CAK compels Safaricom to cut third party mobile banking service costs

Kenya’s competition watchdog – the CAK – has compelled Safaricom to disclose and lower its third-party mobile banking service charges in a move that intensifies the heat on the dominant telecoms operator.

It has emerged that Safaricom last month signed an agreement with the Competition Authority of Kenya (CAK) to cut the Unstructured Supplementary Service Data (USSD) prices for financial transactions going through its network.

USSD allows users to access a range of applications, from mobile banking to gaming, via short-codes such as *247# (Equity Bank) or *722# (Standard Chartered).

Under the agreement, Safaricom is also required to post online all the fees it charges for USSD services.

“The disclosure will be clear and simple enough to enable wholesale corporate customers and Safaricom retail end-users to understand and compare pricing of USSD channels when accessing mobile financial services,”  reads the agreement signed between Safaricom and the CAK.

Competition Authority director-general Wang’ombe Kariuki declined to comment on the substance of the agreement insisting that the authority had sought to ensure a level playing field for financial institutions.

“This (financial services) was an area with high volumes and where we could not find a justification for the differentiated prices. We wanted to ensure that all customers are charged costs commensurate to the services” 

The CAK’s action is the latest salvo in an ongoing battle to rein-in Safaricom’s power as a dominant player in the telecommunication market and to increase transparency in mobile financial services. Safaricom said it previously charged between Sh2 and Sh5 per three-minute USSD session.

But technology experts indicated that the prices could go as high as Sh10. These costs are often borne by customers although financial service providers can also opt to absorb them.

Under the agreement with the CAK, Safaricom is expected to cut its charges for USSD services to Sh2 per three-minute session beginning this month. Within eight months, the price is supposed to fall farther to Sh1 per session, a price that will be retained for at least five years.

Safaricom said it had already implemented the price changes, a claim confirmed by the Business Daily through a spot check among Kenya’s first tier banks on Thursday.  

Safaricom Corporate Affairs director Stephen Chege said the company was working to meet the requirement for online disclosures.

In signing the agreement, Safaricom is avoiding a fully-fledged investigation that the CAK had wanted on USSD pricing. The authority has now cut its ambition to receiving annual reports on Safaricom’s pricing models.

The decision to lower prices comes in the wake of a market inquiry by the CAK into Kenya’s USSD market. There were concerns that USSD pricing models were barring financial service institutions from competing effectively with the company’s M-Pesa service.

“It was expensive using USSD. This is one of the reasons Tangaza decided to go for its on Mobile Virtual Network Operator (MVNO) licence,” said Oscar Ikinu, the chief executive of Tangaza Pesa.

Although the market inquiry commissioned by the CAK has not been made public, details of its findings have leaked through a draft report on the competitiveness of the telecommunication sector authored by consultancy firm Analysys Mason on behalf of the Communications Authority of Kenya (CA).

According to Analysys Mason, the USSD market inquiry “indicates that Safaricom may be favouring service providers with whom it has common financial interests.” Safaricom has denied charging discriminatory prices.

“Where there has been any variation in pricing, this has been due to volume discounts offered to USSD customers who generate significant traffic, which is a normal practice,” said Mr Chege.

Under the agreement with CAK, Safaricom is restricted from imposing “dissimilar conditions to equivalent transactions with other parties” and is also expected to review its policies on volume discounts.

The telecoms operator is also expected to comply with the competition law and all the conditions agreed with the CAK.

This lowering of prices comes a couple of weeks after banks launched a mobile money platform – Pesalink – that enables users to transfer money directly from their accounts to counterparties with accounts in other banks without going through Safaricom’s M-Pesa service.

The system is integrated in each member firm’s mobile banking system, many of which run via USSD.

Smartphone penetration, however, remains low in Kenya, meaning only a small fraction of the users are USSD enabled and can access banking services.

“If the costs are reduced the services will be available to more people. It is sometimes very painful for customers to pay some of these high rates,” said Mobikash Afrika chief executive Duncan Otieno.

Financial institutions may also find themselves in a tight spot with increased transparency. Once customers can easily see the base prices charged by Safaricom, they will be able to discern any additional costs charged by the mobile service providers.

Safaricom’s decision to slash USSD prices pre-empts recommendations in the Analysys Mason draft report, which is under consideration by the CA, and calls on all operators to provide USSD services on a non-discriminatory basis and priced on the Long-Run Incremental Cost (LRIC).

In the meantime, Analysys Mason says USSD services should fall to Sh1 per session for all operators.

Analysys Mason brought forward a raft of proposals to restore competition in the telecommunication sector through such measures as mobile money interoperability and infrastructure sharing.