One of the lessons taken from the massive shake-up that Apple brought to the payments world in developed markets (and which was noted by several attendees at Mondato Summit Asia) is that in the world of mobile finance and commerce it is no longer sufficient to bring a product to market; rather, you have to bring your own accompanying ecosystem. In some respects, this mirrors what was a key element of Safaricom in Kenya’s recipe for success: putting a mobile money agent “on every street corner” (as former Safaricom CEO Michael Joseph told Mondato Summit Africa back in June), tied into exclusivity clauses in their agency agreements.
And while being able to rapidly build their own respective ecosystems is something that Apple Pay and Safaricom share in common, there exists a crucial difference between the two. The kind of extensive closed-loop system that undoubtedly played a role in M-PESA’s astonishing growth in Kenya also limited the development of the ecosystem into scaled alternative use cases for mobile money. Despite the oft-touted statistic of 43% of Kenya’s GDP moving across M-PESA ‘rails’ (a topic discussed in last week’s Mondato Insight), only about 3% of M-PESA transactions by volume are not either remittances, airtime top-ups, or cash-in/cash-out. M-PESA’s dominance also created an economic barrier to interoperability. What we have observed from Apple’s play, however, is that for a payment offering to hold out the possibility of scale, buy-in from all parts of the ecosystem is required, and it must then, to a smaller or larger extent, be interoperable.
Top Down or Bottom Up?
The Kenyan Competition Authority (augmented by the newly effective provisions of the National Payment System Regulations, 2014) has ended exclusivity clauses in mobile money agents’ contracts, which brings Kenya into line with its larger neighbor to the north. Although Tanzania’s draft Mobile Payment Regulations 2012 have not yet come into effect, they included system interoperability in what was already a competitive market. Kenya’s National Payment System Regulations 2014 require the utilization of “open systems capable of becoming interoperable with other payment systems in the country and internationally.” This actually takes Kenya’s potential for interoperability one step further than Tanzania’s 2012 draft, in that interoperability in Tanzania at the agent level could be sufficient. (A useful explanation of the three levels of interoperability is laid out here).
Central to the Tanzanian approach, however, is an emphasis on market-led interoperability. The market response was three of Tanzania’s MNOs coming together in June of this year in an agreement to allow their subscribers to send money across networks irrespective of whether they are customers of Airtel Money, Tigo Pesa or Zantel’s EzyPesa. The three were later joined by the country’s other big MNO, Vodacom, as well as two of the country’s largest banks – CRDB Bank and National Microfinance Bank – in agreeing to an IFC-brokered set of operational regulations for interoperability. Behind the stakeholders and the IFC, they also had the force of the Bank of Tanzania and, notably, the GSMA.
The GSMA, and its Mobile Money Interoperability (MMI) programme is significant, in that it is able to take a broader, strategic view; and as the industry trade body, it is perceived as an honest broker in negotiations between MNOs to promote a move that holds the promise of collective benefit, but which also carries with it a cost, particularly to MNOs with a leading share of the mobile money market. As ever, Michael Joseph summed up this sentiment at Mondato Summit Africa when he opined that “It’s unfair that we may be required to open up the agent network we have spent time and money creating… Why should we be forced to share a risky, capital-intensive investment we made with those who were too scared to?” Nevertheless, early this year the GSMA MMI initiative successfully signed up nine MNO groups, including Vodafone, Orange, MTN, Millicom, and Bharti Airtel, to commit to work together to implement interoperable mobile money services.
Moreover, the GSMA had already one notch on its interoperability belt in Indonesia, one of the world’s largest telecoms markets (though also one in which mobile money has failed to gain significant traction) as previously discussed here. This fact in itself, of course, provides an additional incentive for increased interoperability, in comparison to a market demonstrating healthy growth and possessing stakeholders with significant market shares.
It seems increasingly likely, moreover, that the GSMA’s role in the development of increased interoperability, and ultimately an industry standard, could be critical. Meshed together, Kenya and Tanzania’s models present a highly attractive vision of complementary prospective regulation coupled with industry- and market-led innovation. Kenya’s law requires systems to be capable of interoperability nationally and internationally; Tanzania’s industry dialogue presents a model of how MNOs, in co-operation with banks and regulators, can achieve that goal. The positive impact of this approach stands in stark contrast to markets in which stakeholders are silent on this issue or, as in South Africa, where the regulator’s nudge is so weak as to be largely meaningless (the South Africa Reserve Bank’s Position Paper on Interoperability described it as “a principle to be sought”.)
It seems inevitable, nonetheless, that operator resistance to interoperability has a limited shelf life. The rise of the cheap smartphone in Africa, as in the rest of the world, seems likely to ensure that in the not-too-distant future, if it hasn’t happened already, MNOs with leading mobile money market share will be willing to cede some of their own ground in order to grow the addressable market.
Third-party developers and the trend towards open APIs look set to further change the calculus for MNOs as OTT apps eat their voice and text lunch. As the GSMA’s Gunnar Camnar observed, by making common APIs available to app developers and financial institutions, it will allow “these players to incorporate mobile money into their business solutions and apply it to the more niche, or long tail, opportunities in the market that a single provider has difficulty to cater for” [sic]. In his typically understated fashion, Apple CEO Tim Cook told the launch of Apple Pay that its “API is going to be available to all developers so we can expect a lot more apps.” MNOs might be well advised to follow suit.
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Touch Smartphone by Antonio Aversa from The Noun Project