Competition & Mobile Financial Services: Move Past "Test & Learn"

Promoting and ensuring effective competition in mobile financial services (MFS) markets are central to advancing financial inclusion. Effective competition helps ensure that consumers will have access to high-quality, innovative, value-for-money products and services, which in turn will promote increased uptake and use of MFS.

A country’s approach to policymaking in MFS can have a big impact on the competitive landscape. There has been a considerable amount of discussion and documentation about instances where a flexible, "test and learn" approach to policymaking has helped foster innovation. There are also cases where more prescriptive initial policies have likely hindered market development. Further, more facilitative and industry-led processes—such as interoperability in mobile money in Tanzania—have brought about positive competitive outcomes for the market.

However, in more mature MFS markets—such as in Kenya and Tanzania - there is a risk that continuing to emphasize the "test and learn" mantra may begin to have adverse consequences for competition and consumer protection. Without a sufficient shift towards more active market supervision and policy action when anti-competitive practices arise, innovation in MFS, along with the financial inclusion effects, will suffer.

CGAP's research on the competitive environment for MFS in Kenya and Tanzania has identified several priority issues: channel access; transparency and comparability of product information; interoperability; the regulatory environment and coordination; and data usage and ownership. All of these issues matter for financial inclusion and are areas where policymakers should more deeply consider the implications for competition and continued innovation in financial services.

Effective Policymaking in Action

Several promising developments have occurred in Kenya and Tanzania in the past two years that have helped foster competition and innovation in MFS, including:

• The introduction of MVNO licenses in Kenya, which Equity Bank has noted they sought primarily due to channel access issues with incumbent mobile money providers.
• Interoperability of mobile money in Tanzania, where Bank of Tanzania indicated their desire for interoperability, but did not force the terms or timeline, instead letting industry actors lead the effort and supporting their actions as needed.
• Prohibition of agent exclusivity provisions in Kenya by the Competition Authority of Kenya in 2014.

What is just as important to note is that the three examples cited here each had a different policy authority in the lead (Communications Authority for MVNO licenses, Bank of Tanzania for interoperability, and Competition Authority of Kenya for agent exclusivity.) This speaks to the importance of coordinated policy actions across sector regulators and competition authorities in MFS.

Barriers to Competition

However, CGAP's research on current market conduct also shows that there is much work left to address anti-competitive practices in MFS, especially in heavily concentrated markets like Kenya. Consider these basic competition barriers that remain unresolved in Kenya:

• Sharing of consumer information for credit scoring. As of January, 2015 the leading provider of consumer credit via mobile money in Kenya was still not reporting their borrowers’ positive information to the credit bureau, despite Kenya having a “full file” bureau that requires reporting both positive and negative borrower information. This both restricts millions of consumers' ability to demonstrate their credit-worthiness and get competing, lower-costs credit offers; and puts other lenders who do comply at a competitive disadvantage.
   
• Lack of product transparency and information at point of transaction. Despite provisions in the Prudential Guidelines of the Central Bank of Kenya requiring transparent disclosure of product prices for regulated institutions, it is still not possible on your handset to learn the cost of a loan before you accept the loan. The same is true even with respect to simple mobile money transactions, although the Competition Authority of Kenya in 2015 did issue a ruling to improve transparency of prices at Lipa na M-Pesa merchant payment locations.
   
• USSD pricing variances. A 2014 audit of prices paid by third-party financial service providers for access to the USSD channels of mobile money providers revealed a range in prices from Ksh1 to Ksh10, with most banks paying considerably less than non-bank providers, many of whom are the types of innovative start-ups that will help bring exciting new products to market. This wide range of prices charged may indicate anti-competitive pricing policies by channel owners for a similar service to different competitors.
   
• Data usage and ownership. Consumers' mobile money transactional records have become valuable for credit scoring that provides access to loans, and can help establish financial histories for many previously unserved and underserved consumers. However, much of this financial history is still treated as proprietary by MFS providers. In Kenya tools that provide consumers with their mobile money transactional history online include clauses restrict the consumer sharing this information with any third-party outside without consent of the mobile money provider. To put this into context, imagine if your bank restricted you from sharing your bank statement with a mortgage lender?

These are just some of the key competition issues that are described in the CGAP Working Paper Competition in Mobile Financial Services: Lessons from Kenya and Tanzania. By identifying the key competition issues that will arise as MFS markets mature and expand into additional products, we hope that regulators and industry stakeholders in other markets will learn from the important pro-competition actions in Kenya and Tanzania, as well as the competition barriers that remain and will require more than a “test and learn” approach to resolve.