Kenya: Safaricom, Equity Bank Thin Sim Wars - A Distraction that Should Not Drag...

Sep 2014
Kenya, September, 20 2014 - The dispute pitting Safaricom against Equity Bank over the latter’s plans to offer mobile money transfer services is unnecessary and should not be allowed to drag on. The controversy is a distraction at a time when both companies should be investing their time and money on improving their product and services.

At first glance, Safaricom seems to have a valid argument that Equity Bank’s technology is likely to threaten the security of its mobile money transactions. The global association of telecoms operators (GSMA) said it was not in a position to ascertain if individual overlay SIM cards implementation could gather any sensitive data and make it available to unauthorised persons.

The association also admitted it could not authoritatively offer a verdict on whether the new technology could manipulate or compromise the security of the existing SIM in anyway. It is noteworthy that although Safaricom has clung to its argument that Equity Bank’s new technology poses a danger to its M-Pesa customers, it has not carried out any tests on its own, preferably, using the SIM card its would-be-competitor plans to deploy.

Instead, it appears to also be relying on results of tests commissioned by its principal shareholder, Vodafone - a major beneficiary of profits earned from maintaining the status quo. Vodafone commissioned security firm Recurity Labs to assess the threat posed to its systems by use of thin SIMs. Using products offered by Bibitel as a sample, Recurity concluded that the technology poses “serious threats to the M-Pesa and mobile wallet systems.

Bibitel is a thin SIM product by Digitel Communications that provides reduced roaming rates to travellers. It is not clear how much credibility can be attributed to these findings because it is in Vodafone’s interests that Safaricom maintains its near-stranglehold on the local mobile money transfer market. It is not lost on analysts that neither the SIM card used in the assessment nor its developer appear to enjoy the level of international recognition Equity Bank proposes to deploy and its manufacturer—Taisys Corporation of Taiwan. Contrary to Safaricom’s claims that there was “no country in the world using the technology” when its officials appeared before the Parliamentary Committee on Energy and Communications earlier this month, China, Holland, the UK, US, Singapore and Malaysia use the technology.

These countries are way far ahead of Kenya in the size of their economies and level of technology. They cannot be wrong. Should Kenya be considered an aberrations in anything but its seeming tolerance of companies that might seek to abuse their monopolistic positions

Be that as it may. Analysts are unanimous that Safaricom has played and continues to play a key and valuable role in transforming the local communications landscape. It is instructive that the telecom giant built its success on the back of the failure of the then Kencell—today’s Airtel­­- to connect with lower-end customers.

The same can be said for Equity Bank, which muscled its way to the top in its sector and played a key role in financial inclusion of the lower income groups who had been previously marginalised out of the banking system and other financial services. Analysts find it both instructive and intriguing that the battle between the two would-be-competitors is for the same segment of the market on which they have ridden to the top of the game in their respective sectors. Equity Bank officials who met the MPs told the law makers that their thin SIM card was targeted at the lower-end of the market and not at people with smartphones. Perhaps, time has come for Safaricom to seek their customers’ views on the issue before continuing to oppose Equity Bank’s entry into the market. After all, it is not always true that Dad knows best.

Safaricom might be surprised to find that its customers who bank with Equity Bank would heartily welcome an opportunity to send money without having to go through the tedious process of withdrawing then depositing it with M-Pesa before sending it on to its final destination.

I, for one, would. Equity Bank’s entry into the market would allow the professional staff in both companies to switch-on their creative and innovative juices to deliver new products and services. In the meantime, customers would enjoy lower prices! The economy would reap from the greater competition. Evidence gathered across industrial and commercial sector around suggests that competition drives improvements in quality and reduction in prices. Weaker companies are weeded out of the market.

But due to the size of its operations, strength of its balance sheet and the competence of its managerial and technical staff, the worst Safaricom can expect to suffer is a bruised ego when Equity Bank is finally admitted to the club — for it cannot be locked out forever.

But how deeply, or otherwise, Safaricom’s bottom-line will be affected by the entry of a well-heeled and experienced street-fighter as Equity Bank, with its battery of qualified staff drawn from China, Britain, Japan and the US and with the expertise of having worked for global IT giants including IBM and Oracle, will depend on how soon the mobile firm realises time has come to change the game. The mobile money transfer market is so lucrative that it will attract others in the event Equity Bank blinks and gives up the fight.


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