Within the DFS landscape, providers, users, and the interaction between them has changed significantly. On one hand, DFS has leveled the playing field between traditional banks and emerging Fintech businesses, diluting the impact of competition issues such as high switching costs or limited product innovation. On the other hand, increased competition has brought about new policy and regulatory concerns. For example, telecom operators may have acquired significant market power in e-money products in many markets. New technical interdependencies may have introduced systemic risks to financial stability. An increase in providers and users may have opened gaps in market conduct regulation and consumer protection frameworks.

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E-Money Competition Issues

USSD Access

USSD Access

Overview

Issue

If an MNO is directly competing in or has a direct or indirect financial interest in the EMI market, refusal to supply communications services could harm competitors.

Data is typically only useful for smartphones. Most e-money services not delivered via smartphones use USSD, which displays as an interactive menu on the mobile.

Limited competition in offering DFS through USSD impacts women more, as they have higher dependence on USSD (Next Billion, 2021)

Typically, USSD access is governed by agreements between EMIs and MNOs. In many countries, this access has been an issue. However, regulatory reforms and market innovations are proving critical to leverage the potential of USSD access (see country examples).

USSD Access

Example Of A USSD Transaction

User enters USSD short code (e.g., *159#) and presses ‘phone’ to ‘call’ the USSD number. The menu then displays:

Usage of USSD short code

Photo Credit: Bill & Melinda Gates Foundation
Source: Bill & Melinda Gates Foundation

The system elements involved in USSD – direct FI-to-MNOs connection. There are multiple bilateral agreements between EMIs and MNOs, with different T&Cs, thus impacting market competition.

Example Of A USSD Transaction

The EMI connects its menu server directly to the USSD gateway of each MNO.
Traffic is encrypted from the EMI to the MNO and from the base station antenna to the handset, but not within the MNO.
The EMI signs a separate (bilateral) service agreement for USSD with each MNO and then directly integrates with each MNO.

The system elements involved in USSD – MNOs connected via an Aggregator, which may wield significant power. Its ownership and functioning can impact market competition.

Example Of A USSD Transaction

The EMI connects their menu server to an aggregator
Traffic is encrypted from the EMI to the aggregator and then from the aggregator to the MNO and again from the base station antenna to the handset, but not within the MNO or the aggregator
The EMI signs a single service agreement for USSD with the aggregator who then contracts and integrates with each MNO Multiple EMIs can connect to the aggregator

USSD Access

COUNTRY EXAMPLES - Ussd Access For Dfs+ Services

USSD access is increasingly becoming critical to offer advanced DFS and additional services.

Link to Ivory Coast case studies
Ivory Coast
Link to Kenya case studies
Kenya
Link to Uganda case studies
Uganda
Link to Zambia case studies
Zambia
Link to Tanzania case studies
Tanzania
Link to Mali case studies
Mali
Link to African Union case studies
African Union
Link to India case studies
India

