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.
