Mobile Payments Markets in Kenya, Tanzania and Zimbabwe: A Comparative Study of Competitive Dynamics and Outcomes

Abstract

This article aims to contribute to a better understanding of the competitive dynamics in mobile payments markets and the implications for consumers. We do this by conducting a comparative review of market structure, competition dynamics and pricing in mobile payments markets in three African countries. The results show that, where there is a dominant incumbent, tariffs for mobile payments tend to be higher and reflect a wider gap between those for registered and unregistered customers. This is consistent with the predictions of economic theory in network industries and the incentives of incumbent operators to capture or tip the market in their favour, which also contributes to reducing switching by existing customers in the market for mobile services. 1. Introductory remarks on African mobile payments markets Mobile payments have revolutionised the payments system for consumers in a number of African countries, providing a cheap, safe and convenient means of transferring money. This is beneficial for competition, as it provides the consumer with a cheaper alternative to banks and other financial institutions with a much wider footprint. Furthermore, mobile money services have evolved to offer a wider range of services, such as savings and credit products, adding further value for consumers. The possibility for competition in the provision of mobile payments, in particular to bring benefits to consumers, is illustrated by recent developments in Kenya, where increased competition in the market appears to have led to falling prices. However, in some countries, telecoms companies have established positions of significant market power in the mobile payments market, in addition to existing incumbent positions in the market for traditional mobile network operator (MNO) services. This raises a concern that incumbent firms will engage in strategies to reinforce their dominance in both markets, particularly given the network effects present within and across them. This has been borne out in a number of competition complaints against incumbent mobile money providers in different countries. Although in the short term it does appear that MNOs are involved in rapidly developing adjacent products and services, leveraging the high penetration of mobile payments services, a lack of competition in the long term may reduce the incentive for further innovation and product development and lead to higher prices.