Kenya’s mobile financing sector is currently grappling with challenges as it seeks to broaden digital inclusion.
Despite notable advancements in providing low-income earners access to essential tools, particularly smartphones through the Buy Now, Pay Later (BNPL) model—which has driven smartphone penetration to 68.3%, according to the Communications Authority of Kenya—the increase in phone flashing poses a substantial threat to this progress. Phone flashing, an illegal practice involving unauthorized software modifications that enable users to bypass security measures on financed devices, has become increasingly prevalent in major Kenyan towns, including Kitale, Eldoret, Kisii, and Nairobi.
This activity undermines consumer trust in mobile financing systems and incurs significant financial losses for companies. Ken Gitonga, Head of Technical Product at Watu Credit, highlights the severity of the issue, stating, “This isn’t a small-scale issue; it’s a coordinated operation.” He reveals that tens of thousands of devices were compromised between July and September of the previous year, resulting in losses exceeding Sh100 million for the industry.
The problem is particularly acute among entry-level smartphones, which are favoured for their affordability in markets such as Uganda and Ethiopia. Companies like Watu Simu and M-KOPA have faced severe impacts, with certain models, specifically the Samsung A04 and A14 series, being withdrawn from the market due to their vulnerability to hacking. As a result, Watu’s monthly smartphone sales have plummeted from 50,000 units to 30,000.
Adding to the dilemma is the growing number of online resources instructing users on bypassing security systems. A cursory online search uncovers numerous guides and videos demonstrating how to disable tracking systems used by companies like M-KOPA. On platforms such as TikTok, individuals known as “Mkopa Guru” openly offer unlocking services. The ramifications of phone flashing extend beyond corporate losses, adversely affecting retailers that depend on financed devices and leading to widespread job cuts.
Nick Onunga, CEO of Ethany Mobiphones, remarks, “This crisis affects the entire ecosystem. From distributors to end users, everyone feels the ripple effects.” Flashers frequently employ advanced tools to circumvent security systems and often collaborate with customers who default on their payments. Though law enforcement acknowledges the issue, their capacity to tackle it effectively is limited. A law enforcement officer points out that tampering with financed devices is a criminal offence under the Computer Misuse and Cybercrimes Act, indicating the legal implications of such actions.
In response to these challenges, mobile financiers are implementing several countermeasures. Collaborations with manufacturers like Samsung are underway to incorporate advanced security technologies like Knox Guard PAYG to thwart hacking attempts. Additionally, these companies are enhancing their Know Your Customer (KYC) processes and limiting the number of authorized dealerships to reduce the potential for exploitation by bad actors. However, these initiatives have financial repercussions, affecting legitimate dealers’ market opportunities.
Some companies are shifting their focus to financing smartphones that are priced below Sh16,000, a segment that is less appealing to hackers. While this strategy may constrain revenue growth, it is viewed as a necessary step to stabilize the industry. Many consumers obtain smartphones through BNPL schemes without adequate financial stability to meet repayment obligations, creating circumstances conducive to unethical practices. Onunga warns, “It’s not just a technical problem; it’s also behavioural. Customers need to understand that defaulting on payments and enabling flashing ultimately damages the system for everyone.”
Industry leaders are advocating for stronger legal deterrents to combat phone flashing. Gitonga emphasizes the need for severe repercussions for offenders, stating, “We’re collaborating with authorities to ensure offenders are held accountable.” Despite these challenges, the mobile financing sector remains committed to enhancing security measures, promoting consumer education, and fostering collaboration among stakeholders to secure Kenya’s digital economy.
