Yes EcoCash is too dominant. It had above 98% share of all mobile money transactions in the first quarter of 2020 which translates to above 80% of all transactions in Zimbabwe period. The word monopoly is a fair one.
The RBZ wants to do something about that
Yesterday, Zimbabwe’s central bank issued a communique which declared that the card switching platform, Zimswitch had been knighted ‘the national payments switch’ that every player in the payments space must connect to.
On paper, this development curtails EcoCash’s power in the consumer payments space. I say on paper because consumer behavior change does not merely come because a pronouncement has been made or that technology has been deployed to make abc possible.
EcoCash as target
There is no doubt that this announcement by the Reserve Bank of Zimbabwe is targeted at EcoCash. Literally every bank and the other mobile money solutions are already on Zimswitch. EcoCash had no reason to be on Zimswitch. Strategically, their refusal to be on Zimswitch makes sense. Joining Zimswitch would just weaken their position in the market while propping up competitors.
To be clear: OneMoney and Telecash being on Zimswitch is not because these two mobile money platforms are ‘more reasonable.’ They joined Zimswitch because they didn’t have any choice. They were too small and did not have a merchant network as strong as EcoCash’s so they needed Zimswitch. A lot of times people fault EcoCash for not joining Zimswitch but the fact of the matter is that EcoCash would have been stupid to join Zimswitch.
So, EcoCash was not motivated to join others and the central bank sought to do something about it. Now, here we are.
Is this good for the ecosystem?
Well, is having a dominant player controlling more than 80% of consumer transactions a good thing? The simple answer is no. In all monopoly situations, the first thing to fly out the door generally is customer focus and innovation. Indeed EcoCash is a poster child for this.
OK so potentially reducing the barrier to leaving the EcoCash network is good for consumers. Is making this reality through decrees like the one issued yesterday the way to do it? No!
We have a monster problem, let’s create a bigger one
Zimswitch is the rival platform to EcoCash. It is the Mastercard to EcoCash being Visa. It, therefore, doesn’t make sense for RBZ to attempt to weaken EcoCash by making Zimswitch effectively the end all and be all when it comes to payments.
This is actually not a good move at all. One company can’t be favoured with monopoly status just so as to neutralise another monopoly. Contrary to beliefs out there, Zimswitch is a private business owned by private shareholders that include some of the banks. If the RBZ wanted to create a primitive base switch that everyone else connects to then they should have created it themselves not the rob Peter to pay Paul type move they played here.
Perhaps it doesn’t matter much
Monopolies are a problem mostly because they don’t result in true market/price efficiency. Services become more expensive than what the demand and supply curves would otherwise suggest. Is there a risk of transactions becoming expensive because of Zimswitch?
I don’t think that risk exists because making inter-platform transactions expensive would be self defeating for Zimswitch. If moving money from EcoCash to OneMoney is too expensive for example then customers will just stay on their respective networks i.e EcoCash customers will continue to transact exclusively on the EcoCash platform (which is extensive enough on its own). If that happens then Zimswitch will still get nothing.
So where is the problem?
Zimswitch is a private business that is run for profit. I think it is not fair that the regulator just picked one platform over the other to make payments interoperable. As a point of principle I object to the RBZ’s move here. Even bureaucratic standards were not met. The central bank did not call for tenders for the provision of a national payments switch.
If you talk to Zimswitch they will tell you that they are not in competition with EcoCash or anyone really, they are only there to facilitate interoperabilty. Perhaps that is true at some vague idealistic level but that doesn’t change the fact that Zimswitch and EcoCash are the two rival payments platforms in Zimbabwe. Addressing the dominance of one of them by just transferring the dominance to the other doesn’t seem like the right thing to do.
Innovation at Zimswitch?
I have accused EcoCash of not being innovative before. That criticism extends to Zimswitch as well. Their V Payments solution for internet payments for example is terrible and unusable. As a result you can’t use local cards to pay for stuff on the web. There hasn’t been much movement from the company over these past two decades. Just like EcoCash they were happy just getting their tax out of every transaction switched through them. ZIPIT is the exception that proves the rule.
Now it’s going to be worse because they have been handed a victory. The fact of the matter is that before mobile money came on the scene banks and Zimswitch were resigned to the idea that banking and electronic transactions were for an elite class. The fear I have is that this is still the attitude of the new Goliath that the RBZ has knighted.
Should the RBZ have set up the base switch themselves?
Frankly I don’t trust the Reserve Bank of Zimbabwe or the government in general. They would have thought the switch was just a cash cow and they would never have built it with the right capacity. The central bank has proven its failure too often and we don’t want them anywhere near the direct operation of one more important thing.
So what should have been done?
The model should have been closer to the one developed in India where the National Payments Corporation of India (NPCI) is a non profit payments infrastructure company set up by the Indian central bank. This company has a broad based shareholding which represents key players in the payments space. NPCI deploys agnostic solutions that have made India one of the leaders in payments innovation in the world.
Such type of organisation is not new to Zimbabwe. The Zimbabwe Internet Service Providers Association (ZISPA) is an example of this kind of industry vehicle. It is a non profit organisation set up by ISPs. From the ZISPA website:
ZISPA’s main activities are:
Management of the CO.ZW domain registry on behalf of the Zimbabwe Internet community
Operation of the Zimbabwe Internet Exchange (ZINX)
Do you see that? ZISPA manages core infrastructure (ZINX) that ISPs share to be able to ‘speak’ to each other much like the payments switch we are talking about. Here is how ZISPA describes it:
ZISPA operates ZINX, the Zimbabwe Internet Exchange, which provides for peering between local Internet Service Providers. This enables them to exchange traffic directly rather than routing it through third parties which may charge for the service.
This arrangement would have made better sense not playing musical chairs with monopolies like the RBZ has done.