanistan, Zimbabwe and Tanzania—follow Equity Bank’s lead if it succeeds in Kenya?

The short answer is maybe; so much hinges on the regulatory environment. One thing is certain, however: the world’s most advanced mobile financial services market is about to become the world’s most competitive, and that’s sure to result in lessons for everyone.