How the Potential CBK Mobile Regulations Could Impact Mobile Payments Globally
In October, the Central Bank of Kenya (CBK) sent shockwaves around the international mobile payment community when it proposed in draft regulations that all e-money issuers such as leading mobile payment service M-Pesa must utilize open systems capable of becoming interoperable with other payment systems in Kenya and worldwide
The CBK’s decision is based on findings from a 2012 World Bank report, Information and Communications for Development, which argued that mobile operators should formally integrate their systems, which in turn would encourage each mobile payment service to become more competitive. While competitors of M-Pesa in Kenya are celebrating the proposal given that if it is implemented they will essentially be able to use the established M-Pesa network of agent locations at no extra charge, M-Pesa argues that by forcing open its mobile payment platform the proposed regulations will discourage innovation and slow the overall system.
Kenya is unusual in that M-Pesa has a stranglehold on the country’s mobile payments (nearly 70 percent of mobile subscribers in Kenya belong to M-Pesa), whereas in the majority of other countries, no single mobile payment provider is dominant to the same extent. Nonetheless, if the Kenyan regulations take effect, the precedent set could have a profound effect on global mobile payment consumer adoption and use in the future.
Around the world, mobile payment operators are reluctant to allow formal interoperability between their mobile payment platforms because they have invested so heavily in their own products. With regulations preventing the creation of a company-specific network platform, firms will have little incentive to expand both domestically and globally. Furthermore, with no incentive to expand their network of mobile payment acceptance locations, the value of mobile payments to consumers diminishes and consumers will thus continue to use traditional payment instruments like cash and payment cards.
Also in the draft regulations published by the CBK was a clause that prevents mobile payment services from expanding beyond just payments. For example, a subservice of M-Pesa, M-Shwari, allows consumers to earn interest on their savings and borrow loans through their phones. However, if the proposed regulations are passed, then mobile payment providers will not be able to earn interest or any other financial return from their subscribers. By limiting the additional services (and revenue streams) that mobile payment services can provide, this too discourages innovation and reduces 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 their ramifications could be felt well beyond Kenya. Although there is no guarantee that other countries will adopt similar regulations, it will be important to monitor mobile payment regulations moving forward to see whether authorities around the world are following the Kenyan model.
Follow Tristan Hugo-Webb on Twitter @THugoWebb.