CBK push finally breaks telcos’ grip on lucrative mobile money business
A signage showing agency banking and mobile money transfer services in Nyeri.
For years, Safaricom outmuscled regulators and Parliament in their bid to split its telecommunications business from the mobile money transfer and lending units.
A most recent spirited attempt by Parliament to make the split a reality flopped early last year after MPs snubbed debate on the Kenya Information and Communications (Amendment) Bill sponsored by Gem MP Elisha Odhiambo, which had targeted to address concerns that Safaricom has become too big through its dominant market share in voice, mobile data, and mobile money.
But enter the Central Bank of Kenya (CBK) with its unrelenting push for “customer-centric policies”, and change is finally happening.
Safaricom has changed tune and has not only agreed on a path to split the company, but it has also ceded to demands to share merchants and agents with rivals.
Safaricom chief executive officer Peter Ndegwa said the company is preparing for a split that will see it form a holding company to house connectivity, mobile money, tower, and the Ethiopian businesses as subsidiaries.
“In the future, we expect there will be a holding company, probably the listed business and there will be quite a few businesses that operate under Safaricom and we are also able to monetise some of the assets we have for example the towers that we could lease in the future so probably have tower company,” he told Smart Business.
Data businesses
It is not just Safaricom, both Airtel and Telkom have agreed with the CBK on the separation of their voice and data businesses from their mobile money transfer and lending units.
Airtel last week announced that it had formed Airtel Money Kenya Limited becoming the first telco to split its business.
Telkom in July last year notified the CBK of its intentions to split its business but has since cited delays in getting approvals from the Communications Authority of Kenya (CA) for the creation of two subsidiaries it had announced last year.
Telkom, in May 2021, said it was re-organising its company structure to create two wholly-owned subsidiaries -- Telkom Digital and T-Kash -- for its financial services businesses that had kicked off in August 2020.
T-Kash will house its mobile money services and announced loan app to compete with KCB M-Pesa and M-Shwari, which its rival Safaricom operates.
The digital subsidiary is expected to involve infrastructure including a fibre network, international submarines cables, and a smart landing hub to act as a gateway to the East African region amid increased demand for data service.
Safaricom is finally prepared to walk the journey towards the split business model though its CEO rejects claims of unfair competition against rivals Airtel and Telkom Kenya.
“The question that I normally ask is why you want to break up Safaricom. Safaricom and other players got their licenses at the same time. We have developed and been much more single-minded, we have focused on solving issues that affect societies and customers,” Mr Ndegwa said.
“M-Pesa came through that innovation. So we should not be punished for success and we need successful businesses. We have innovated and we have been successful because we have invested just about Sh35 billion on our network infrastructure, on our digital ecosystem and we continue to do that. That is why Kenya is benefiting and we are the leading fintech and continue to expand the partnerships,” he added.
Calls to break up Safaricom have been viewed as a means to give a chance for competing operators to catch up with the telco that has dominated the payment scene.
According to CBK data presented at the Senate in March this year, Safaricom controls 65 per cent of the 65 million mobile subscribers ahead of Airtel’s 26 per cent and Telkom’s six per cent.
Money wallets
Safaricom also controls 41.9 million out of the 68 million mobile money wallets followed by Airtel at 21.5 million and Telkom at 4.6 million.
The leading telco also moved a whopping Sh2.2 trillion through their platform in 2021 a humongous gap from the Sh2.2 billion moved by Airtel and Sh120 million by Telkom through Cash-in and Cash-out at agents, Person-to-person, Pay bill, Tills, E-wallet to the bank, Bank to E-wallet and Airtime purchases.
The CA hired Analysys Mason in 2016 to study the Kenyan telecommunications sector to identify competitive factors that make Safaricom the only profitable firm and its initial report called for splitting the telco.
The regulator later dropped the proposal saying the Analysys Mason report was revised after wide consultations and input by all industry stakeholders.
Mr Ndegwa maintained that Safaricom continues to play fair despite claims of dominance.
“If you split M-Pesa and Safaricom what changes, Airtel and Telkom are not going to do better because we are split. I think what we should say is what is the best for consumers and the country,” the Safaricom boss quipped.
Mr Ndegwa said the split will not change anything much about how M-Pesa is operated since they have always played by the rules.
“Even today, M-Pesa is run separately from our connectivity business so it is just making sure the businesses are legally separate,” he said.
At a growth rate of 37.2 per cent, M-Pesa business payments are the fastest growing component of Safaricom's mobile money revenue which hit Sh107.69 billion to contribute 38.3 per cent of the company’s total income.
Mobile money
Safaricom now relies heavily on mobile money whose contribution has grown from 33.6 per cent in 2020 as voice and messaging decline.
Voice which grew 0.8 per cent to Sh83.2 billion now makes up 29.6 per cent of the company’s topline down from 34.5 three years ago.
The Safaricom boss said the split will not change anything much about how M-Pesa is operated since they have always played by the rules.
The CBK is, however, determined to push on with changes in telco sector to create a level playing field. The regulator has set three stages of interoperability to be achieved through the first phase of personal/send money interoperability that has been implemented since 2018, the second through merchants/businesses, and the third through mobile money agents to be implemented gradually.
The CA and CBK recently launched the interoperability for the pay-bill service— the ability of different IT systems to communicate and exchange data —of the two rival networks for merchant payments.
The interoperability system will allow Airtel and Telkom Kenya subscribers to pay their bills online through Safaricom’s pay-bill number.
The regulator said it will also be pushing appropriate pricing of mobile money which began in January 2021 with a gradual rollout of pricing principles going forward.
CBK also plans to license six new payment service providers (PSPs) to provide an alternative to customers.
