Competition in Mobile Financial Services: Lessons from Kenya & Tanzania

Mobile financial services (MFS) are the main drivers of financial inclusion in many developing countries; they provide low-income consumers with access to transfers, payments, and increasingly more complex products such as credit, savings, and insurance. MFS channels can provide the advantages of convenient, secure, and cost-efficient product offerings to consumers. In several markets, MFS have in turn helped to significantly increase the portion of the population with access to formal financial services.

To promote both quality and diversity in MFS products, and in turn financial inclusion, it is important to ensure a competitive ecosystem that facilitates entry into the market, the development of innovative MFS products, and high-quality, value-for-money services. Policy makers, donors, and others promoting financial inclusion may give priority to facilitating first-movers’ testing and innovating to bring products to scale and prove the viability of MFS business models during early market development, with competition issues taking a backseat. However, as MFS markets mature and become more fully integrated into the economy and consumers’ financial lives, effective competition becomes increasingly important to ensuring that markets work well and to promoting financial inclusion. 

This working paper aims to provide insights on the role that effective competition and competition policy play in developing MFS, and in turn promoting financial inclusion using Kenya and Tanzania as case countries. The aim is to have two distinct, but complementary products:

1. To identify and, where appropriate, contrast the competition issues of MFS in Kenya and Tanzania. This will offer insights on how effective competition might be improved to make markets work well and, in turn, increase financial inclusion and consumer welfare.
2. Draw on the experiences of Kenya and Tanzania to highlight to policy makers and regulators in more nascent MFS markets the aspects of competition policy they may wish to monitor or investigate as their own MFS markets develop. 

The primary target audiences are competition authorities and other regulatory bodies who have both the expertise and the power to effect such changes, while acknowledging that capacity constraints can often be restrictive in identifying and mitigating competition issues in MFS.