Cellphone banking needs laws
Africa is enjoying an increase in mobile services, but there is an urgent need to regulate the industry, writes Lloyd Gedye.
The continent is being hailed as a global cellphone banking and payments innovation hub, but it seems the sector will be coming under increasing regulatory scrutiny as the relationships between cellphone operators and banks are placed under the spotlight.
A survey of players in the African cellphone banking space by the Mail & Guardian over the past two weeks has revealed that there are serious concerns about the anticompetitive nature of exclusive deals between large cellphone operators and established banks. Analysts, stakeholders and competition experts say there is a desperate need to make sure the sector is regulated properly.
The calls for increased scrutiny of operators have been made in response to the eagerness to roll out cellphone banking, even though they are not making a profit from offering the services.
They believe that banking will prevent churn – the term for customers switching between cellphone operators depending on their call rates and offering. The general belief seems to be that it is much harder to switch operators when they are your bank too.
In a recent PwC report titled Telecoms in Africa: Innovating and Inspiring, MTN Côte d'Ivoire chief executive Wim Vanhelleputte said that a cellphone money service was not a stand-alone profit creator.
"For us, mobile money is really a retention tool. We know that the loyalty of our customers, when they're using mobile money services, is 10 times higher than the loyalty of non-users of mobile money because people can easily change SIM cards or change networks. But changing banks is not something they do overnight," he said.
"Mobile money is our main way of creating retention among our subscriber base – not just to make profits out of transfers, which is secondary for us."
Global cellphone payments
It is this attitude towards cellphone banking that is cause for concern for some players and regulators on the continent.
It is clear why there is such a scramble to get into the cellphone banking space – it is estimated that global cellphone payments will reach $984-billion by 2014 and there will be 900-million users by 2015. Presently, 53% of the global population is unbanked and cellphone banking is thus seen as the future of banking.
Many stakeholders to whom the M&G spoke in the past weeks said exclusive deals between banks, cellphone operators and cellphone banking service providers might lead to anticompetitive outcomes.
"This is still very much a grey area," said Glen Gordon of South African cellphone banking service provider IMB. "But we can't afford to get the regulation of this sector wrong."
Competition experts believe that the act of bundling services also needs to be placed under the spotlight to ensure that consumers are not getting a raw deal.
Brian Richardson from South African cellphone banking platform Wizzit said that because the sector was still so new, the rules were still being written. He said the key to regulating the sector was the concept of interoperability, which would allow consumers to choose a banking platform regardless of the cellphone operator.
"If your payment channel is linked to your cellphone, you are unlikely to change operators," said Richardson. "I get lynched at global conferences when I talk about interoperability. The cellphone operators don't want interoperability. I think increasingly this sector will come under greater scrutiny from competition authorities. What is happening at the moment is not morally or ethically right."
Gordon mentioned Nigeria's approach to regulating cellphone banking services as a leading light in how to get it right. In 2009 the Central Bank of Nigeria published its regulatory framework for cellphone payment services. It specified three models: bank-focused, bank-led and third party-led, which prevents operators from leading cellphone payment services. [The main reason for this was competition concerns.]According to the framework, the operators are required to enable subscribers to use any payment system of their choice on their network.
In November 2010, the Central Bank of Nigeria licensed 16 companies to operate cellphone payment systems in the country and a further seven have since been approved. Nigeria is a market with massive potential because there are 90-million cellphone users in the country, but only 22-million Nigerians have bank accounts.
The South African Reserve Bank's head of strategy and communication, Hlengani Mathebula, said any commercial bank that partnered a cellphone service provider in South Africa would be required to inform the South African Reserve Bank of the intended partnership and provide details.
"The commercial bank would need to take into account the various legislation and regulations administered by the Reserve Bank, including the Banks Act, National Payment System Act and exchange control regulations in terms of cross-border money transfers.
"The partnering commercial bank must be comfortable that the partnership conforms to the highest level of security and that sufficient controls are put in place to mitigate any possible risks and prevent any form of criminal activity," said Mathebula.
In South Africa, there are a number of stakeholders making a play for the cellphone banking sector.
Two weeks ago, MTN announced its new Mobile Money account, for which it is teaming up with the South African Bank of Athens, Pick n Pay and Boxer stores. The service allows customers to make payments, transfer funds between users, pay for groceries, buy prepaid electricity and airtime and withdraw cash from the stores, all from their cellphone.
Widespread distribution network
The account is available to MTN customers for free. It works on other cellphone networks, but consumers will have to pay for their transaction costs.
MTN was asked to comment about the anticompetitive nature of some cellphone banking players in Africa and the comments of Vanhelleputte, but chose to ignore these issues, focusing on the selling points of its new Mobile Money offering in South Africa.
"The introduction of MTN Mobile Money is a natural extension of our customer value proposition," said the company. "Due to MTN's widespread distribution network, we are also able to offer mobile financial services even on the most basic handset.
"Mobile financial services provide the added benefit to transact beyond normal airtime, because customers have the ability to transfer money to loved ones through Mobile Money, for example. As our proposition evolves, new services will include cross-border money transfers and microfinance through specialist partners."
Vodacom's managing executive of financial services, Carmen Whateley, said Vodacom had never had any intention of rolling out cellphone payment systems as a loss leader.
Vodacom's plan was to build new revenue streams, offer increased services to its customers and build alternative distribution channels.
Whateley said Vodacom planned to open up its cellphone money transfer service, M-Pesa, so consumers could use it on other cellphone networks.
In South Africa, M-Pesa has not been the success that it was in Kenya. In Kenya there are more than 12-million users utilising the service and six million more are serviced in Kenya by competing products.
In South Africa, Vodacom has managed to sign up one million users since M-Pesa launched in the country in August 2010. However, Whateley said that only a small number of those were active users.
M-Pesa in Kenya had 9.5-million users signed up within three years of its launch.
Stakeholders in the sector in South Africa argue that the country's tougher banking regulations have meant that the playing field for M-Pesa in South Africa and Kenya are not comparable. However, considering that there are thought to be 13-million unbanked South Africans, there is scope for the growth of cellphone banking services. Whateley said research suggested that consumers were looking for a full entry-level banking service, not just a payments service.