The dark side of M-Pesa

Is it me or has someone else noted Safaricom is doing everything with intent on Killing Kenyan Tech Start Ups? From venturing into Pay TV, insurance…A story is told in Kenya of how a Kenyan was robbed off his billion dollar idea that is todays Mpesa. The brain child/think tank is said to have approached Safaricom executives who turned him away saying his idea couldn’t be done only for them to launch the service a few months later. That’s the story on every Kenyan lips. However, a new book reveals that a senior Vodafone employee conceived M-Pesa in 2003. Kenyans had close to nothing to do with the creation of M-Pesa that had put the country on the global radar as an innovation hub.

Titled, Money, Real Quick- The story of M-PESA, the book, credits Kenya for the growth of M-Pesa. The mobile money platform has now grown, from a basic money transfer tool to a mobile money facility.

While as M-pesa has put Kenya on the worlds map in leading in this invention, there lay a dirty linen that ought to be washed sooner than later, anyway.

Since its almost a must have service for every Kenyan, Safaricom has taken advantage to charge exorbitant call costs.From having the highest call rates in Kenya, one wonders if this is the way to reward its loyal customers who’ve been its pillar for years.

The profits acrued normally benefit the foreigners.British telecoms giant Vodafone Plc is the biggest beneficiary of Safaricom’s super profit after pocketing more than Sh1.3 billion from M-Pesa, the money transfer service.

Safaricom paid Vodafone the money in the form of licence fees as provided for under an agreement that the two companies signed before the launch of the mobile money platform seven years ago.

The fee is payable quarterly and is capped at 25 per cent of every quarter’s revenue with a floor of 10 per cent, but Vodafone has been earning about 11 per cent of M-Pesa revenues in recent years.

The appointment of the CEO has to be approved by Vodafone,a form of neo-colonialism.Isn’t it time a Kenyan national run the biggest company in sub Saharan Africa in terms of profits.

With MPESA, privacy is not guaranteed.For as little as 10 shillings, you can have the identity of the owner of that line,if his number is registered for the service,as simple as that.In addition to this Kidnappers use this service to demand ransom.To ensure they won”t be apprehended easily,they open an account using a fake ID that can be prepared illegally on demand in Nairobi’s notorious River road street. Safaricom does nothing to counter check the genuineness of the ID numbers.

Once its shares were listed in the NSE Nairobi Securities Exchange, many investors were full of hope they would get a quick profit out of it.This was not to be until this year that has seen its valuation rise to a record Shs8 from as low as Shs2. Despite the rise, the company continues to pay its shareholders the lowest dividends in Kenya.

Safaricom owns majority stake in the sea fibre optics cables in Kenya.From EASSy, the East African Submarine Cable System, to TEAMS (The East African Marine System) to SEACOM.One would expect that they would have the cheapest data in the market but this is not so.Sad indeed.With the arrival of the 4th seabed fibre optic cable in Mombasa(LION2) The Lower Indian Ocean Network 2 which is according to reports operated by France Telecom / Orange and connects Kenya from Mayotte, a French dominion near the Comoros Islands and to all other African countries where France Telecom / Orange has subsidiaries Safaricom may be forced to lower their pricing.Sadly they have to wait till competitors come to poor Kenyans rescue to act.

MPESA’s servers are located in Germany.One time there was a total outtage of MPESA services that blasted for hours.Why wouldn’t they keep the servers home? When foreigners come to Africa, they potray power problems as an African problems. But today you can see that it is not an African problem per se. Safaricom then said that M-Pesa had suffered complete outage due to a power problem on a Vodafone server in Germany.They,however, also added that in order to reduce costs, part of the M-Pesa servers in Germany would be relocated to Kenya in order to improve “the reliability of the mobile money platform and cut down on overheads” Whether this has been done is anyones guess.

Bring the servers home

Small banks that were on the rise have seen their gains dwindle as many Kenyans opt for mobile money services.Though better, from another angle one can’t help sympathize with the banks that could soon be forced to close shop.

Lastly MPESA guarantees no security.If you send your money to the wrong number, count yourself very lucky if you get it back.First and foremost, their customer care number take an average of 20 minutes to connect if you’re lucky only to be told that your money has been withdrawn and there is absolutely nothing they can do about it.Not even offer to follow up the matter to recover the loss.

On a positive note,Safaricom’s Mpesa platform may soon be open for use by other mobile payment services providers if new regulations published by the Central Bank are effected.

