This week, the Kenyan parliament is hearing arguments about whether Equity Bank’s “Thin Sim” card can be used with carrier Safaricom mobile phones. But as is often true, the fight is really about money, or more specifically, mobile money.
Safaricom, which is 40% owned by the U.K.’s Vodafone, is the purveyor of the popular M-Pesa, which allows users to purchase goods or transfer money using their mobile phones. Introduced in 2007 with an eye toward the country’s unbanked population, M-Pesa now boasts more than 19.3 million customers, a number roughly equivalent to 80% of Kenya’s adult population.
With such numbers, it is easy to understand why Equity Bank, Kenya’s largest bank by number of customers, wanted to get into this market. Equity registered as a mobile virtual network operator in April. Then, the bank started to roll out its plan for a “thin sim card” which would lay on top of the customer’s existing sim card. Customers could then activate it to access their bank accounts with Equity.
Safaricom cried foul, saying the thin sim endangered the security of its customers’ mobile accounts. “This Thin SIM is like a middle-man,” Safaricom’s head of regulatory services Steve Chege told ministers of parliament. “We have tested it in our laboratories and we have seen that whatever data we key in can be viewed by third parties. We are worried about that.”
For its part, Equity believes that Safaricom’s complaint is more about trying to squelch competition in an area where the telco has enjoyed a near-monopoly. “When you’ve had the sandpit to yourself, you don’t want to let someone new in to play,” John Staley, Equity’s chief of finance, innovation and technology, told the Wall Street Journal in August.
At the same time, Staley also made it clear that banks were the best providers of banking services. “We have a major problem with the mobile provider also providing financial services,” he said. “You can’t have a freight company controlling the trucks.”
Safaricom, which by some accounts handles 70% of Kenya’s mobile calls, also has a savings and loan service called M-Shwari. While this service is not at the heart of the current fight, it’s interesting to note just how far Safaricom has gone into traditional banking territory.
As M-Pesa and other mobile banking services spread, the line between banks and carriers is likely to blur further, if not disappear all together.
M-Pesa and services like it are popular in the developing world, namely because of the large unbanked population there, even as these services are reducing that number. According to Central Bank of Kenya, M-Pesa has helped push the percent of people engaged in a formal financial system to 83% in 2013, a figure that would drop to 25% without this service.
M-Pesa is also spreading past Africa. Notably, Vodafone brought the African-born payment innovation to Europe with a Romanian launch in March.
In the end, competition between telcos and banks could be good for mobile money customers. It appears to be working that way in Kenya. Equity is planning to offer transaction fees capped at the equivalent of $0.20 per transaction, as opposed to M-Pesa’s uncapped charges. In a telling move, Safaricom reduced its fees for mid-range purchases in August — even as it fought to stop Equity’s thin sim product.