USSD Access

Issues And Possible Responses

Issue:Possible to address by:
  • EMI unable to obtain commercial access to USSD services from MNOs. 
  • Telco regulator regulates access and pricing for EMIs.
  • EMI lacking technical and operational expertise and/or scale to justify connecting to all the MNOs in the country.
  • EMI contracts an aggregator who connects the EMI’s systems to all MNOs. This enables USSD access to the EMI by its customers from all MNOs’ networks. 
  • Multiple EMIs and payment service providers (PSPs) need access to USSD, but MNO lacks the capacity to deal with all the PSPs.
  • MNO appoints an aggregator or aggregators to implement and manage the multiple connections. Alternatively, the government facilitates aggregation facility (such as NUUP, *99# in India. Source: MeitY)
  • Aggregator gateways located out-of-country on congested and unreliable data links.
  • Aggregation services hosted locally, enabling more reliable USSD for the MNOs, financial institutions, and/or EMIs.
  • MNOs may disrupt the mobile channel provision market by providing better-performing USSD services to their own EMI operations than to their mobile money competitors.
  • MNOs applying for an EMI License (whether directly or through a subsidiary) could be legally or contractually required to commit to equal service provision with respect to USSD access and service (and for SMS and data as well) for related and unrelated EMIs.
  • Specifically, the MNO in its role as a telecommunication provider could be required to contractually commit to supply the same USSD service to its EMI competitors as the MNO supplies to its own operations.
  • MNOs with existing EMI licenses provide discriminatory services to other EMIs using the MNO’s USSD and SMS services.
  • Where competition law can be applied, the activities of an MNO in its role as telecommunication services provider can be subjected to scrutiny for discriminatory provision and vertical integration. Here, telecom and competition regulator will need to ensure cooperation for resolution. 
  • MNOs exploit points of arbitrage between the financial and telecommunication regulators to provide lesser-quality telecommunication services to their EMI competitors.
  • Financial and telco regulators may wish to sign an MoU governing e-money cooperation (See ITU and Financial Inclusion Global Initiative for examples), and mandatory consult in case such issue arises.

USSD Access

Risk

Discriminatory pricing can be abusive if undertaken by a firm with significant market power. MNOs with such market power may engage in discriminatory USSD pricing to:

  • Discourage competition in the e-money sector by:
    1. Offering low- or no-cost USSD services to affiliates.
    2. Charging high prices to competitors.
  • Maximize profits by charging high prices for access to a required resource for offering e-money to the mass market.

USSD Access

Considerations

  • As a first measure, financial regulators could require MNOs to price USSD services exactly the same for related and unrelated EMIs. However, enforcement could be challenge owing to tendency of opaque pricing. Thus, ensuring transparency will be the key. 
  • Telco regulators also could review complaints regarding USSD pricing and share EMI-related complaints with the financial regulator. An institutionalised coordination mechanism will be crucial in this regard. 
  • Setting USSD floors and/or ceilings requires a detailed inquiry into industry costs and could impede market development. Given the inherent costs and risks, regulators may wish to consider setting prices only if market-based efforts are unsuccessful, after thorough consultation and cost-benefit analysis. 
  • Financial and telco regulators could sign an MoU governing e-money cooperation and mandatory consultation. They could then jointly review complaints regarding USSD pricing and consider potential responses, as appropriate.

USSD Access

Country Examples - Discriminatory USSD Pricing

Link to Madagascar case studies
Madagascar
Link to Nigeria case studies
Nigeria
Link to Kenya case studies
Kenya
Link to Tanzania case studies
Tanzania
Link to Uganda case studies
Uganda
Link to Peru case studies
Peru
Link to Colombia case studies
Colombia
Link to India case studies
India

E-Money Competition Issues

Quality of Service

Quality of Service

Quality of Service – failure causes

Issue

Failure to complete USSD interactions (sessions) results in user frustration as well as uncertainty as to whether transactions have completed

Examples of USSD session failure issues affecting user transactions include:

  • Session timeouts.
  • Dropped sessions.
  • Insufficient number of stages per USSD session.

There are, however, different reasons why a session may not complete, only some of which are related to the MNO’s delivery of a USSD session (MNO QoS)

For example:

  • Customer may abandon a transaction (user issue).
  • Customer may move into a network dead zone during session and lose connectivity (network service issue).
  • EMI may not respond (provider issue).
  • Network may fail during the session (network issue).

Quality of Service

Quality of Service – Voice vs. USSD

Issue 1

USSD QoS issues are different from voice QoS issues, so voice QoS performance measures cannot be directly applied to USSD.

Some voice call and USSD session failure modes are different

  • Failure to hand over from one base station to another: For voice, this is determinable from network statistics. USSD sessions cannot be handed over, so moving between cells is seen as a loss of contact.
  • Session timeouts: Voice calls cannot timeout. USSD session timeouts can be determined, but there are multiple potential causes.

