Are closed mobile money systems a problem? Asks Liz Galpin

Written by Liz Galpin Monday, 16 May 2011 21:33
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There’s no doubting the success of M-Pesa in Kenya.

There’s also no shortage of articles and discussions at conferences about the need for interoperability between financial systems, especially when talking about developing markets. Now, given the amount of money, time and effort that has been sunk into building the Safaricom’s Agent network, it is not surprising that Safaricom is reluctant for its Agents to become Agents for Airtel, Orange and / or YuCash. The extensive Agent network that has been built by Safaricom, right from the start, has undoubtedly been one of the core reasons for its success, especially in the early days, and it doesn’t seem fair to expect Safaricom to just hand it over to its competitors.

M-Pesa is a closed system.

If we exclude transactions that involve ‘Send Money’ and Agents, ‘Cash In’ mechanisms include salary disbursements, international remittances via Western Union and ‘Cash Out’ mechanisms include payment of bills, cash withdrawal from ATMs and buy goods (coming soon I believe). You could, of course, send money to an unregistered user (who could then deposit that money into a different mobile money solution), but that becomes quite an expensive way of doing things, with commission being paid out unnecessarily.  M-Pesa is therefore very much a closed system, and it is in Safaricom’s interest to keep it that way.

I’ve often asked folk in Kenya whether they use M-Pesa – nearly always is that question greeted with a large smile, a phone being produced and eagerness to demonstrate how M-Pesa works. When I ask them why they use M-Pesa, I get a mixture of responses – mainly a combination of “it’s safe, my money is safe, it’s easy to use, I have no problem finding an Agent”. But when I ask them why they don’t use one of the other mobile money solutions in Kenya, the answer is pretty much an emphatic “because there are no Agents where I need them”. Now, as M-Pesa’s functionality increases, and there are more ways of ‘Cash Out’, the reliance on the Agent network decreases, and in time to come it may cease to be such an important factor. The more ways in which people can spend, or get at their money (buy goods, pay bill, ATM withdrawal, make savings deposits), the less they will need to visit an Agent, and this is especially true in urban areas. I believe that the Agents will continue to perform pivotal roles in rural areas, where ‘Cash Out’ will continue to dominate, although I would hope that ‘buy goods’ will be well utilised in rural areas, as it will facilitate the need to keep the cash within those rural communities circulating and resolve the need for Agents to make as many trips to Banks, thereby eroding their profits.

The problem of shops having multiple POS systems in operation is already an issue in Kenya, with folk realising the need to rationalise and integrate.

Things are moving fast in Kenya. Agency Banking is gaining momentum in Kenya and there is no shortage of companies who have realised the need to bridge the gap between all the various closed systems, and are building business plans (and software) on being in a position to process payments across all the mobile money platforms. Prepay cards are becoming more popular, as people realise that cash isn’t best. Equity offers a raft of mobile transactions – both interfacing with M-Pesa, Orange money and stand-alone.

International remittances are a ‘big deal’ as well. For the moment, this seems to be limited to a ‘send money’ proposition internationally. So, the 'Cash In' mechanism doesn’t necessarily have to be a mobile wallet, although it can be. The Sender can use money transfer outlets (such as Western Union), a customised internet site, or any designated Agents / Shops / Outlets or, of course, their own mobile wallet to send money directly to someone else’s mobile wallet in another country. It is generally recognised that the commissions charged by traditional Banks and money transfer systems is high, and that there is room to implement international remittance solutions using mobile wallets charging much cheaper commissions. Going a step further, there will be an expectation that one can use one’s mobile wallet abroad, in the same way that you can take your Visa or Mastercard with you oversees and use it there. My own view is that we are a long way off that being possible, and it relies on a great deal of interoperability being in place,  but it will eventually happen.

In Kenya, it seems unfair to expect Safaricom to generously hand over their Agent network to their competitors.  Because M-Pesa had such a head-start over its competitors, it seems almost impossible for the other mobile money providers to catch up. In many other countries, however, there seem to be several mobile money pilots and implementations – all of them vying for a share in the market. I don’t see any similar situations whereby one mobile money provider is head and shoulders above its competitors. In these countries, it would make a lot of sense for the systems to be made interoperable and for agents to be permitted to service more than one mobile wallet. My feeling is that all parties will benefit from working together and I’ll watch with interest what happens in other countries.

I think there are great parallels that can be drawn from looking at what happened in the USA in the late 50s when Bank of America started pioneering card transactions. It worked marvelously, until other banks also wanted part of the action, and so the model had to be changed to accomodate them all. I can see the same pressures being put on mobile wallets going forward.


In the UK, I wouldn’t dream of having to shop around for a shop who will accept my Barclays Connect Debit card. I just assume that any shop with a POS device will accept my card, provided I spend sufficient money to cover my transaction cost (which is picked up by the merchant, and not me). Surely that same level of expectation will at some point be reached in developing markets?

Last modified on Monday, 16 May 2011 21:38

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