In my last post, I noted that regulatory changes have enabled mobile money to go global. Perhaps you were surprised that competing firms might allow customers to transfer money between their networks. Why not limit your customers to sending money to others in your network? Why make your rival’s network more attractive?
To anyone who is familiar with the evolution of lightly regulated banking systems, or “free banking,” the answer is obvious. Historically, private banks found it profitable to accept their rivals notes at par. Doing so helped expand the circulation (and, hence, the desirability) of being a customer of their bank. In much the same way, mobile network operators realize that it is in their interest to allow customers to send and receive money between their competitors’ networks. If they don’t, but their customers do, they will lose market share. The more companies they can strike interoperability deals with, the wider their network, and the more attractive their mobile money services become.
The result is a virtuous cycle. The mobile money market becomes increasingly competitive over time. Fees fall and end users benefit from the expanded network–or, more precisely, interconnected networks. The market share of Safaricom, which started M-PESA in 2007, has already fallen from more than 90% in its early years to 65.2% today. Transaction fees for within border and cross-border remittances have also steadily fallen over the years. And the benefits of have competition have probably been greatest for the poor, who rely far more heavily on mobile money.
Mobile money still has a long way to go. Limits on transaction sizes have constrained the demand for mobile payment services for decades. Regulations in some countries on cross-border exchanges likewise limit the circulation and, hence, desirability of mobile money. Nevertheless, defenders of competition in money and payment services have a lot to be excited about.