By David Mugwe, Business Daily Africa
The Central Bank of Kenya (CBK) has warned against a proposal to harmonise money transfer systems currently offered by mobile phone operators, saying the move would kill innovation in a sector that has been a godsend to the bank’s efforts to bring more Kenyans into the formal economy.
CBK governor Njuguna Ndung’u said players in the mobile money sector should focus on increasing the number of agencies and customers they have before such a proposal to harmonise the systems be considered.
He pegged 24 million Kenyans using the systems as an acceptable threshold.
“Interoperability will help to reduce costs but if you reduce costs without following the rules of the game you will kill the innovation. There are proprietary rights that you have to respect,” said Prof Njuguna at the AITEC Banking and Mobile Money Comesa conference last Thursday.
Business Daily had a day earlier exclusively reported on a proposal presented to the Prime Minister’s office by Airtel that aimed at building a seamless money transfer platform that would allow rivals of Safaricom’s M-Pesa to merge their functions with M-Pesa.
It would mean that cash transfers could be sent between networks, as well as allow Safaricom’s rivals to use its agency network to extend their reach, a move aimed at diluting the market leader’s dominance.
Safaricom’s rivals had said that such a platform would remove the high cost that is preventing consumers from moving money across networks, but Safaricom argued that the move would infringe on its proprietary rights.
The development threatened to open a new front in the battle to win subscribers, as some service providers said the establishment of a central clearing house would offer them headroom to significantly cut costs as they had done in the calls market.
Safaricom’s rivals reckoned that a seamless platform would loosen each operator’s grip on the mobile money platform, pulling down the cost barriers and allowing free movement of money.
Though it is currently possible to send money across networks, the transfer process remains complex and costs 10 times more than the price of sending money within a network, adding new dimensions to the factors preventing consumers from changing mobile phone service providers.
Prof Ndung’u said CBK would be keen to see the number of unbanked Kenyans reduced before it can impose new regulations.
“If you do not have the numbers you cannot bring costs down. Let’s have the numbers then start debating how interoperability will reduce costs further but we should respect proprietary rights.”
He said that though the initiative would reduce costs, deposit accounts and access to financial services had grown over time because of innovation by mobile operators, agent banking and licensing of deposit taking microfinance institutions.
According to the CBK, the number of micro-accounts increased over five times to about 11.2 million last September from about 2.1 million in 2005.
In a presentation done in November, the CBK said that the number of deposit accounts had also increased to nearly 12 million from 2.55 million over the same period.
The CBK attributed the growth to reduced costs of maintaining micro accounts and introduction of innovative instruments such as mobile money transfer.
Prof Njuguna said that these numbers could improve further, a move that would see costs go down as more individuals use the existing structures.
“We have to follow the rules of the game but what we want is numbers on the table. Let’s not go for simple choices,” he said, adding that the deposit accounts could be increased to over 24 million.
M-Pesa remains a major attraction for Safaricom subscribers and is seen as one of the main reasons why consumers do not change from the network.
Safaricom has 13.5 million subscribers on the service with over 22,000 M-Pesa agents while Airtel, its main rival which operates a mobile money network dubbed Zap has about four million subscribers.
Orange, which runs a mobile money network dubbed Orange Money, has about 100,000 users and 1,500 agents, while Yu runs a mobile money network dubbed Yu Cash.
According to the CBK, as at the end of September last year, M-Pesa had transferred Sh68.02 billion with 28.45 million transactions since 2007.
Banks which have largely been left behind by the telecommunication firms in mobile money innovations have partnered with the providers so as to grow their customers.
CBK data shows that since the launch of a partnership between Safaricom and Equity Bank, 700,000 M-Kesho accounts had been opened as at the end of September last year with approximately Sh400 million mobilised.
By Mwaura Kimani and Okuttah Mark, Business Daily Africa -
When Equity Bank early this week teamed up with telecoms operator Orange to launch Kenya’s latest mobile money platform, the partnership had the hallmark of a belated entry into a market already in the grips of the competition.