Issue 2

Some QoS issues are directly comparable while others are not, so USSD performance measures must be carefully designed to be both measurable and attributable.

Common voice call and USSD failure modes

  • Inability to establish a call or USSD session: This is a common failure, but is not determinable from network statistics as the network ‘never finds out’ about the attempt.
  • Mid-call and mid-USSD session failure: Loss of communication due to network failure.

Quality of Service

Quality of Service – Active Discrimination

Risk 1

Provision of lower-quality service to competitors by an MNO (or cartel) with dominant or significant market power can negatively impact competition.

Examples of active USSD quality of service (QoS) degradation include:

  • Session length reduction.
  • Bandwidth throttling to USSD gateway.
  • Claimed unavailability by the USSD gateway.
  • Limitation of number of concurrent sessions in USSD gateway.

Risk 2

Telco regulators should have

  1. The means to test for service manipulation.
  2. The power to sanction MNOs and require MNOs to restore full contracted service.

Manipulations can be found through testing:

  • Most manipulations can be independently tested for from USSD test devices that transact over USSD, without actually internally auditing the USSD arrangements in the MNO.

Quality of Service

Country Examples

Link to Colombia case studies
Colombia
Link to Zimbabwe case studies
Zimbabwe
Link to India case studies
India

Quality of Service

Quality of Service

Analysis of regulatory approach

Quality of Service Standards when established to address USSD quality of service (QoS) must be measurable and attributable.

Measuring Quality of Service (QoS)

  • In practice, it is difficult to enforce QoS standards such as Colombia’s draft requirements.
  • When a USSD session with an EMI fails, there are many possible reasons, some of which are related to the MNO’s QoS and others due to elements such as:
    • Users being too slow or abandoning sessions.
    • USSD aggregators having performance and reliability issues.
    • EMIs themselves being slow to respond or not responding at all.
  • Unless the reason for failure can with certainty be attributed to the MNO, fairly measuring and enforcing MNO performance with respect to QoS Metrics is not possible.

Quality of Service

Considerations

  • There is currently no publicly available failure cause analysis of USSD to use as a basis for setting QoS standards for MNOs and USSD aggregators. However, ITU has released a report on Methodology for measurement of QoS: Key Performance Indicators KPIs for Digital Financial Services.
  • There are many elements where failure could lead to a failed USSD session, including the handset, the mobile network, USSD aggregators, data communication lines between the MNO and the EMI, the USSD menu server, and the EMI’s own systems. While customer faces similar discomfort irrespective of failure node, each element in this chain would need its own QoS standard. 
  • Failure cause analysis should only be undertaken if it is coupled with a determination of
    1. whether the cause is measurable/discernable.
    2. if so, whether it is attributable to a specific party.
  • A QoS standard for USSD-delivered and other mobile financial services could be jointly developed by telecommunications, financial and consumer protection regulators. They could jointly review complaints regarding QoS and consider potential responses, as appropriate.

E-Money Competition Issues

Interoperability

Interoperability

Overview

Issue

Dominant e-money providers often resist efforts to promote interoperability (typically to maintain a competitive advantage, but sometimes for other reasons such as prioritization of resource allocation).

Interoperability can be beneficial, but issues such as 

  1. Timing
  2. Technical and commercial models.
  3. Role of authorities are very important and country-specific.

Interoperability is not a panacea. Many markets achieved high levels of e-money uptake without interoperability (e.g., Ghana, Kenya, Rwanda, Uganda), while many interoperable markets initially low e-money uptake (e.g., Indonesia, Nigeria, Pakistan, Sri Lanka). Thus, timing, market size, and resource availability, are key determinants of interoperability.

