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Killing monopoly by creating a bigger monopoly, Zimswitch as national switch

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.

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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.

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39 thoughts on “Killing monopoly by creating a bigger monopoly, Zimswitch as national switch

      1. Does the change improve service delivery or add value to the transacting public? Does Zimswitch have the capacity to handle all of ecocash transactions?

  1. “If you talk to Zimswitch they will tell you that they are not in competition with EcoCash or anyone really”… why would i want to talk to zimswitch, really?

  2. Much to write about nothing. You need to understand the difference between a switch and a payments platform, which evidently the author doesn’t.

      1. Semantics matter, especially here. You either chose to ignore them in an attempt to give your article misguided relevance or you just didn’t know any better, and all you can do right now is try to save face. Research first please, or ask those that know better.

        1. Now this sounds like an attack. I will ignore the tone and still ask how it matters whether EcoCash is a wallet and Zimswitch a switch? In fact, I think I saw your comment in another article expressing the same worry I am trying to convey here

  3. I think the author’s article is riddle with assumptions and incorrect facts. Techzim should be careful of checking the facts of the articles it publishes as they are legally damaging.

    Firstly I would like to ask the author and the commenters is they really understand the difference between Zimswitch and Ecocash? Ecocash is NOT a switch and never has been under the laws of Zimbabwe.

    Zimswitch does not hold customer funds at all. While Ecocash does hold customer funds in a value store it calls a wallet. Zimswitch merely facilitates the movement of funds from one institution to the other, whether it is a bank, a micro-lending institution or a Mobile money wallet. You do not see M-PESA being compared to KenSwitch (Kenya’s national switch). This is one key fact that calls into question everything stated in this article.

    Please TechZim check your facts and inform or educate the public on the basis of facts.

    1. I do agree with you the article is asking the wrong questions and the conclusions it comes up are misleading. However I also understand were the skepticism is coming from. From an infrastructure standpoint, I’m not sure ZimSwitch has the capacity to handle the volume of transactions that take place on the Ecocash platform considering that almost any subscriber on the Econet network also uses Ecocash.

      1. Good question. The Switch however appears to have the capacity to handle increased volumes. Where I have doubts is with banks who will now be receiving transactions that ordinarily were circulating within the Ecocash platform. They will find themselves dropping and settling into banks. Most banks struggled with increased POS transactions in 2016, and not much infrastructure investment has happened there. There is a possibility of customers experiencing increased failed transactions. And with the Zimswitch’s Queries and Disputes Management System yet to have traction, the increase in failed transactions will be a disaster to the market. The RBZ must push for the full implementation of the ZQDMS.

    2. Those boxes belong on paper: this is a switch, this is a wallet etc and they can be technically correct but in a business sense it all doesn’t matter. They are both platforms exclusive to each other for facilitating transactions. Which is why the regulator’s periodic reports breaks them down separately.

      The rivalry between Zimswitch and EcoCash over the years reveals the truth of this reality

      1. The danger of not looking at these issues from a technical point of view Tinashe is that this Techzim platform is powerful and regulators also read these reviews, if we comment like layman, our comments will be taken seriously. Lets unravel what the common eye cant see. Let us unpack all this… thats my view!!

        1. I take that, thanks

          I do hope I will get around to writing a follow up to this. I do feel strongly about this issue. I am really concerned that we want this too hard that we are willing to ignore how this move by the RBZ is wrong from a principles perspective

  4. I do not think that its correct to compare Zimswitch and Ecocash as MasterCard/Visa. Visa have their own platforms that switches transactions called Visanet, maybe you can compare that with Zimswitch. Does Zimswitch hold customer data?
    VPayments.. ummm, is this a Zimswitch product, please check again. Last time I checked, it was owned by ZSS, different company from Zimswitch..
    How i wish Ecocash had followed through the idea of independent trustees for the Trust Account, a lot of the ills observed by the regulator would have been picked up by the trustees.. unfortunately they became the player and and referee in many fronts. You cant really fault the RBZ now in trying to clean up the messy!!

