They can be found at a small kiosk in a rural village, at a counter at the entrance to a supermarket in Nairobi, or next to a cash register in a shop in Kampala. Mobile money and banking agents blend seamlessly into the daily economic lives of consumers in countries like Kenya and Uganda, offering convenience and expanding access points to financial services.
It is perhaps because of their importance and value that providers often prevent their agents from servicing competitors and impose agent exclusivity clauses, to protect market share, customer base, or costs incurred in setting up their agent network. But such rules can limit customers’ ability to easily access a wide range of financial service providers and to choose products based on quality, cost and preferences.
In both Kenya and Uganda, when mobile money launched it was common to find mobile money providers placing exclusivity clauses in their contracts with agents. For banking agents in Kenya, however, exclusivity clauses were prohibited when the Central Bank in 2010 first permitted banks to use agents, raising issues of disparate regulatory treatment of Mobile Network Operators (MNOs) and banks.
As these markets evolved both regulators issued specific legal guidance on mobile money, and policymakers began to consider how exclusivity clauses included in contracts between MNOs and their agents would affect competition and financial inclusion.
In Uganda, the Bank of Uganda stipulated in the 2013 Mobile Money Guidelines that agent agreements should not provide for agent exclusivity. When interviewed by CGAP, Godfrey Yiga Masajja, Deputy Director for Commercial Banking at the Bank of Uganda (BoU), said: “The key question that the BoU sought to answer while drafting the mobile money guidelines was: ‘How do we ensure that all providers found reliable, viable agents that promoted the spirit of financial inclusion?’ This clearly pointed in the direction of non-exclusivity. We had to enforce the guidelines, although providers initially resisted and were not adhering to the guidelines. Currently, there is total compliance and we have had no complaints.” Agency banking, which is expected to be permitted soon in Uganda, is likely to follow similar agent non-exclusivity rules.
In Kenya, the Competition Authority of Kenya (CAK) rather than the Central Bank addressed the issue of MNO agent exclusivity. The CAK became involved when Airtel made a complaint about Safaricom and their M-Pesa agent network. This was followed up with evidence from individual agents regarding exclusivity clauses in their contracts. Safaricom argued that it had invested in building an agent network and should not be required to share agents with competitors and lose the return on investment. CAK awarded the case to Airtel in July 2014. As Francis Kariuki, Director General of the CAK, explained to CGAP: “in contestable markets, competition issues such as exclusivity agreements should be handled by the competition authority, or where none exists, a competition unit within a sector regulator.” In the case of Kenya, CAK focused their analysis in particular on the following attributes:
- Whether the product (M-Pesa) can easily be substituted by alternatives.
- The points where the service can be accessed. According to DG Kariuki, “in rural areas, exclusivity was usually focusing on businesses that were dominant in the local economy, had seed capital to invest in mobile money, and were already an ‘essential economic facility’ for that rural economy.”
- Whether investment costs of an agent network—training, branding and network management—are more likely common business costs than an investment in infrastructure, as some providers argue when justifying exclusivity clauses.
After the CAK’s ruling on agent exclusivity in July 2014, the number of agents in Kenya serving only one provider dropped from 96% in 2013 to 87% at the end of 2014. The Central Bank of Kenya also followed up with the National Payment Systems Regulations of 2014, which prohibited exclusivity in agent contracts of payment service providers such as mobile money providers.
In both markets, regulation prohibiting agent exclusivity clauses is not the end of the story. Even after the Mobile Money Guidelines were issued, some providers in Uganda were switching off agent accounts if they served another provider’s customers. Recently, in December 2015, several agents in Nairobi told CGAP that although exclusivity is not written into agent contracts, one MNO still imposes anti-competitive rules, such as requiring that a minimum of 75% of signage must be for their brand.
In the case of non-compliance in Uganda, the Central Bank followed up directly with the provider to stop these practices. In Kenya, Mr. Kariuki noted that CAK has monitored compliance by looking at transaction volumes and consulting directly with agents. Market monitoring requires significant staff resources, and may require use of tools such as agent surveys and mystery shopping—a tool the Bank of Uganda has used to monitor these and other compliance issues in mobile money. It is an important investment, however, to ensure continued compliance, measure shifts in provider conduct, and ensure fair competition in the development of agent networks.