Tanzania’s mobile money industry is flourishing, and experts have been watching closely to see if the possibility of interoperability could become a reality. After industry partners agreed in September 2014 on a new set of standards governing person-to-person payments across multiple networks, it’s now evident that interoperability is here to stay.
In general, mobile money interoperability has seen great strides in a very short time, with five markets – Tanzania, Pakistan, Indonesia, Bangladesh and Sri Lanka - now offering this as an option for customers and agents. Nigeria also mandated interoperability in 2012, but this hasn’t come to fruition just yet.
All of these markets have followed different approaches. Indonesia’s and Tanzania’s initiatives were primarily industry-led, whereas Nigeria has followed a regulatory model. In Pakistan, ATM switches 1LINK and MNET, the technical infrastructure that facilitates transaction processing, were involved from the beginning. In Tanzania and Indonesia, providers have connected bilaterally through custom APIs. It is still too early to determine the success of these interventions and only time will tell if new models and standards will emerge.
How did Tanzania do it? As a key entrant to the “Mobile Money Interoperability Club” it is worth discussing the Tanzania experience, as it offers some insights for markets and operators wishing to embark on similar initiatives.
1. An industry-led process
The process towards interoperability in Tanzania started several years ago and has benefitted from the involvement of many partners. The latest round of negotiations that produced the payment-to-payment operating rules was facilitated by IFC and funded by the Bill & Melina Gates Foundation and FSDT. The Bank of Tanzania provided a supportive regulatory environment for engagement. Importantly however, the bulk of the content came directly from the industry. A very clear process was defined at the beginning and based on this a project plan and a team of experts from the payments and mobile industries was assembled. Through frequent meetings, debate, negotiation and eventually consensus, the industry has successfully put together a set of standards that will govern how person-to-person payments will be handled across networks.
2. Common business standards
It is often thought that interoperability is a technology challenge and that a “switch” is the solution. However, a switch would merely be a technical solution that facilitates transactions based on a set of pre-agreed rules or standards. Without these rules and standards, in the card industry often referred to as a ‘scheme’, no transactions can be made through the technical switch. Therefore in Tanzania, the industry opted to develop the common operating standards first. Establishing these standards involved regular meetings to define and record membership and participation criteria, clearing and settlement principles, handling of disputes, principles for intra-party compensation (or interchange) and interparty risk.
Now that the standards are in place, what next?
There are currently no regulatory mandates in place in Tanzania forcing anyone in the market to implement the new standards. Each company can choose to opt-in to the new standards according to whether it makes business sense for them to do so. So far, four mobile money operators have opted in - Tigo, Airtel, Zantel, Vodacom - through bilateral API connections. Encouragingly, Tigo presented at the GSMA MMU meetings and believes from initial indications that it has been the right decision for its business.
This is good news. Card schemes have proved that once the first players start, then the rest will follow. We believe the same holds for mobile money. Ultimately, interoperability offers great benefits to mobile money operators, regulators and customers alike, and should serve to advance financial inclusion.
Great to see they're establishing set rules/procedures. It'll set up industries for the entire nation and reduce the need for complex solutions rife in the developed world!
How do they get these rules/standards right? What can other countries learn from Tanzania?