    1. Yes V-Payments just like ZIPIT is a ZSS product but Zimswitch packaged and promoted both as their own.

      1. So if we know that v-Pay is not a Zimswitch product we need not mention it as a Zimswitch product, because we risk misinforming the public. ZIPIT, just like ZEEPAY are Zimswitch products not ZSS. Follow the the transaction rails for ZIPIT and you will see that ZIPIT does not go through ZSS.

    2. When you say “followed through”, you mean the idea of independent trustees was mooted at EcoCash at some point? curious. how, when was it raised? and why was it dropped?

        1. the trust accounts that they have actually do have “independent” trustees its a standard requirement. I’m not sure however as to what their role is. of-course I’m inclined to think that it was their duty to monitor trust account balances vs balances in circulation.

  5. Yanis Star, please note that the Zimswitch Query Dispute Management System has been LIVE for almost 2 years now. I have used it to recover funds through my bank. Tinashe doesn’t know enough to write articles, V-Payments is not a Zimswitch as Yanis Star rightly states, while ZIPIT IS a Zimswitch product.

    What I’m really worried about is how Tinashe Nyahasha keeps rubbishing facts and keeps misinforming and misleading the public. Especially when its clear you do not understand anything about the Zimbabwean financial services sector. I asked a simple question which you did not respond to. Have you ever seen M-PESA (The first and biggest Mobile Money Wallet on the continent) being compared to KenSwitch Kenya’s national switch? Does Zimswitch hold value of customer transactions or just provides interoperability?

    And now you’re calling them platforms? Do you know the difference between a switching platform and a Wallet? How can you compare One Money, Telecash or Ecocash with Zimswitch? On what basis?

    1. The idea was for the ZQDMS to work the same way chargebacks work for Visa and MasterCard. Yes you could have been settled through the ZQDMS but the system is not intact yet. For example the system must have a dispute resolution mechanism.. what’s there is the query resolution mechanism but not dispute. The dispute mechanism must have a quasi legal effect. I am sure you are familiar with what I am saying. What was established 2 years ago is a half hearted attempt to manage the queries even… I mean, its not binding yet. When it is fully operational, in the manner and spirit it was crafted, it will work the same way it does for Visa and MasterCard.

      About Tinashe, I agree that on this one, he is slightly off but he normally post good articles. I am sure he is also learning, like we all do every day!!

      1. Yanis Star

        O definitely learning from this thread! And just to be clear when I push back it’s not from a position of arrogance but just we all clarify issues better. This thread has inspired a couple of follow ups which I hope I will have the time to pick up and do.

        Here’s the BUT: My worry with some comments I am seeing here is that people are so fed up with EcoCash’s dominance that they will not question how an attempt at curtailing that dominance is being effected. This should remind us all of our celebration (assuming you joined) at the ouster of Bob. Decisions being made today have long term consequences

    2. African Technocrat

      Should a comparison of comething be made in Kenya first for it to be a valid comparison? I will probaly pick this up in a different article but:

      1. Yes EcoCash is a wallet and Zimswitch a switch
      2. But EcoCash (the wallet) grew to the extent that it made the switch less relevant at least as far as all those transactions that were happening within the internal EcoCash ecosystem
      3. Because of that, strategically EcoCash was right to resist joining Zimswitch because they were going to lose more than they gained
      4. At that point, the semantics and technical definitions don’t matter: any random transaction in Zimbabwe is highly likely happening on the EcoCash ecosystem and if it’s not, then it’s possibly being switched through Zimswitch. That’s what makes them rivals

      ZIPIT was developed by ZSS and that one is a fact

  6. I have more questions to the writer of this article but before i do, let me first say congratulations to the Reserve Bank on the first steps towards interoperability. Like any baby the first step may not always have the balance to take the baby forward but every mother will be happy to see that step.

    In the DFS space there is what you call regulatory sand-boxing, what it basically means is we fix as we experience the product or we regulate as we experience. Interoperability was long overdue in Zimbabwe, in as much as i don’t agree with the unilateral selection of zimswitch i still think its the best first step. If cabs is in competition with NBS why is it that we can still transfer funds from cabs to nbs and settlement happens instantly. How did the banks get there? If mobile money is a financial services product why is this not happening already.

