Could The M-Pesa’s “Dominant” Reign Be Coming to An End In Kenya?

M-Pesa is Kenya is a mobile remittance and payment method whose success has been applauded across the African continent. Like many success stories, monopoly seems to be the key word and in some cases, unfair monopoly. This service was created by a telecom giant and has since enjoyed patronage from its subscribers who make up over half of the entire telecom subscriber base in Kenya. Can this be sustained? This article from the economist explains better.

SAFARICOM is among the most innovative firms in the telecoms industry worldwide, and east Africa’s biggest company. Incumbency has now put the Kenya-based mobile-phone operator in the crosshairs of insurgent rivals. The company is at the centre of a corporate battle that is being watched intently by the continent’s business and government elites.

Few firms have done more in recent years to boost Africa’s fortunes than Safaricom. It has built the world’s most widely used mobile-money network, called M-Pesa, bringing financial services to the poorest. Almost everyone in Kenya can send funds to almost everyone else instantaneously from any mobile phone (not just smartphones). The value of transactions flowing through the system is equivalent to about 40% of GDP. Its ease of use has made possible all sorts of other economic activity based around the exchange of small payments. It is now being copied in many other poor countries.

Still, even the greatest gift can outlive its usefulness. M-Pesa’s success is in part due to what economists call a “network effect”—its utility grows the greater the proportion of the population that uses it. Network effects tend to lead to monopolies, and that is more or less what has happened. M-Pesa accounts for more than 95% of the mobile-money market in Kenya; and the popularity of the payments system has also helped Safaricom maintain its dominance in terms of calls and text messages.

Safaricom’s near-monopoly has arguably been the key to developing a successful mobile-money system. Since Kenya does not have genuine interoperability—in which funds can be sent from one system to another without punitive charges—it would be inconvenient if consumers were divided between several operators, and if customers of one could not send money to those of another.

In the decade and a half since Vodafone of Britain acquired a 40% stake and management responsibility, Safaricom has made the most of, but not outright abused, its power. Its fees for money transfers are high: up to 10% of the face value. The company has also penalised users calling other networks. At the same time, though, it has invested heavily in infrastructure. Its network reaches villages far from paved roads; and in recent months it has started introducing “4G” services, which provide faster data-transfer speeds than the old “3G” standard. There are parallels with the monopoly in landlines that AT&T created in America a century ago, which helped make the telephone universal.

However, just as consumers and regulators eventually came to realise the downside of AT&T’s monopoly, in Kenya calls have grown for official intervention to improve competition. Airtel, one of Safaricom’s anaemic rivals, is demanding allocation of 4G radio spectrum. It would also benefit if regulators insisted on cheaper and easier interoperability, bringing its Airtel Money system into the M-Pesa orbit. Its parent, Bharti Airtel of India, is the world’s third-biggest mobile-telecoms operator with subsidiaries in 17 African countries.

Read more from the Economist website