Unlocking competition in digital finance in Africa & Asia

Genesis was commissioned to study impediments to more effective competition in mobile money markets in four markets – India, Bangladesh, Kenya and Nigeria. The explosive growth in mobile money in a number of countries has made a key contribution to providing the poor with access to financial services.

At the same time, in some of these markets, the presence of dominant providers, inappropriate regulations, and other problems may prevent effective competition, to the detriment of consumers and to innovation.

The purpose of the study was to provide the client with insights into (i) potential regulatory or market-based solutions to identified problems; and (ii) how these might be promoted to improve competitive outcomes for consumers of digital financial services (“DFS”).

The team conducted the study by utilising four main tools i.e.:

• A competition policy framework based on economic theory
• An extensive literature review on DFS, payment systems, competition and regulation issues in network industries, and also in multi-sided platform industries
• Stakeholder engagements in the four countries, i.e., DFS/MFS providers, regulators, banks and mobile network operators (MNOs)
• Internal financial sector expertise and knowledge provided by the project leader, Richard Ketley.

In addition to various country-specific recommendations, Genesis identified the following cross-cutting priorities:

• That appropriate regulation is required for USSD pricing. Cost-based pricing of USSD is a critical enabler of competition.
• Regulators should drive full interoperability between competing MFS platforms
• Regulatory capacity building is required at the interface between competition law and payment systems regulation to develop the pro-competitive regulatory approaches in future.

The findings of the report are that environments in which mobile network operators are able to offer mobile financial services, and there is a dominant player in the data and voice market, the potential for network effects to give the dominant provider market power is high.

This market power can be offset by appropriate regulatory interventions. It is less clear that these interventions will drive down the price of the services given demand elasticities for different product types.