    Financial inclusion is a national objective and should not be abused by private entities for profit. its not only india that has a non profit national switch for your information, closer to home Zambia has one too and many other countries. Rwanda is moving from a private switch to public through acquisition of controlling shares by the central bank. Interoperability is of national interest and there are many ways to get there. Mobile money players can be allowed to sit a discuss on their own and come up with a model under the supervision of central bank the case of Tanzania – this has failed in Zimbabwe. The central bank can use moral suasion, this has also failed in Zimbabwe. The central bank has been watching this space and payers where given all the opportunities to be interoperable but it failed because of one reason. If these companies had decided to be interoperable on their own I’m sure by now we would be having a different switch for mobile money transactions and zimswitch for banks but they did not so RBZ comes with a mandatory order. Well done RBZ.
    My questions now.
    1. When did ecocash become a switch?
    2. When did Zimswitch become a wallet service.
    3. Is zimswitch a card issuer acquirer or just a switch
    4.How is zimsitch a payments platform. If it is, is it now regulated under the new SI as a payments services provider.

    1. Hi BoP Economist

      I agree with your comments about the importance of interoperability and how it is long overdue. I, however, do not agree that any first step is a good step. I think a lot of things that have happened in Zimbabwe over the past 3 decades should warn how difficult it is to reverse some of these decisions that we make based on convenience.

      1. EcoCash is not a switch
      2. Zimswitch is not a wallet
      3. Zimswitch is not an issuer or acquirer, it is a switch

      4 demands a long answer:

      4. Zimswitch is a payments platform in the sense that it is through Zimswitch that most of the remaining transactions that don’t happen within the EcoCash ecosystem go through. I think looking at all this through these technical but abstract boxes of what a switch is or a wallet misses the point. The point is we have EcoCash ( a private business) being part of more than 80% of all transactions in the country and then in trying to neutralise that position Zimswitch (another private business) is being unilaterally appointed a national switch that everyone IS SUPPOSED to link to.

      The Zambian and Rwandan examples you gave emphasise this position I have taken and I am yet to be convinced from. If we are going to deal with an unhealthy market position let’s do it the right way and not go down a path others are actually correcting from.

      By the way, mobile money operators were never going to do this on their own because their incentives were never going to align. It would have been naive to assume EcoCash would ‘do the right thing.’ I am no defender of EcoCash but if I was running the business I too would never have joined Zimswitch when my ecosystem is so big that I would lose more from being interoperable. That means the problem was for the regulator to fix but the regulator is deciding to fix it by a literal knighting of a private business

      1. Thanks for the replies. As you can see from the name i would love to see the Bottom of the Pyramid being a priority in all this. I too agree with you in terms of the appointment of zimswitch as the national switch. I even mentioned it on my LinkedIn post on the same issue that appointing a private switch as the national may not have been a good idea. However i understand the position because its been 10 years since we launched mobile money in Zimbabwe and there was no indication that these three operators will be able to talk together and offer us interoperability. Yes the goal of any business is to make profit and i understand when you say one company was not obliged to be interoperable, true, but if you look at this the biggest loser is the poor at the BoP.
        When a product is a BoP product let it be a BoP product. The fact that in other jurisdictions like Tanzania and Uganda mobile money companies talk together and they understand that when the goal is financial inclusion they complement were they should and compete where they must. In Kenya interoperability came even when safaricom tried to resist it a but it still came.
        My point was if these mobile money operators had started their discussions privately today they would have their own switch lets call it mobilswitch and the banks would have zimswitch. Becuase there are two switches already there was no way the central bank was going to impose a switch on everyone. The central bank would have had to develop a national switch where these two and others can connect and settlement done on a netting system. Unfortunately the mobile money operators didn’t because of their “incentives never align” so they should not cry foul now because of this. In all the countries that that i have seen developing a national switch there is more than one switch in operation thus the justification to develop. Here why should we waste resources developing one. Our major worry should be how to operationalise this new arrangement what needs to be done? will the operators now sit down together and start talking about how they will settle at the end of the day. the central bank will have to come in, in terms of pricing of cross wallet transfers.

