> Posted by Jeffrey Riecke, Senior Communications Specialist, CFI
Phones are making everything more convenient, but are they also reducing costs? That depends on which service and whose wallet you’re talking about. If it’s the consumer’s mobile money wallet, well, the verdict is still out. In a CGAP paper published last year, Rafe Mazer and Philip Rowen lamented that pricing transparency practices in mobile money services are wholly inadequate across payments, credit, and other product lines. They assert an urgent need for standards and policy to impose better practices on mobile money providers. It’s critical to know how prices are tabulated and what fees are incurred – for the betterment of customers and the industry.
In Kenya, arguably the world’s most robust and dynamic mobile money market, we’ve seen a few recent steps in the right direction.
As of May 2017, per a directive issued by the Competition Authority of Kenya (CAK), telcos and financial institutions providing mobile money services were required to ensure that their users are informed via real-time notifications of the price of their transactions – after they are initiated by the user, but before the transactions are completed and money is transferred. This order by the CAK was permitted to be carried out in stages: first, mobile money providers were asked to let users know the price of their money transfers and bill payments after their transactions occurred; then, providers were required to provide pre-transaction pricing for these two services; and finally, this pre-transaction price disclosure was extended to “value-added” mobile money services like micro-loans and micro-insurance. The new rule applies to mobile money services offered through apps, USSD codes, and SIM toolkits.
You might not think that getting notified about relatively small fees is a big deal. After all, mobile money services in Kenya like M-Pesa are used so often that users probably have a strong grasp on pricing. But this is unclear. When CGAP queried mobile money users in Kenya on M-Pesa pricing changes in 2014, despite claiming to be aware of current pricing figures, many respondents in fact were not.
In Kenya’s mobile money market, where base-of-the-pyramid users are increasingly taking up services, pricing transparency gaps should not be acceptable. In the country, between January and September of last year, Ksh 2.46 trillion (US$ 24 million) moved via mobile money and there are 31 million total subscriptions. M-Pesa, the overwhelmingly dominant provider, has roughly 21 million users, and these users made 4.1 billion M-Pesa transactions last year, substantially more than the previous year’s figure of 2.8 billion.
It’s reported that CAK issued the directive in response to increasing user complaints. Before the changes, users had to consult agents in stores or log onto the internet to understand pricing and fees (according to the World Bank, less than half of Kenya’s population are internet users). Or they could calculate backwards using their mobile money balances. The mandate of the CAK is to enhance the welfare of the people of Kenya by promoting and protecting effective competition in markets and preventing misleading market conduct throughout Kenya. It does this in part by receiving and investigating complaints from legal or natural persons and consumer bodies.
Along with M-Pesa operator Safaricom, mobile money providers in Kenya that are affected by the new rule include Telkom Kenya (Orange Money), Airtel (Airtel Money), Jumo, Mobikash, and a handful of banks in the country that recently launched Pesalink, which lets users transfer money from bank account to bank account.
The Smart Campaign’s client protection principle on transparency states that providers will communicate clear, sufficient and timely information in a manner and language clients can understand so that they can make informed decisions. Disclosure is not enough – understanding should be the aim. Transparency helps clients effectively manage their money, accurately anticipating the cost of services. And it helps clients compare products, reducing the time required to seek out and interpret pertinent information. An informed client base exerts downward pressure on market prices, and transparent practices help foster trust between clients and service providers.
In addition to its recent action on transparency, in February the Competition Authority of Kenya forged an agreement with Safaricom to lower their prices for USSD mobile money services. (M-Pesa operates mainly through STK, but most of its competitors use USSD.) The agreement reportedly followed a market inquiry by the CAK over concerns that Safaricom’s USSD pricing models hinder market players from effectively competing with M-Pesa.
We’ve seen such mobile money market dynamics elsewhere. In 2013, Ecocash, Zimbabwe’s largest mobile network operator, initially refused to allow banks to access its mobile money service, but later reversed this decision while charging participating banks questionably high prices for accessing their service.
In their paper Mazer and Rowen describe that the economics of monopolies are being played out in this situation. A dominant MNO can leave third-party providers with weak options, allowing the MNO to effectively set prices and restrict market access, with little incentive for modest pricing.
We at the Smart Campaign secretariat and the Center for Financial Inclusion applaud the efforts of the Competition Authority of Kenya. We hope to see similar leadership to instill transparent mobile money practices like real-time pricing notifications in the world’s 92 (and counting!) mobile money markets.
Image credit: WorldRemit Comms via Flickr
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