Pesabit #004 : Equity Bank & Safaricom Run Neck and neck over SIM Overlay

Safaricom Equity Bank Historical profit COmparison Chart

In the past 3 months, two juggernauts in Kenya have clashed over the introduction of SIM overlay technology into the market – Equity Bank Group (Bank) and Safaricom ltd (Telco).  Safaricom  Ltd.  the largest Mobile Network Operator in Kenya (67.9 % market share) while Equity bank is the largest bank by customer base (8 million +).

As the incumbent mobile financial services provider, Safaricom faces a direct threat to its dominant sway, MPESA from A controversial SIM overlay technology set to be introduced by Equity Bank into the market through its subsidiary Finserve. Equity bank made a strategic move in acquiring an MVNO license from the regulators, Communications Authority of Kenya. Through this license, Equity can venture into the cellular network business and more crucially, the mobile financial services business – MPESA’s turf.

By leveraging its proprietary ownership of the SIM, Safaricom has continued to lock out financial services firms from its service platform; effectively acting as gatekeeper. The trouble is

A single mobile device is not supposed to be restricted to a single service provider, especially when different service providers having the mutual business interest over a single mobile phone users

It is easy to see why it has been labeled a monopoly and followed by cries to open up their platform. The mobile phone is a clear winner as a form factor in East Africa. Knowing this, financial services firms have been itching to catch up after losing out years back to Telcos.

What’s the Deal?

I 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 China “To meet the demands of Chinese mobile phone customer frequently roaming when out of home provinces

Image: Mondato

Paper thin SIM overlay placed on a normal SIM

According to Mondato , the SIM overlay has helped facilitate access to branchless banking services for customers of many of China’s smaller banks.

Taisys, Equity Bank’s strategic partner with thin SIM patent technology , has this to say on their website:

“Traditionally, it is not easy for businesses to add their own services into a user’s mobile phone because SIM cards are mainly controlled by mobile operators that the user is subscribed to”

Effectively, a SIM overlay subverts this limitation by riding on a host SIM, allowing a third party to bypass the main SIM and offer additional services – mfinservices, data, VaS. Hypothetically, all Safaricom mobile subscribers suddenly become open game!

The privilege to acces the device becomes user defined and competition shifts to selling services to consumers.

Points of Contention

Safaricom has come out strong against this move in public, the court system, before  regulators and recently in Parliament. Notably, other Telcos players (Bharti Airtel & Orange) are in favor of the thin SIM and MVNO proposition; denting MPESA’s market shared is a win for everyone else.

The list of grievances presented by the Telco is well documented in this GSMA report; released after the CAK sought its opinion on the matter. The regulator’s ruling was in favor of Finserve Africa limited (Equity’s subsidiary) and had this to say

According to GSMA, save for the inherent vulnerabilities of all SIM cards, there are no specific and confirmed vulnerabilities arising from the use of the thin SIM,” — CA Chairman Ngene Gituku

Radical Shift in Mobile Financial Services

This is certainly good for the payments and financial services ecosystem in Kenya and East Africa. Ultimately, consumers stand to benefit from increased competition, lower prices and wider option of services.

Kenya’s case with the MVNO and thin SIM overlay sets a precedent for the rest of the East African region.  ANY firm can now offer targeted mobile services without investment in network infrastructure. Already, Kenya Airways (airline) Nakumatt (retail chain) Tangazo (Money transfer service) and Equity bank have acquired MVNO licenses for the low fee of $ 1200.

Central bank of Kenya Governor, Njuguna Ndung’u is quoted saying the Kenyan market is ready for new frontiers that will ensure all Kenyans have access to mobile money and other banking services.

We can expect to see other banks flock in droves to set up their own MVNOs and extend mobile financial services.

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