The CBK has published the National Payment System Draft Regulations that among others recommend that E-money issuers shall utilise open systems capable of becoming interoperable with other payment systems in the country and internationally. The same shall apply to electronic retail transfers.This could end the mobile company’s dominance of the mobile money market which has locked many subscribers to its network.The government said it was in the process of establishing a payment service provider management body, that among other things will allow Kenyans to transfer cash across all available networks in the country.However Safaricom is opposed to this.Currently Orange Kenya subscribers can purchase airtime via M-Pesa.

“E-money issuers are encouraged to enter into interoperable arrangements ,” reads part of the regulation. This will come as a relief to the three other mobile phone companies in the country who have been pushing for this kind of arrangement. Safaricom has however opposed it in the past arguing that it will kill innovation and slow down the systems.The mobile number portability failed because clients did not want to lose their mobile commerce services.Some companies have even offered to pay royalties to Safaricom to use Mpesa platform but Safaricom won’t bulge with its CEO claiming “The M-Pesa platform is not Safaricom’s to license but Vodafone’s.”

Well, as Safaricom continues with its tyranny of numbers….I dare say its just a matter of time before Kenyas get fed up and decide to move on.Instead of playing its part in making lives better, its continues to milk Kenyans to the last drop.The future will judge them harsh for forgetting the core values they used to gain customers when they were playing second fiddle to the then Kencell.

Recently the Director General of CCK, the country’s ICT regulator threatened not to renew Safaricom’s license unless they improved the quality of their services. Safaricom, which makes over Sh1 billion per month is the largest and most successful enterprise in East and Central Africa. With its world famous MPESA brand, Safaricom continues to dominate the local telecommunication market. The recent CCK quarterly report shows that it controls approximately 75 per cent of the Internet data market and 80 per cent of the voice market.

How can you deny Safaricom a license to operate when it is connecting over 10 million subscribers to the Internet, is transacting millions of shillings daily through its MPESA product and better still, it is paying the highest corporate tax in Kenya to the exchequer. Add this to the fact that Safaricom is partly owned by many Kenyans – however small the value of this shareholding maybe – you clearly have a regulatory elephant in the room. Quality of service is often the first casualty of monopolies and dominant players in any market. A dominant player has the advantage, perhaps the benefit of dictating the price, quality of service and the innovation cycles of their products.

Safaricom has earned the dominant player role and can afford to dictate what quality of service you enjoy, what price you pay and how often it upgrades its services – irrespective of what the regulator says.

However Safaricom could soon meet its match. Now Equity Bank wants a piece of this cake. Recent business reports indicate that Equity Bank has submitted an application to the regulator to have a mobile virtual network operator license. This means Equity will have its own SIM-cards for its customers while leasing telecommunication infrastructure from the existing mobile operators to distribute their own brand of mobile money. Describing its traditional competitor as “the mattress” – in other words, the place where people traditionally hid their cash – Equity Bank’s chief executive James Mwangi sees its mobile offering as key to breaking down barriers of access and distance that hamper banking in Africa. The biggest problem with accessing a bank in Africa is not bank charges, it is the cost of access. One has to go for may kilometers, pay public transport, spend the whole day to get to the bank, have to dress because he/she has to go to the biggest shopping center in his/her district; that is what Equity money hopes to remove.

It is clear that Equity wants a direct and stronger control of its mobile money market – beyond what it currently has through partnering with operators. But why would Equity’s entry make a difference? After all, Orange and Airtel already enjoy this direct and strong control of their money market business without necessarily threatening or denting Safaricom’s dominant position.

Two clear advantages stand out for Equity; a large customer base and a significant nationwide branch network. With 8million existing banking customers, Equity would automatically become the second-largest mobile money player once they converted these customers into Equity mobile money subscribers. Put differently, Safaricom – being the biggest player – could potentially lose 8 million of its existing mobile money subscribers to Equity.

M-Pesa is celebrating 7 years since its launch in Kenya (launched on 6th March 2007). The service has grown with leaps and bounds with the service now handling an average of close to $10 Billion in one single year. The number of Safaricom clients registered and actively using the service is now around 15 Million while more than 10 Million Tanzanians are using it with thousand others using the service in South Africa and Afghanistan.

The sad part of this is that M-Pesa is still too foreign and none of the Kenyan leaders are thinking of the value M-Pesa is to the country and why they must take measures to secure it. I believe that with the growth of M-Pesa, there are areas it has not grown. User experience is almost the same and regular update to continue wooing the users is lacking. This is because the owners of M-Pesa, Vodafone, are very mean with the system locking all creative brains outside.

