Q: How would you rate the competitiveness of the telecoms sector in Kenya?
JAMES MWANGI: The telecoms space in Kenya isn’t very competitive because it has a dominant player, Safaricom, occupying approximately 90% of the market share. The other operators end up playing an underdog role, which makes business challenging in many ways. Pricing in the sector is not based on competitiveness, service or products; instead it’s market control that is driving these things. As a result, Kenya remains a very pricey market for telecoms services and innovation has been stymied.
With an environment such as this, it calls for innovative ways to open up the market and, in particular, niches of competency. This explains why Equitel has been so successful, because we have a competitive advantage in terms of financial services and can provide effective competition to a dominant player in these terms. As such, in just over a year, we have captured 22% of mobile money transfers as per the 2016 report from the Communications Authority of Kenya.
What impact has mobile money had on financial inclusion and economic growth?
We have been enabled by mobile money to achieve over 75% financial inclusion. When you have such huge access that almost compares to figures of high middle-income countries, it raises the question if inclusion is truly synonymous with impact. I think this can be equated to a country experiencing economic growth while you, personally, experience joblessness.
I consider it to be inclusion without commensurate impact. Money transfer cannot be the sole measure of a country’s financial inclusion. Financial inclusion means an individual’s access to savings, loans, insurance and investments and actively using those products. It is only when a population effectively utilises those other channels that you can say inclusion has made an impact. All that mobile money is digitising is a delivery envelope; it’s not a financial product.
What factors contributed to the rapid uptake of mobile money in Kenya?
Mobile money, the service M-Pesa in particular, has had such significant success in Kenya because it is operating within the financial services space without being regulated like a financial actor. Other countries do not allow non-financial actors to play in the financial sector, and that is why no mobile money solution in other countries has been able to duplicate the success of M-Pesa.
In other countries, mobile money is bank-led because banks are financial sector actors. That’s why mobile money has never boomed like it has in Kenya, because a telecoms company would not be allowed to operate within the financial sector without the appropriate license. There is a very simple reason why M-Pesa is limited to only money transfer and does not host savings accounts: they don’t have a license to provide financial products.
Then the question is raised, should M-Pesa be regulated like a financial actor? It is a double-edged sword. First of all, you can’t regulate M-Pesa because it is being offered by a non-regulated entity and you can only regulate entities, not products. Second, if you use M-Pesa’s popularity as a measure of financial inclusion, you can’t go and then regulate a product that is driving financial inclusion.
How likely would other telecoms operators begin to expand into financial services?
I don’t think there is a very bright future for telecoms operators to offer financial services. This simply has to do with accessibility. Kenyan consumers were very attracted to services like M-Pesa because many didn’t have smart phones, so being able to send cash through SMS was a very attractive feature.
Now, with the arrival of smart phones, customers can access their bank’s applications easily and choose that route. With connectivity expanding so rapidly in this age of internet of things, telecom operators are already being considered as a very rudimentary technology.