James Militzer

Weekly Roundup – 10/11/14: The Battle of Kenya

Has the battle for Kenya’s mobile money market officially begun?

For months, we’ve been following the brewing battle between Equity, one of Kenya’s top banks, and Safaricom, its dominant telco, for control of the country’s lucrative mobile money market. And for months, the war has been confined to the offices of regulators and politicians, and the battlefield of public opinion. But this week, it looks like Equity has taken its first real steps to start the war in earnest – and the implications for both Kenya and other mobile money markets could be huge.

First, some background for those who haven’t been following this fascinating, often bewildering, saga.

Last spring, Equity obtained a license as a Mobile Virtual Network Operator, allowing it to provide financial services through Bharti Airtel’s mobile network infrastructure – and, it hoped, challenge M-PESA, Safaricom’s market-leading mobile money product. Though the application was quickly hit with a legal challenge from a consumer group that some accused of secretly working for Safaricom, the bank proceeded with the second part of its plan: thin SIM cards. Paper-thin circuits that stick to an existing SIM card, the cards would allow Safaricom customers to continue using its network (and their current phones), while tapping Equity’s network for mobile banking – thereby sidestepping M-PESA.

That’s when things got interesting. Safaricom asked Kenya’s Communications Authority (CA) to prohibit Equity from issuing thin SIM cards, claiming the technology could expose its customers to financial fraud and intercepted communication. The global telecom operator association GSMA chimed in, seconding Safaricom’s concerns. Nevertheless, late last month the CA and Central Bank gave Equity approval to roll out the cards on a one-year pilot basis, during which they would be observed for any security vulnerabilities. But then the country’s politicians jumped into the fray, with Kenyan members of Parliament ordering the regulators to stop the roll-out until Parliament had conducted an independent study on the cards’ security. Lashing out at the MPs’ political interference, the CA said its approval was still valid. And last week, in a press release declaring Equity’s goal as challenging “the M-PESA monopoly,” Taisys Technologies, the firm manufacturing the thin SIM cards, confirmed that the bank would be defying Parliament and rolling out the product. According to reports, Equity has ordered the cards, and the consignment will arrive in Kenya in the coming days. The bank has said it will provide the cards to customers free of charge.

If the history of this conflict is any guide, other legal and regulatory shoes may drop before anyone actually has a chance to use Equity’s mobile banking products. And questions remain about how successful the bank’s entry into the market will be. It’s also an open question whether all the media attention around the thin SIM battle will drive customers away by stoking fears over security risks – or if the old adage “there’s no such thing as bad publicity” will prove true.

But one thing seems clear: Safaricom’s unquestioned dominance of Kenya’s mobile money market is coming to an end – and this is bound to be a positive development for customers. In what many saw as a pre-emptive strike against Equity, the company has already announced steep reductions in M-PESA transfer fees and an upgraded version of the product, to be launched in the coming months. Meanwhile, another competitor, Tangaza Pesa, recently announced plans to roll out its own mobile services using thin SIM technology. And if Equity succeeds with its thin SIM gambit, it seems likely that banks in other markets could attempt a similar approach with their own telco competitors.

In spite of the high stakes, both Equity and Safaricom are playing down the rivalry. Asked in a recent interview whether Equity is planning on targeting Safaricom’s customers, Equity CEO James Mwangi answered with a smile and an oblique stab at his competitor’s dominance. “I think our intention is to avail financial services to all Kenyans, irrespective,” he said. “Nobody, including Equity, owns Kenyans. Kenyans should be in control of their lives, and Kenyans should have the freedom of picking that which serves them well, in terms of price and in terms of quality. So the thin SIM is targeted to anyone who wants to enjoy the innovation of financial services.”

Asked if he’s concerned about competition from Equity, Safaricom CEO Bob Collymore brushed off the question. “I don’t have a problem with Equity Bank,” he said “[People] think that the two companies are at war with each other, and that’s not the case. If you take mobile money, it really only accounts for about 2-3 percent of all transactions. And therefore this market is hugely underexploited – but the market will grow. … I’m really not that fussed about it.”

I reached out to both companies for comment on the thin SIM issue this week. While Equity didn’t respond, Safaricom did, via Twitter. Apparently addressing its customers who might be considering Equity’s new cards and products, the response reflected the confidence of a company accustomed to winning:

Whether that confidence is warranted remains to be seen.

James Militzer is the editor of NextBillion Financial Innovation.

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