Money Chasing Mobile: The Threat of Telcos’ Mobile Money to Banks and Card Companies in East Africa

equitympesa2In early March, in an unusual collaborative move, Kenya’s two largest telecoms operators, Safaricom (66.5% market share) and Bharti’s Airtel (17.5% market share), made a joint $100 million bid for the third largest operator, Essar Communications, YuMobile (8.1% market share). Media reports claimed the two would split the spoils; Safaricom would take up Yu’s infrastructure network and Airtel Yu’s 2.7 million subscribers, boosting its market share up to 25% from 17.6%. Reports suggested that Equity Bank had expressed interest in rolling out mobile services and YuMobile’s existing network offered an enticing option. Equity Bank, the largest bank in the region, boasting 8 million customers, is hailed for reining in small and rural customer deposits in its inception years, catapulting it to the helm of the financial services industry. Nakumatt, Mobile Pay and Zioncell were also mentioned as showing interest. Orange, the smallest player by market share (7.1%), is speculated to be planning a wind up of its operations; a move likely to shake up the industry in this region.

Kenya is widely recognized as a model case for mobile banking impetus, apparent from its

An Mpesa Agent with a User in Kenya

An Mpesa Agent with a User in Kenya

ubiquitous mentions at conferences and conversations on the same. 18.6 million registered and 11.6 million active users, a larger base than any other banking institution in Kenya. See more facts here. Concerted efforts to replicate this model of financial inclusion in neighboring Somalia and other developing countries, was actualized with relative success. Zaad, a mobile money service offered by Telesom, the largest mobile phone company in Somalia, averages 34 transactions a month, higher than most places around the world. Bringing in the unbanked population into the formal financial system has far reaching desirable impacts for governments and central banks. Mobile banking has effectively allowed developing economies to leap frog traditional brick and mortar models of banking and achieve a more inclusive financial system – faster.


McKinsey and Company published an article on mobile money, aptly categorizing the value of mobile money into two:

  • A bank for the unbanked offering financial service needs: savings, credit, life insurance, e-wallet, pensions, welfare and social security payouts + more
  • A trading and payments platform offering an alternative to debit and credit card platforms: point of sale payments, lease-to-own payments, payment facilities for informal trades + more.

Clearly, these two salient features are potently disruptive to banks and card companies. Traditionally, banks harbor users’ savings from whence they can write cheques, transfer funds, standing orders, pay bills etc. Card companies like Visa, Europay and MasterCard, offer card holders the luxury of cashless payments across a global network of merchants and online retailers either from funds they hold (debit cards) or on credit. Ideally, a mobile phone simultaneously emulates your debit/credit card and your savings account.  Financial institutions, card companies, telcos and tech companies are hardly oblivious; they are investing heavily in R&D, new business models and strategic synergies to establish a foothold in the dynamic payments and banking space. Kenya and Eastern Africa plays host to this fight for relevance and dominance.


Financial institutions have been obliged to innovate to counter the threat of Telcos’ mobile money platforms.  This would explain the ostensive interest in Yu’s network infrastructure by Equity bank. The entry of banks into mobile services is not unusual, similar cases have occurred within the continent and abroad. The model adopted involves wholesale lease of capacity from an existing Mobile Network Operator (MNO); the bank becomes a Mobile Virtual Network Operator (MVNO) and leverages this capacity to offer mobile banking services. An MVNO license allows control of the SIM card, a valuable secure element, normally under the proprietary control of Telcos. It offers the safest way to house payment data. In the US, AT&T, Verizon and T-Mobile launched a mobile payment system, ISIS, through a joint venture that leveraged their control over the secure element to lock out rivals PayPal and Google wallet

Access to the SIM Card provides benefits in terms of security, since SIM cards may contain pre-loaded security keys which can implement end-to-end data encryption from the mobile handset all the way to the transaction authorization server. Access to the SIM card might also enhance the usability of services, since the SIM card controls the on-the-phone menu onto which mobile money can be incorporated directly – Ignacio Mas

Banks becoming operators gives them the advantage of not having to cooperate with local operators.

In mid-2013, media speculation suggested South Africa’s FNB was in talks with Cell C to lease part of its network. FNB presently offers its banking clients mobile devices at discounted rates and could readily include its own SIM cards with these devices if talks mature. Rabobank, registered in the Netherlands, became a MVNO through RaboMobiel, a subsidiary, expanding its services on mobile and internet platforms in 2009. Two Polish banks, BreBank and Intelligo Bank, launched MVNOs targeted at online banking services in 2008. Equity bank has already applied for a license from the CCK to operate as a MVNO. A successful bid could propel it to the 2nd largest mobile banking operator by leveraging its 8 million banking clients, the largest in the banking industry and 2nd only to Safaricom’s Mpesa user base. In a book titled Money, Real Quick: Kenya’s Disruptive Mobile Money Innovation co-authored by Tonny K. Omwansa & Nicholas P. Sullivan, Mr. Staley, Chief Officer – finance, innovation and technology at Equity Bank was quoted: “Whoever controls the SIM card controls the ecosystem.” It comes as no surprise, that this is one of the banks strategic alternatives.

