The Bank of Tanzania’s Playbook: Push Interoperability, Wait and See On Fees and Charges.

Fees and Charges are high but still Tanzania is a leader in financial inclusion, leveraging interoperability to connect banks, mobile money operators, and merchants.

Introduction:
The Bank of Tanzania (BoT) has been at the forefront of creating a seamless financial ecosystem through its focus on interoperability. By introducing systems like the Tanzania Instant Payment System (TIPS), Tanzania Interbank Settlement System (TISS), TanQR, TACH and facilitating Mobile money (MoMo) interoperability, BoT has fostered collaboration and innovation across financial institutions. Notably, Tanzania became the first country in the world to implement mobile money interoperability in 2014, setting a global benchmark for financial inclusion and efficiency.

"When it comes to interoperability, BoT doesn’t promise lower fees outright—it promises a fairer, safer playing field for all players and customers."

Many people associate interoperability with lower fees and charges, but that’s not what the Bank of Tanzania (BoT) promised, At least if you read their circulars, like this one below for TanQR. Instead, BoT’s focus has been on driving efficiency and safety in financial systems, emphasising seamless connectivity rather than guaranteeing reduced costs. (See extract of BOT circular on TanQR below)

Interoperability in Action: TIPS, TISS, MoMo, and TanQR

1. Tanzania Instant Payment System (TIPS): TIPS is a groundbreaking platform that enables instant payments between banks and mobile money operators. By creating a unified system, BoT has ensured that customers can transfer funds effortlessly across different financial platforms, making financial services more accessible and inclusive.

2. Tanzania Interbank Settlement System (TISS): TISS facilitates real-time settlement of high-value transactions between banks. This system enhances trust and efficiency in the banking sector, ensuring that institutions can process transactions quickly and securely.

   "BoT’s policy approach on pricing: let the music play, but we’ll grab the mic if things get offbeat—and that’s for shizzle."

3. Mobile Money Interoperability: In 2014, Tanzania became the first country globally to implement mobile money interoperability. BoT played a pivotal role in pushing for agreements among mobile money operators to enable transactions across different networks. This has revolutionized the way Tanzanians use mobile money, ensuring that customers can send and receive money regardless of their provider.

4. TanQR: TanQR is an interoperable QR code system introduced to unify digital payments. With TanQR, merchants can accept payments from various providers using a single QR code, simplifying transactions for businesses and consumers alike. This initiative further demonstrates BoT’s commitment to fostering a seamless payment ecosystem.

BoT’s Stance on Pricing: Let the Market Decide

While BoT enforces interoperability through regulatory mandates, it refrains from directly influencing the pricing of these services. Instead, the regulator adopts a “wait-and-see” approach, allowing market dynamics to dictate initial pricing structures. Sometimes they just issue pricing guidelines so fees are reasonable and affordable.

"We’re not hands-off; we’re just giving the market space to figure itself out—until it doesn’t, Then we see what the cap may look like."

For instance, TIPS went live in 2021, In 2024 the bank issued a circular for maximum charges on interbank payment fees, This strategy fosters competition among players, encouraging them to offer competitive prices to attract and retain customers. It also gives the financial services industry the flexibility to innovate without the constraints of preset pricing frameworks. (See extract of BOT circular on TISS charges below)

Intervention on fees and charges comes with real data.

The Bank of Tanzania intervenes in pricing only after gathering sufficient data and establishing that its actions will enhance financial inclusion, efficiency, or safety. For example, BoT issued guidance on transaction fees for large-value payments processed through TISS, EFT, TACH, and TIPS after identifying cost as a significant barrier to banking service usage.

"BoT doesn’t lead the dance; it just makes sure the floor is smooth and the lights are on."

This move, aimed at addressing market cost challenges, was informed by insights from the Finscope Survey 2023, which revealed that only 22% of the adult population in Tanzania used banking services, with high fees being a major deterrent.

Monitoring for Consumer Protection and Inclusion

Over time, BoT closely monitors the pricing trends within these interoperable systems and how players price. If it identifies patterns of excessive or unfair pricing, the regulator steps in to safeguard consumer interests. Typically, this intervention comes in the form of a circular that caps fees. For instance: Years after the rollout of TIPS and TACH interoperability, BoT might issued a directive stating, something like “You cannot charge more than 5$ amount for any payment types at any amounts, no matter what”. (See extract of BOT circular on TIPS & TACH charges below)

Conclusion: A Balanced Approach to Regulation

BoT’s dual focus on enforcing interoperability and fostering competitive pricing demonstrates its commitment to creating an inclusive and sustainable financial ecosystem. By mandating interoperability without initially imposing pricing limits, BoT encourages innovation and market-driven growth. However, its readiness to intervene when necessary underscores its role as a consumer protector.

Critics point to the potential for market players to resist changes or delay changes that might undercut profits, while others question whether the wait-and-see pricing approach might delay access to affordable services for the most vulnerable as we have seen some player abuse that model. Nevertheless, BoT balances these dual objectives by intervening strategically when data shows that action will directly enhance financial inclusion, efficiency, or safety. By mandating interoperability without initially imposing pricing limits, BoT encourages innovation and market-driven growth.

The success of TIPS, TISS, EFT, EAPS, Mobile money interoperability, and TanQR highlights the effectiveness of BoT’s approach. It’s a model that balances innovation with regulation, ensuring that Tanzanians benefit from a seamless and affordable financial ecosystem. As interoperability continues to transform the financial landscape, BoT’s strategic oversight offers a blueprint for regulators across Africa and beyond.

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