These are some of my suggestions to the Kenyan government, Safaricom and M-Pesa owners to improve the system.

1. Kenyan Government Should Buy M-Pesa and Own the Innovation

It is sad that five years since M-Pesa was introduced in the country, it is still owned by Vodafone while the whole M-Pesa system is hosted in Germany. Hosting of the system in Germany has brought periodic problems with users suffering whenever a connection is lost between the two countries. Hosting the system will be a great start but the government of Kenya owning the system by buying it fully from Vodafone will just be safe for both the country and the users.

Vodafone earns over Ksh 2 billion (7% of M-Pesa revenues) every year in M-Pesa “license fees”. It is not really clear how this is determined but there are some reports that Vodafone wants the fee adjusted upwards. M-Pesa handles more than 20% of Kenya’s GDP. It is sad that Kenyan leaders see no value in having the country own the system which is so important to the economy.

We only pray that one day the leaders will see the sense.

2. The System should move to be more electronic

Yes the M-Pesa system is electronic. The painful truth is that the over 35,000 M-Pesa agents still hold a trove of offline data which politicians, marketers or just data miners find useful and will be able to readily abuse. There were these reports of M-Pesa data being sold to politicians in January. Such claims are not further from the truth. It would be great if Safaricom would insist on the over 35,000 agents investing on portable systems which can either read fingerprints and enable transfers or can allow for electronic signatures so as to eliminate paper totally.

If Western Union and Money Gram are electronic to the extent they are, why can’t M-Pesa be better? I believe that M-Pesa can beat Western Union and Money Gram in being the first fully electronic system because M-Pesa relies on a unique identifier for the users, the mobile phone number. This might help eliminate the need for records by the sender, agent and receiver as all receive electronic confirmation of the transaction.

3. M-Pesa need to be network independent

However much I believe that the other network operators are just lazy and not ready to push the boundaries to effectively compete with Safaricom, I still harbour strong belief that Safaricom might earn more money if they fully owned the M-Pesa system and sold it to operators all over the world. The system would earn Safaricom money locally and abroad.

The revenue from M-Pesa in such an arrangement would be much more than that which it will get from the few millions of clients it believes it has to retain locally by exclusively owning the platform. The network operators would just be partners just like KCB, Posta, Cooperative Bank and Eco Bank among others are local partners of Western Union.

4. Make M-Pesa the Great Platform it Should be

M-Pesa is a network which has grown and got accepted by the millions just like Facebook. Unlike Facebook though, M-Pesa fails on the need for it to become a platform where all needs are served by different interest groups building apps which rides on the system but uses only the payment system or in some instances the great number of clients from different regions.

This fete can only be achieved if M-Pesa opened up its system to developers. It is sad that even the banking system like KCB connect and all the Pay Bill systems by different business are not real-time but require human intervention and manual activation. It is sad also that even Safaricom’s own post-paid Pay Bill system has to rely on a human intervention for the accounts to be updated. You always wonder why some Pay Bill systems tell you to wait for up to 48 hours, this is because of the human intervention.

5. Where is M-Pesa 2.0 ?

M-Pesa needs to move from a USSD dependent system to a seamless technology which can even use web to process payment. It would be great to have a Facebook app like this PayPal app, Android, iOS and Windows apps which can allow account management just like the apps by Paypal and others on the respective platforms.

Social media platforms like Facebook are the next frontier battles for payment solutions. M-Pesa needs to be there and exploit these effectively.

It would also be great to see Safaricom, Vodafone or the eventual owners of M-Pesa partner with OEM manufacturers like Samsung, LG, Huawei, Ericsson and Nokia to have Near Field Communications (NFC) supported on M-Pesa. We have had a Facebook phone, it will not be a bad idea to have an M-Pesa focused phone.

6. Allow for Cross Border Payment Processing

It is really funny and sickening to rely on Western Union the moment I want to send money to an M-Pesa user in Tanzania. M-Pesa should push for recognition by the emerging markets governments to allow for cross border transfer. Relying on a system which is primitive than it for this is M-Pesa’s biggest drawback.

The platform beats Western Union on many fronts except for a few. Why should it then rely on it for country to country transfer? Because the western governments pushed to have their system recognised while African countries put roadblocks on the path of M-Pesa’s adoption as an international payment system.