Tuesday, 13 December 2011

Consumer rights must keep pace with Africa’s mobile money miracle

CI's Luke Upchurch on why consumers of mobile financial services need protecting.

African consumers have established themselves at the vanguard of mobile communications, with the continent already boasting more mobile-phone users than the United States. Now, Kenyans are leading the way in new forms of inexpensive mobile financial services that have the potential to revolutionise bank transactions, transfers, payments and personal finance.

Yet, while the 17 million Kenyans already signed up to a mobile money service are a clear sign of its popularity, consumer protection is lagging behind the pace of technological change. It is a problem that consumers of financial services in other countries may soon face too.

Mobile banking services like M-PESA, run by Vodaphone’s Kenya subsidiary Safaricom, offer Kenyan consumers cheap transaction services via their mobile phones. The service requires minimal sign-up details, and takes advantage of the huge mobile-phone ownership in Kenya.

Crucially, it allows users to access and withdraw funds from a network of kiosks – M-PESA has over 32,000 agents across Kenya - by simply providing the vendor with a verification code. This secure code is sent on request to the user’s mobile phone by M-PESA. Once verified by the vendor, cash can then be handed over instantly.

The popularity of the service is undeniable. The World Bank estimates that M-PESA alone moved over USD7 billion of customers’ money in 2010, and this could reach USD10 billion for 2011.

Together with a growing number of rival services, mobile money has quickly become the standard form of payment, transfer and withdrawals for many Kenyans. The rest of Africa is not far behind.

But, as Samuel Ochieng of Kenya’s Consumer Information Network (CIN) explains, the eagerness of companies to take advantage of this consumer demand has left legislators reeling.

“Consumer rights have not been at the forefront of the design of this service, and we feel tighter legislation is needed. Yet, when we wrote to the telecommunications regulator, the Communications Commission of Kenya [CCK], to outline our concerns, we were told it was a matter for the Central Bank. So, we wrote to the Central Bank, who in turn referred us back to the telecommunications regulator. Such confusion over accountability speaks volumes about the lack of consideration concern given to consumer rights”.

There are several areas in which consumer protection is a concern. It is clear that many consumers are already using the service as an alternative to a bank account (something Safaricom and others have done little to dissuade). The ease of use and convenience of access mean this is unsurprising. But, unlike a conventional bank account, consumers have no meaningful form of deposit protection. There are also no ‘savings’ account options, so customers have no means of receiving interest on the money held by the provider. With an estimated USD650 million in transactions a month, interest on deposits is potentially huge.

There are also few payment-protection guarantees built into the transaction system, leaving the service open to fraud. CIN have heard of several cases in which mobile payments have been agreed via the verification process, only for the person making the payment to then contact the provider and cancel the transaction (something which is possible for up to 72 hours after submission with M-PESA).

The flexibility of mobile financial services is, of course, a major part of the success story. But in this case, it is also putting consumers’ money at risk.  

Samuel Ochieng also points to a worrying lack of clarity around access to customer accounts in the event of death.

“Unlike a bank account, there is currently no established power of attorney for next of kin. This has led to some distressing cases for the families of the bereaved, who often have no idea how much is held in the mobile account of a family member who has passed away. Often it is the family’s word against that of the provider.

“This is yet another reason why the Central Bank should take full responsibility for legislation around mobile money services”.

The World Bank predicts that mobile financial services will affect the lives of two billion people in developing countries by 2020. These services are changing the lives of millions of people, providing many with access to financial services for the first time. Services are also beginning to appear in developed economies, where the market potential is likely to bring a whole new dimension to mobile money.

While these developments have to be welcomed, consumer rights groups need to be vigilant against the popularity of the technology outpacing the need for effective, accountable consumer protection.


  1. "CIN have heard of several cases in which mobile payments have been agreed via the verification process, only for the person making the payment to then contact the provider and cancel the transaction (something which is possible for up to 72 hours after submission with M-PESA_"

    No it's not.

  2. Hi Luke; while I do have few concerns about telecoms and nonbanks providing an array of financial services (particularly credit facilities as Visa seems primed to do throughout Africa), Safaricom has shown itself to be a great benefit to Kenyans, particularly those living in the urban areas who need to remit to family in the rural areas. Also, studies show that people are using it primarily to "send money home" as the adverts promote, not as a savings account. (And, I for one welcome any competition for the bandits Moneygram and WesternUnion).

    Recently, Microfinance Opportunities did a Financial Diaries style study on Mpesa client habits in Kenya published in Oct. which indicated that low income people are not using MPesa to accumulate savings, but rather for transactional purposes (including school fee payments) and then to cash out within a day or so of receiving the inflow of funds. In fact 68% of all inflows are cleared out before new money arrives.

    Should people want to save in a regulated and interest bearing deposit taking institution, they have the option of opening an electronic savings account called M-Kesho which is a joint venture with Equity Bank (which pays interest even if you only have one shilling in the account). Even if the client opts to remain solely a MPesa account user, any funds left on the account are actually parked by Safaricom in a prudentially regulated bank (albeit in the name of Safaricom as the account holder) and Safaricom is not allowed to intermediate these funds -- generally accepted regulatory practice is that nonbank e-money issuers should practice "fund safeguarding" by maintaining unencumbered, liquid assets equal to the amount of the issued electronic value or e-float. Safaricom has complied with this norm (though it is not yet a requirement in Kenya).
    As for the worry about no established power of attorney, that has a simple solution: tell your spouse your pin.

    Given the low levels of actual consumer protection for regulated bank clients, I am willing to give the telecoms a chance at providing me with better customer care and can't wait for them to arrive in the Italian market.

    Jami Solli

  3. In the technology world it always growing and no one can stop the thinking of people. I think the Kenyans are using the best way for the transaction and mobile is very useful device for people. Mobile is always being helpful for transaction and other works.

  4. The technology is always in the changing phase because user always want the latest one and to provide the better one mobile company are always working behind for it. Mobile device make man life too easy.

    boost mobile phone signal

  5. Mobile company's have to look forward all things about their customers and their important rights. Mobile phones make man life too easy.