Interoperability

Considerations

  • In many cases, a market-driven approach to interoperability will ensure that the timing, technical model, and commercial model for interoperability make sense for EMIs. However, existence of dominant players may delay interoperability due to vested interests. 
  • Efforts by regulators to dictate the technical and commercial models for interoperability may result in an approach that is not commercially viable and lacks provider buy-in. However, at times, this may be required for greater consumer welfare. 
  • With respect to timing, regulators may wish to strike a balance that encourages investment in the early stages of market development, while monitoring the market for signs that lack of interoperability is hampering competition and/or market development, or adversely impacting consumer welfare.
  • If regulators determine that lack of interoperability is a key barrier to competition and/or market development, they could first engage with EMIs to develop a mutually agreeable plan for implementation of interoperability within a reasonable timeframe. 
  • If market-led solutions in a well-developed market are unsuccessful due to resistance from incumbents, regulators could consider a more interventionist approach that is carefully designed to avoid disincentivizing investment and innovation. Cost benefit analysis of possible regulatory interventions will be the key.

Interoperability

Arguments for mandating interoperability

Ease of use

Interoperability can make it easier for customers to use e-money and other DFS.

Competition

In mature markets with a dominant provider, lack of interoperability can serve as a barrier to effective competition, prevent innovation, and may lead to abuse of dominant position.

Cost

By increasing competition and streamlining cross-net transfers, interoperability could eventually lead to lower customer costs.

Investment

Mandating interoperability in the early stages of market development could disincentivize investment by first movers that perceive this as a threat to their ability to recoup initial investments.

Opportunity cost

Implementing interoperability requires significant time and resources, which could affect other initiatives aimed at promoting market development.

Commercial viability

Mandating the technical and/or commercial model for interoperability could result in a solution that is not commercially viable nor scalable.

Interoperability

Country Examples

Link to Tanzania case studies
Tanzania
Link to Kenya case studies
Kenya
Link to Ghana case studies
Ghana
Link to Rwanda case studies
Rwanda
Link to Pakistan case studies
Pakistan
Link to Uganda case studies
Uganda
Link to Nigeria case studies
Nigeria
Link to India case studies
India
Link to Nepal case studies
Nepal

E-Money Competition Issues

Branding and Data

Branding and Data

Overview

Issue 1

Should EMIs operated by MNOs, banks, or “superplatforms” (e.g., Google, Facebook, WeChat) – whether directly or via a subsidiary – be permitted to use their branding and data for the EMI service?

Arguments for permitting use of branding and data

  • Incentivizes investment by the parent company.
  • Parent company may offer better customer service to protect overall brand reputation and based on available data.
  • Customers may feel more confident adopting service if they trust the parent company.

Arguments for prohibiting use of branding

  • Could create confusion regarding legal status of e-money service and associated protections (e.g., applicability of deposit insurance).
  • Enabling companies to leverage their brand and data in a parallel market could offer a competitive advantage that some might deem unfair. 
  • Could refuse to share data and deny access to potential competitors. 

Issue 2

Should EMIs operated by MNOs, banks, or “superplatforms” (e.g., Google, Facebook, WeChat) – whether directly or via a subsidiary – be permitted to use their branding and data for the EMI service? How can abuse of their dominance be prevented?

Considerations

  • Allowing established MNOs, banks, super-platforms, and others to use similar branding for their e-money service could promote uptake and incentivize investment. However, this should happen with customer consent and compliance with data protection norms.
  • Where applicable, properly disclosing to customers that e-money and similar services lack comparable protection to bank products (e.g., deposit protection) could help ensure that customers are not misled by similar branding.
  • Clearly labeling agent locations could help to ensure that customers are aware that they are not interacting directly with parent company staff.
  • Unnecessary over-regulation preventing platforms from operating in DFS market could restrict innovation and impede consumer welfare.

Branding and Data

Country Examples

Platforms’ databases are not easily replicable. This, in turn, can drive exclusionary behavior by dominant firms, such as limiting competitors’ timely access to data, preventing others from sharing data and inhibiting data portability. A platform may exert similar pressure on customers by driving up switching costs or by resisting interoperability and retaining transactions strictly within its own digital ecosystem.

