In October, the Central Bank of Kenya (CBK)sent shockwaves around the international mobile payment communitywhen it proposed in draft regulations that all e-money issuers suchas leading mobile payment service M-Pesa must utilize open systemscapable of becoming interoperable with other payment systems in Kenya andworldwide.
The CBK’s decision is based on findings from a 2012 World Bankreport, Information and Communications for Development, whichargued that mobile operators should formally integrate theirsystems, which in turn would encourage each mobile payment serviceto become more competitive. While competitors of M-Pesa in Kenyaare celebrating the proposal given that if it is implemented theywill essentially be able to use the established M-Pesa network ofagent locations at no extra charge, M-Pesa argues that by forcingopen its mobile payment platform the proposed regulations willdiscourage innovation and slow the overall system.
Kenya is unusual in that M-Pesa has a stranglehold on thecountry’s mobile payments (nearly 70 percent of mobile subscribersin Kenya belong to M-Pesa), whereas in the majority of othercountries, no single mobile payment provider is dominant to thesame extent. Nonetheless, if the Kenyan regulations take effect,the precedent set could have a profound effect on global mobilepayment consumer adoption and use in the future.
Around the world, mobile payment operators are reluctant to allowformal interoperability between their mobile payment platformsbecause they have invested so heavily in their own products. Withregulations preventing the creation of a company-specific networkplatform, firms will have little incentive to expand bothdomestically and globally. Furthermore, with no incentive to expandtheir network of mobile payment acceptance locations, the value ofmobile payments to consumers diminishes and consumers will thuscontinue to use traditional payment instruments like cash andpayment cards.
Also in the draft regulations published by the CBK was a clausethat prevents mobile payment services from expanding beyond justpayments. For example, a subservice of M-Pesa, M-Shwari, allowsconsumers to earn interest on their savings and borrow loansthrough their phones. However, if the proposed regulations arepassed, then mobile payment providers will not be able to earninterest or any other financial return from their subscribers. Bylimiting the additional services (and revenue streams) that mobilepayment services can provide, this too discourages innovation andreduces the value of mobile payments to consumers.
While the CBK’s proposed regulations are exactly that – proposals -they represent a landmark in mobile payment regulation and theirramifications could be felt well beyond Kenya. Although there is noguarantee that other countries will adopt similar regulations, itwill be important to monitor mobile payment regulations movingforward to see whether authorities around the world are followingthe Kenyan model.
