Kenya telcos, vendors now on the spot for hidden costs

Mobile payment fees: Partners have ganged up to charge consumers more for cash withdrawals and airtime purchases.  

By JAMES ANYANZWA

In Summary

• The Consumers Federation of Kenya (Cofek) says a cartel involving mobile payment service providers and merchants is fleecing customers through undisclosed charges disguised as transaction fees but which in reality are mark-ups on price tags on the labels of goods and services.
• Although mobile phone operators have reduced commissions for traders using their payment platforms, consumers are not fully informed about how much they pay per transaction.
• “This kind of business is unethical. We should not use deceptive means to get funds from the public. We have laws that entitle consumers to full information about all transactions,” Cofek secretary-general Mutoro said.

Many Kenyans have come to value the convenience of mobile money payments, but a consumer organisation has raised the red flag over the hidden costs.

The Consumers Federation of Kenya (Cofek) says a cartel involving mobile payment service providers and merchants is fleecing customers through undisclosed charges disguised as transaction fees but which in reality are mark-ups on price tags on the labels of goods and services.

In one case reported to the federation, which is yet to be verified, a mobile payments firm is enticing merchants to enlist on its platform by allowing them to load an additional five per cent commission on the value of the transaction.

“There are fears of some kind of back-end arrangements between mobile phone companies and vendors, including supermarkets, which have led to consumers incurring some costs on their transactions that they are not aware of,” Stephen Mutoro, Cofek secretary general, told The EastAfrican.

Although mobile phone operators have reduced commissions for traders using their payment platforms, consumers are not fully informed about how much they pay per transaction.

“There are fears of hidden costs, which vendors and mobile phone companies must address because consumers have the right to full information about all charges on the transactions they are engaging in. This information must be disclosed in advance and should not be a surprise to consumers when they go through their virtual money statements,” added Mr Mutoro.

Mobile phone operator Safaricom introduced its Lipa na M-Pesa platform in June 2013, charging traders a commission of 1.5 per cent for receiving money through the channel. However, in September 2013, the telco reduced the commission to one per cent.

Customers pay different fees for using the Lipa na M-Pesa service. For instance those buying fuel, pay a 0.5 per cent commission on the value of every payment made.
It is estimated that by March 2016 more than Ksh20 billion ($200 million) had been transacted on the Lipa na M-pesa platform, with more than 44,000 merchants on the service.

New players

Early this month, Equity Bank entered the mobile payment business through its EazzyPay, a service that allows customers to pay for goods and services from their Equitel Line or Equity Bank App (Eazzy App) or from any mobile money (M-Pesa or Airtel money).

The bank charges merchants a commission of one per cent for receiving payments, but can be negotiated down by a half depending on volumes.

The platform allows EazzyPay merchants to generate additional income from cash-back commission and airtime sales.

The cash-back service allows shoppers to get money from the merchant based on the value of the transaction. The amount ranges from three to 10 times the value of the transaction, for which commissions of between five per cent and 0. 63 per cent are charged. The money is shared between the payment service provider and the merchant at ratios of between 40 and 46 per cent, and 60 per cent and 54 per cent, respectively depending on the amount.

The bank is targeting to enlist at least one million merchants in the next three years on the lender’s EazzyPay service including kiosks, shops, supermarkets, airlines, petrol stations, hotels, canteens and schools.

READ: Banks now turn to digital products to boost revenue

Customer preferences

Mobile money payment services have found fertile ground in Kenya as customers discard the relatively expensive payment cards issued by commercial banks whose use has dropped by a third in three years.

Latest data from the Central Bank shows that the number of transactions through credit cards, debit cards, automated teller machines, prepaid cards, points of sale machines and charge cards fell to 17.8 million in June, from 26.7 million three years before. The value of the transactions fell to Ksh115.56 billion ($1.15 billion) from Ksh133.29 billion ($1.33 billion) in the same period.

With commercial banks charging merchants a commission of between three and five per cent on the value of payments made through debit and credit cards, mobile payment platforms are becoming a cheaper option.

Mr Mutoro, who is also the chairman of the Kenya Consumer Protection and Advisory Committee in the Ministry of Trade, said his office would engage the regulators – the Competition Authority of Kenya (CAK) and the Communications Authority of Kenya (CA) - to ensure mobile phone operators and traders s comply with all disclosure requirements related to the pricing of their goods and services.

“This kind of business is unethical. We should not use deceptive means to get funds from the public. We have laws that entitle consumers to full information about all transactions,” Mr Mutoro said.

CAK Director General Kariuki Wangombe said they were working to ensure that mobile payment services are transparent.

“Nothing should be regulated in a market where there are many players. There should be transparency in pricing,” said Mr Wang’ombe.

Last year, CAK ordered Safaricom to make public its Lipa na M-Pesa charges for businesses after receiving complaints of the telco’s failure to disclose the charges consumers incur for use of the service in merchant shops.

According to the World Bank’s Consultative Group to Assist the Poor, mobile merchant payments are poised to be the next major battleground for digital financial services