        1. I am not convinced that it would have been a waste to build an agnostic switch that everyone should connect to.

          By the way, I actually don’t have anything against Zimswitch. They are actually a great business and am not even worried about their capacity. My gripe is with randomly picking a player and appointing them to be assistant ref

  7. Hey TechZim. You can at least try to hide it when you are on Ecocash payroll. I have been following a few of your articles where Ecocash is the subject. Your message is clear: “Ecocash is successful, leave them alone!” Who ever said only unsuccessful companies need to be regulated. Well, even God fearing business people can be tempted to manipulate the market when they have the power to do so. 98%! No power can be greater than that. And, before you twist my words: I am not begrudging Ecocash’s success, just that they be held accountable just like the rest of us.

    1. This obsession of saying people are paid reflects poorly on you. Do not assume that if you are willing to get paid to do something unethical then everyone is.

    2. The funny thing is, I have a number of articles where folks in the comments accuse me of being envious of EcoCash or even being paid by their competition to smear them. So, I take it as a positive sign when both sides feel so strongly as to allege such things

  8. I come from a chemical engineering background. Came across this article after learning of the RBZ move (probably like most). Fin Tech is not my forte – but when I learnt ZimSwitch was a private company I must admit I was a tad bit worried. So I decided to do a bit of research on what exactly this RBZ move meant. Honestly, most of the article and the content in the comments is above my intellect. But I will say the engagement in the comments was wonderful. Tinashe definitely missed a few things in the article, which some lay person like me would have not picked had I not come down to the (very informative and engaging) comment section. I loved the engagement and definitely learnt a lot. Kudos to the author and all who responded

    1. Hi Tatenda. So yes, most of the smart folks are found in the comments hey. I hope you will become a regular Techzim reader and we can all learn together including us learning from you

  9. I too am against the unilateral appointment of a private switch to become a national switch, but from where i stand I understand why this was done. Building one is not a waste at all but I’m convinced that building one and taking it through operationalisation would take time which can be a year or so yet the BoP who need the service are still where they are.

    I’m happy with the first steps taken maybe this will help start the process in the short-run. In the long run we then switch to a permanent solution. in the meantime Zimswitch it is. the first steps. I’m still convinced if the mobile money operators had developed their own switch on their own it would not have come to this. Unfortunately they decided to compete in all aspects. If we have a bankers association why don’t we have a mobile money association that association would be advising central bank on what needs to be done in the mobile money industry the same way bankers association is consulted on monetary policy issues.
    Wrong move to unilaterally appoint Zimswitch but i don’t blame the central bank for that, i applaud them the bankers speak with one voice when it comes to mobile money. but the mobile money operators speak with broken voices when it comes to mobile money. One way or the other all mobile money operators will have to sit in a room together to discuss interoperability and that the way we should go if we are to serve the BoP properly.

    1. I respect your position even though I disagree with it. I realise neither of us can convince the other here. I hope though that you are right in saying we will move to a permanent switch that is not private.

      1. Iron shappens iron thanks Tinashe. I actually believe in debates not arguments when we don’t agree or share the same point of view we can do that professionally that’s how we all learn.
        Infact I’m hoping to be a blogger on techzim one day

  10. Good post which stimulated a great debate… Please follow up this eocash trust account issue with trustees… Why did it die… This could actually result in a way forward. This article had actually been an eye opener on the state of payment solutions… It’s clear that trustees were left out for some reason… And we need find out why… Also using a private entity may bring us back to square one… Let’s see how this plays…. One thing that people are neglecting is price…. Zipit is ridiculously expensive and now that they have been anointed… Let’s hope the regulator intervenes…I a total of 70 in charges to transfer 500…. Then it bounced 2 days later… They only refunded 22.50 on charges

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