. . . there is no precedent worldwide for establishing equal access rules to SIM cards, as unbundling the SIM card might have severe implications for the security of mobile networks. In any case, the problem of proprietary control over the SIM card is mitigated if banks can build an equivalent service through other means. – Ignacio Mas

Partnerships have offered alternative strategies to outflank Telcos’ grip on mobile money. Equity partnered with Google and launched a prepaid card that makes use of NFC (Near Field Communication) technology, BebaPay. The card, topped up via equity’s agency network and bank branches, is used to pay for commuter charges at 0/= transaction fees. The card, currently on a trial run, has all the attributes of a debit card. Its insidious encroachment on payments, threatens the domain of card companies. Its flexibility could easily see its adoption in other payments besides commuter fares. Only the bare minimum would be required by merchants to accept payments, an NFC enabled mobile device. At 0 charge for the user, it offers reasonable value for adoption. Phone manufacturers have intensified distribution of NFC enabled mobile devices; 9 of the top ten original equipment manufacturers (OEMs) have NFC handsets available commercially. The goal of NFC is to turn a smartphone into a mobile wallet; thus scraping the need for a card.

Equity bank similarly partnered with Visa, MasterCard and PayPal, casting a wide net on the remittance and payments space. Other local and regional Kenyan based banks have followed suit to offer card payment options for their account holders. Insecure magnetic strips cards have driven a sector wide move to adopt secure chip based cards. All options are still open, however; mobile money is nowhere near abating. Almost all financial institutions continue to actively pursue mobile phone inclusive strategies.

Almost by accident, mobile operators have built networks and technologies capable of making person-to-merchant and person-to-person payments. With this infrastructure, wireless telecoms can attack one of the bank’s greatest, longest-standing strengths — control of the payment systemWouter Rosingh et al

It is important to keep in mind the dynamism of this space. There is a latent banking opportunity in East Africa’s telecoms sector’s formidable subscriber base. A move by Telcos seeking licenses from the Central Bank to become banks or a symbiotic mergers with financial institutions, would not be alarming. Canadian operator, Rogers Communications, after previously applying for a license to become a financial institution, got the nod to (read more) operate mobile and credit card payment services. Uniquely, Telecom companies in the East African region can take capped deposits, offer loans and now make payments to merchants. This peculiar state of affairs could pave way for novel financial-mobile operators -institutions.


Sub Saharan Africa frontier markets are still relatively nascent in card payments and offer an opportunity for card companies to get an early foothold. Visa and MasterCard Europe, long established card companies, have forayed into Sub Saharan Africa lured by expected growth in consumer markets, the evolving electronic money landscape and a search for new revenues. In Kenya, Visa and MasterCard have leveraged their global network by partnering with multiple banks to offer card holders access to their expansive network – payments, ATMs and online purchases. These partnerships are strategic, feeding off each other’s’ strengths; the banks bring in their customer base and the card companies their robust network and years of experience. Local banks and consumers have incurred losses due to card fraud over insecure magnetic stripe cards. Visa, MasterCard and Europay offer EMV chip and pin based cards endorsed by the Kenya Bankers Association to curb insecurity.

An Array of Card Payment Options

An Array of Card Payment Options

Safaricom, which now offers a cheaper alternative to card payments albeit with a nascent merchant network penetration, poses a threat for card service payments. Lipa na Mpesa, offers a similar service but at a 1% levy (Card payments services levy 2%-4%). The Telco continues to exert its sway to penetrate the payments space. In Botswana, there is less of a juggernaut to contend with; Orange and Visa launched a collaborative mobile payment service allowing funds in mobile phones to make purchases online, ATM withdrawals and point of sale transactions via the Visa prepaid cards.  In 2011, Visa partnered with the Rwandan government to develop electronic payments through its mVisa mobile money service. A report by Initiative for Global Development (IGD) has hailed its success at financial inclusion efforts.

The rise of mobile money in Sub Saharan Africa could leapfrog conventional payments. Mobile banking and smartphones offer all the capabilities of a card and more. The type of point of sale (POS) systems adopted by merchants might well determine the direction. Consumer preferences also play a role in determining the outcome. Ultimately, consumers, merchants and emerging technologies will play a critical role in the final outcome. Different markets distinctively evolve based on their peculiar market variables. In the US, card payments are popular and deeply embedded in use. In such a market, as Felix Simon suggested on his opinion piece from July, mobile money is not a clear winner. In East Africa, the ubiquity of mobile phones and utility of mobile money might just tip the odds against card payments. Card companies are conscious of this and are proactively investing along this trend. Visa and Samsung, at the Mobile World Congress (MWC) 2013 in Barcelona, Spain, announced a global partnership in Near Field Communication mobile payments. Visa preloads its payWave in a secure chip embedded in NFC enabled handsets allowing banks and financial institutions to circumvent the SIM by loading payment information remotely using Visa’s mobile provisioning service. This offers a panacea for the Telcos’ proprietary grip on the SIM. The technology has been well received by card companies, smart phone manufacturers, banks and tech companies, but, I’ll reserve that for the next blog post.  The payments space continues to evolve.


  1. […] wrote about successful MVNO (Mobile Virtual Network Operator) services in other countries [here]: Virgin Mobile UK was the world’s first MVNO in 1999. SIM overlay technology was pioneered in […]

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