Mention the word interoperability in branchless banking and mobile money circles, and watch people react very differently. For some, the word means something positive – efficient services and lower prices for consumers. For others, it means something negative – more costs, threats to competitive advantage and less profitability. Then for others, it is a reality that is inevitable, but far in the distant future. Mobile money interoperability might be relatively new, but it’s already picked up some steam.
For decades, the introduction of mobile money has continued to revolutionize the financial sector of many emerging economies.
Initially created to facilitate money transfers, it has transformed itself into an alternative to the formal banking system. And though interoperability will play a major role in the continued expansion of mobile money, it has also emerged as a new threat to the mobile banking industry itself.
The concept of interoperability in simple terms is to enable a mobile money user on one network’s proprietary system to send to or receive money from another user on a different network. Telecoms regulators generally encourage this to boost competition, drive financial inclusion and boost consumer usage.
At present, most mobile money deployments operate as a ‘walled garden’. This means transactions can only be performed between users of the same system. Thus, a user can only transfer electronic money to another user of the same mobile money deployment. A lack of interoperability has been highlighted as a major barrier to the development of the mobile money market.
Why is Interoperability important?
The strongest reason for enabling interoperability is the dramatic increase in mobile money transactions that will result. Interoperability would give mobile money service providers the opportunity to increase the volume of digital transactions and improve the sustainability of mobile money services. It will also contribute to an open digital financial ecosystem that promotes financial inclusion of the poor and unbanked.
As the reach of mobile telephone networks is much larger (and increasing) than that of the formal banking sector, mobile money certainly offers the prospect of a low-cost solution to create access to the financial sector.
Without interoperability, senders and recipients of transfers need to visit multiple agents to make transactions with different networks and must cash out or in, each of which is subject to fees. If networks are interconnected, fees are expected to be lower and money can be kept in mobile wallets. Thus, transactions become cheaper and more people reached, which will increase the number of transactions.
Presently, vouchers are another way to transfer funds from one mobile money system to another. However, this alternative will become obsolete when interoperability takes central stage.
The odds still stack
However, some operators still perceive interoperability as risky and costly. The initial set-up costs for interoperability could be high. Operators believe it may reduce investment benefits in agent networks, as with interoperability, these are shared with other operators. As such, they prefer exclusivity or a “walled garden” approach. Even so, the general presumption is that the benefits of network effects will outweigh any additional costs.
Several operators across Africa have consistently exhibited reluctance in accepting and adopting this technology. This is particularly true for large telcos.
In most markets, the dominant player would resist even a rudimentary form of interoperability, for fear of losing out. As such, end-users of this service bear the burden in the form of increased costs in sending money across networks. A strategy many operators are beginning to implement with the ultimate aim of discouraging interoperability.
In Cameroon for instance, the rapid growth of the mobile money service in 2017, whet the appetites of major operators; MTN and Orange. Money transfers between two mobile money accounts on the same network became charged, a service that had been free since its launch in 2011. Withdrawal charges skyrocketed as well. This was the first phase of a digital crusade the telecommunications giants initiated.
When these telcos eventually integrated interoperability, it came at a cost. In an effort to reprimand the service, the cost of inter-network transfers became high-priced.
Adopting interoperability across Africa
Kenya is an undisputed global leader when it comes to mobile money services. Safaricom launched its mobile money service, M-Pesa in 2007. A decade later, it has become the world’s most successful mobile money service.
Already, operators in Kenya, Africa’s leading mobile money market owing to the success of Safaricom’s M-Pesa, will introduce full interoperability this month. Many other operators already started testing interoperability earlier this year.
Unlike Cameroon, Kenya’s government has crashed the cost of sending money across networks. In an agreement among Kenya’s mobile money providers, it is now possible to send money to each other whether using M-Pesa, Airtel Money or Telkom Money at a reduced cost.
Interoperability in Kenya will allow users to access different services in case of technical hitches. For instance, in late April, Safaricom’s network experienced a countrywide outage affecting voice calls, data, and M-Pesa services. Despite its restoration hours later, the loss of revenue and inconvenience caused an uproar.
Another African country, Tanzania, introduced interoperability in its mobile money scene in 2015, becoming the first African country to do so and regulators in the country are now looking to further expand this arrangement.
With almost a third of all of East Africa’s active mobile money accounts in 2015, Tanzania is one of the most developed mobile money markets in the world.
— Online Business (@Tandaabiashara) February 16, 2018
It is also one of the most progressive, with ambitious initiatives regularly leading to new product innovation.
Towards the South of Africa, Zimbabwe could become one of Africa’s early adopters of full interoperability if the government is to have its way. President Emmerson Mnangagwa’s new administration is switching its focus to digital payment alternatives as the cash and liquidity shortages that have baffled the country for the last few years continue.
Zimbabwe is pushing for mobile money interoperability as its cash problems linger https://t.co/WNMhhgKRN2
— Quartz (@qz) February 21, 2018
The economy had been in a tailspin since the last few years of former president Robert Mugabe, who was forced out in November last year.
Although mobile bankers consider Zimbabwe as a vibrant haven for mobile money, the country had not fully embraced mobile money interoperability. The country has three mobile companies, Econet, Telecel and NetOne which all run mobile money platforms. The government now wants to open them up for cross-network transactions. Mobile money payments in 2017 grew to $18 billion, up from the 2016 figure of $5.8 billion.
Still not fully interoperable
Zimbabwe’s mobile money platforms currently allow their customers to send money to recipients on rival networks through the “send to unregistered subscriber” option. However, recipients still have to use the sender’s network to cash out the money. The government views this as not fully fledged in terms of interoperability.
Meanwhile, the service has shown to be especially valuable in Madagascar where there are more mobile money accounts than bank accounts. The country’s three mobile money providers – Airtel Money, mVola and Orange Money – now allow transactions to flow easily across networks.
It’s still not overboard though
Yet, interoperability is not such a straightforward issue. Some argue that if market interoperability occurs too early, there is a risk of conking the mobile money movement before it even starts. In the beginning, it is a matter of significant investments with limited returns. Unless global standards evolve and network effects occur quickly, interoperability can be a barrier for the first-movers in the market to invest.
Safaricom, for instance, did have the first-mover advantage in Kenya, but invested significantly in building and maintaining a robust agent network. So, it’s no wonder that they have a feeling of inequitable treatment now that competitors can simply use any of the agents they nurtured.
We have observed with Safaricom in Kenya, MTN in Uganda and Vodacom in Tanzania, that return on investment typically takes between 5 to 6 years from the launch of service. These operators became profitable without interoperability. Certainly, the lack of interoperability did, in fact, enable profitability.
Kenya, Uganda, and Tanzania are advanced mobile money markets. Interoperability makes sense in these countries, where there are multiple providers, most of whom have experienced the business benefits of offering mobile money products; and enough customers and transactions to not consider interoperability as a threat but an enabler to commercial business.
In areas where mobile money is still struggling, operators consider interoperability as a stopcock to their expansion.
A new form of interoperability could be in the pipeline
With the unprecedented soar in mobile money across Africa, interoperability has become inevitable within mobile money circles in Africa’s mobile markets.
Perhaps the next step after making operators interoperable within countries would be enabling inter-country transfers. At the moment, sending money from one African country to another can be downright impossible due in part to restrictive policies. This will prove particularly useful for multinational operators like MTN and Airtel which have subsidiaries all over the continent.