Financial Sector Development in Africa: Opportunities ... - World Bank

66 Porteous
agents that are so crucial to success are subject to economies of scale.
Fragmented networks with small numbers of agents exclusive to one
provider are unlikely to be able to reduce cost to the extent required.
Requiring that agents be nonexclusive, as is the practice in countries
such as Nigeria and Kenya (for banks at least), may avoid locking in
groups of agents, but it does not necessarily address the core business
model question of whether there are high fixed costs to acquiring these
agents. Merely allowing agents to be multiply acquired by providers
does not mean that they will be, since the business case for the acquirer
is diminished. The issue then becomes the basis on which financial providers
can interconnect across agent networks, so that a customer of
Zap’s mobile financial service could withdraw cash from an M-PESA
agent, for example. Technologically, there is little barrier to this, at least
for agents using mobile phones; mobile networks operate using standards
that are, by definition, interoperable (that is, capable of talking to
each other). But enabling interconnection is a step beyond this.
Networks may well have commercial incentives to negotiate mutually
acceptable interconnect fees, and this often happens among groups of
financial institutions that create private switches, but this does not necessarily
connect all elements of the national retail payment infrastructure.
However, an incumbent with a large, established agent network
may, in fact, be reluctant to connect with a national payment infrastructure.
The interconnection issues with mobile agents are no different
from those with card payment systems, where banks with large ATM
networks may be reluctant to interconnect except on terms that make
it unfavorable for others to do so.
If this is the case, regulators have several options beyond the default
position of encouraging greater interconnection through moral suasion.
One solution may be to drive the establishment of a national switch, and
require that all retail payment networks connect to it. The regulator may
even participate in the governance structure of a new national switch in
order to ensure that it operates in the national interest. One country,
Ghana, has gone further: after finding initially that banks were not willing
or able to support the development of a national switch, the Bank of
Ghana set up a wholly owned subsidiary company, the Ghana Interbank
Payment and Settlement Systems (GhIPSS), with the mandate of establishing
and operating a national switch. As box 2.3 explains, GhIPSS went
further to create a new payment instrument based on a smart card,
e-Zwich, which was also designed to bring unbanked people into the
financial system.