Compatibility and Interoperability in Mobile Phone-Based Banking Networks

In many developing countries of Africa and Asia, cell phones are used (i) to transfer money across individuals; (ii) to securely self-transport money, and (iii) to save/store money. These banking networks ride on top of wireless telecommunications networks. Traditionally each banking network was tied to the network of a telecom carrier and transfers were available only within the carrier’s network, making it incompatible with banking networks of other carriers. In Tanzania, mobile banking under incompatibility was well established for a decade until September 2015 when the second, third, and fourth largest carriers established full compatibility of their banking networks. Analyzing a comprehensive dataset of banking transactions provided by a large telecom carrier in Tanzania, this paper discusses pricing under compatibility, contrasts with pricing under incompatibility. We analyze the transaction termination fees in this environment of practically no regulation, and assesses the individual and collective incentives for compatibility, noting that the largest carrier has remained incompatible. We find that carriers have agreed to very high prices for transfers across networks, and calculate the welfare gains if either (i) across-networks transfers were priced like within-network transfers; or (ii) pricing was at marginal cost.