Opinion: M-Pesa, Safaricom Monopoly Can’t Stop The Competition

Opinion: M-Pesa, Safaricom Monopoly Can’t Stop The Competition

Safaricom is among the most innovative firms in the telecoms industry worldwide, and East Africa’s biggest company, but the Kenya-based mobile-phone operator has competition.

From TheEconomist.

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 percent of gross domestic product. 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 percent 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 Kenya calls have grown for official intervention to improve competition. Analysts have talked of Safaricom being “too big to fail.”

Making the matter more complicated, the government is a big shareholder in Safaricom, and the company also happens to be the country’s biggest taxpayer: last year it fed the government $400 million in fees, taxes and dividends. Consequently few officials are keen to take on Mr Collymore.

That task has fallen to one of the country’s banks instead. Equity Bank, another Kenyan success story, revolutionized local finance in the past decade by slashing fees and helping to bring the poor into the banking sector

Now Equity has acquired a licence to operate a mobile-phone service in conjunction with Airtel, one of Safaricom’s rivals. India-based Airtel is the world’s third-largest mobile-telecoms operator with subsidiaries in 17 African countries.

On July 15 Equity and Airtel — via their joint venture, Equitel — will launch a service that uses “thin SIMs” — plastic sheets embedded with microchips that slip over the top of a standard SIM card and let the user switch between operators easily.

This makes it more likely users will try, and perhaps eventually migrate to Safaricom’s new rival.

Read more at TheEconomist.