Safaricom, East Africa’s telecommunications behemoth, finds itself in hot water. The company is facing two major lawsuits from customers demanding answers from the corporate giant.
The pressure is mounting and with good reason. Safaricom’s customers are not satisfied with the level of accountability they have received thus far. They feel that the telco giant has not been transparent enough in its dealings and it has not done enough to address their concerns.
In recent months, Safaricom has come under renewed criticism over the credibility of its mobile overdraft facility, Fuliza, which operates on the popular mobile money service, M-Pesa. Additionally, cases of SIM swap fraud targeting Fuliza limits have been rising, further exacerbating Safaricom’s woes.
Three Kenyan M-Pesa users have filed a class-action suit against Safaricom, asserting that the country’s most profitable company uses its customers’ money to engage in profit-making financial lending services without consent, despite it not being registered as a bank. This contravenes section 2 (1) of Kenya’s Banking Act. The plaintiffs argue that, despite making a profit through its 15-year partnership with the country’s KCB and NCBA commercial banks to offer lending services, Safaricom has not paid any interest to its more than 32 million M-Pesa account holders, whose money it uses to lend and earn profits.
Despite its awareness of Safaricom’s “banking business,” the Central Bank of Kenya (CBK) has failed to regulate the telco’s activities as per the Banking Act. The three complainants are seeking $2.38 billion in damages from the telco and Vodafone Group for fraudulent misrepresentation, material non-disclosure of facts, illegal and unlawful investment of M-Pesa account holders’ funds, predatory lending practices, and charging exorbitant interest rates.
In 2022, CBK announced its plan to push for the split of M-Pesa from its parent company, Safaricom. Still, this was mainly due to complaints of unfair competition from other telcos operating in the country. The perceived split had been expected to reduce Safaricom’s dominance, which has largely been attributed to its more profitable mobile money component. M-Pesa has been a lot more popular among ordinary Kenyans compared to its competitors’ similar services, thus giving Safaricom’s services an edge.
Safaricom’s troubles are compounded by the perception that it is not doing enough to address SIM swap fraud, which has seen customers losing millions through scams and fraud targeting its mobile money services. The company has introduced a range of measures to check its spread and warned its customers to be vigilant about the globally-prevalent trend, which is not restricted to only the East African country or the continent. Still, Safaricom has fallen victim to the widespread trend numerous times, and its customers have been targets of scammers who swept their bank accounts clean or used the victim’s identification details to perpetrate crimes.
Recently, Safaricom, alongside the country’s Communication Authority, was embroiled in a legal tussle in which at least four Kenyans are suing the institutions after falling victim to an alleged SIM swap fraud. The class-action lawsuit features a widower whose late husband took loans using his mobile phone “right from the grave,” soon after his burial, along with other individuals who have lost millions. These legal battles cause not just reputational damage to the telco but also financial losses when victims require compensation.
SIM swap fraud, also called SIM splitting fraud, port-out scamming, or SIM jacking continues to rise, not just in Africa but also beyond continental borders, with victims losing millions in cash from their bank accounts without their knowledge. In the US, the Federal Bureau of Investigation (FBI) reports that SIM swap scammers netted $68 million in 2021 alone, highlighting the threat of the trend that appears to be steadily growing.