Link to India case studies
India
Link to Brazil case studies
Brazil
Link to Pakistan case studies
Pakistan
Link to Ethiopia case studies
Ethiopia

E-Money Competition Issues

Open API and Open Banking

Open API and Open Banking

Open API

Application Programming Interfaces (APIs)

Application Programming Interfaces (APIs) are interfaces that enable machines to communicate with one another:

  • Private APIs are interfaces between a closed network of computers.
  • Public APIs enable providers to allow access to carefully selected outside parties.
  • Open APIs are public APIs with automated, streamlined onboarding processes to enable outside parties to quickly
    1. Access and integrate with a provider’s interface.
    2. Test and launch connected services.

Open APIs can make it much easier for Fintech firms and others to connect to EMIs and other DFS providers, thereby catalyzing innovation in the DFS space.

How open APIs can foster innovation

By dramatically reducing the time and cost for outside developers to integrate with DFS providers, open APIs can foster innovation, extend customer outreach, and increase revenue.

  • With traditional public APIs, developers are selected through a lengthy manual process that requires significant face-to-face interaction and bespoke paperwork. 
  • With open APIs, developers can register online, test their product using an online “sandbox”, and request authorization through an automated, streamlined process, reducing approval times from months to days.
  • Shifting from traditional public APIs to open APIs can attract small, innovative fintechs and rapidly grow the market for a DFS provider’s core products.

Examples:

  • In Nov 2018, MTN Uganda launched its MoMo API to facilitate development and integration of applications using MTN Mobile Money for collections, merchant payments, disbursements, and remittances. By May 2021, the program was live across 12 African countries, with over 900 partners.
  • The GSMA Mobile Money API is an initiative developed through collaboration between the mobile money industry and the GSMA. The initiative aims to increase adoption of the mobile money API through dedicated engagement with mobile money providers and support for ecosystem vendors.
Source:

Open API and Open Banking

Country Examples - Open API

Link to Nigeria case studies
Nigeria
Link to India case studies
India
Link to Indonesia case studies
Indonesia

Open API and Open Banking

Open Banking

Open Banking gives individual customers the power to allow third parties to access their financial data. Potential benefits include:

  • Competition: Requiring banks and other payment account providers to let customers share data can facilitate competition for customers’ business.
  • Innovation: Open Banking can enable Fintech firms to harness the power of data analytics to develop innovative financial products, such as collateral free credit, either directly or in partnership with other licensed financial service providers.
  • Inclusion: With fuller picture of customers’ financial lives, providers can better assess customer needs & identify opportunities for improved financial health and inclusion.
Source:

Open API and Open Banking

Country Examples - Open Banking

Link to European Union case studies
European Union
Link to United Kingdom case studies
United Kingdom
Link to Nigeria case studies
Nigeria
Link to Australia case studies
Australia
Link to Saudi Arabia case studies
Saudi Arabia
Link to Mexico case studies
Mexico
Link to Ghana case studies
Ghana
Link to South Africa case studies
South Africa
Link to India case studies
India

Open API and Open Banking

The World of Open Banking

 
 
Regulator driven
 
Market driven
 
Hybrid
Map Section

Open API and Open Banking

Considerations

  • Open APIs and open banking offer great potential for fostering innovation and promoting the development of digital financial services for low-income customers around the world. However, risks of data misuse and breach remains.
  • At the same time, open banking initiatives are in the early stages of development, so a consensus around good practices and standards does not yet exist.
  • Financial authorities could monitor the experiences of early adopters of open banking initiatives and evaluate the readiness of their financial sector (and their supervisory capacity) to launch similar initiatives. They should engage with stakeholders, experts, and consumers to assess risks and benefits.
  • Concurrently, policymakers could work to create an enabling environment for Fintech innovation to prepare for a world of open APIs and open banking, through practices like sandbox and regulatory impact assessment.