Like its competitors, Orange’s mobile banking product came with the basic money transfer functions that have proved popular with millions of Kenyans and turned telecom operators into some of the biggest movers of cash in the economy.
Iko-Pesa, the trade name Orange has given its mobile money platform, also enables consumers to load money onto their phones and send it to a recipient in any corner of the country and gives them access to their bank accounts at Equity to deposit and withdraw money, apply for, process and receive loans from their cell phones. Orange subscribers can also use the platform to settle utility bills and buy consumer goods from select retail stores removing some of the risks associated with cash-based transactions.
But Mr Michael Ghossein, the managing director of Telkom Kenya, which owns the Orange brand, and Mr James Mwangi of Equity Bank had additional information for consumers and their rivals in the telecoms and banking sectors respectively during the Iko-Pesa launch in Nairobi on Monday.
Launch of the mobile banking account offers Equity Bank an opportunity to turn 1.6 million Telkom Kenya subscribers into account holders, while Orange taps into Equity’s large customer base for new subscribers.
Unlike M-Kesho, the mobile banking product that Equity launched early this year with telecoms market leader Safaricom, and has been quickly replicated by other banks, Iko-Pesa will remain exclusive to Equity for one year giving the micro-lender a head-start in the race to capture Kenya’s huge population of the unbanked using simple and convenient solutions.
Though it uses a similar technology platform, Iko-Pesa has effectively addressed some of the weakness in competing mobile banking products and expanded the range of services to consumers.
Unlike M-Kesho, Iko-Pesa rides on mobile banking software that is embedded in Telkom Kenya’s SIM cards, giving it a functionality edge that is promising a fresh shake-up of the financial services and telecoms business.
Iko-Pesa is promising to deepen the uptake of mobile banking in the Kenyan market where similar products with varying degrees of functionality already exist.
“This is going to be the biggest mobile banking solution and e-commerce platform that should position Equity as the biggest provider of financial services in Eastern Africa,” said Mr Mwangi,.
Through the partnership Equity Bank hopes to ride on Orange’s global telecommunication footprint to roll-out branchless banking in Kenya and a seamless money transfer platform all over the world.
Orange and Equity have already signalled their intention to launch a similar product in neighbouring Uganda next month before entering the Tanzanian and Rwanda markets next year.
The bank is also understood to be in talks with Essar Telecoms in what could give birth to a similar product founded around the operator’s Yu Cash. The three mobile banking products would effectively offer Equity the potential to turn the combined Safaricom, Orange and Yu subscribers into account holders giving it a head-start in the race for new customers.
Safaricom, Orange and Yu have a combined subscriber base of more than 16 million and it is Equity’s calculation that capturing even a small fraction of it, say two million would place the bank way ahead of its rivals not only in terms of customer base but also in revenues earned from transaction fees charged for access to mobile banking services.
Mobile banking has become the biggest tool in the hands of commercial banks to reach the unbanked, cut operation costs and increase the efficiency of service delivery.
Mr Mwangi says Iko-Pesa has the potential of speeding up Kenya’s movement to the era of cashless transactions.
Equity’s latest innovation amounts to a complete transformation of the mobile phone into a truly mobile bank account and comes at a time when the financial services industry captains are looking for fresh strategies that will help them navigate a looming shift in the business environment and to maintain the profit momentum they have gained since the beginning of the year.
Last month, Equity, Kenya’s fourth largest bank by asset base reported surging nine-month profit of Sh6.3 billion up from Sh4.3 billion during a similar period last year.
Mr Mwangi says that Iko Pesa could also become a major e-commerce platform as Kenya moves into the world of electronic commerce, where consumers buy goods online.
“Iko-Pesa is a local electronic payment gateway that should help merchants of services such as air tickets and holiday packages and utility service providers to expand their sales globally at significantly low transaction costs.
Kenyan financial institutions have been reluctant to establish electronic payment gateways leaving Kenya with one of the lowest levels of electronic transactions in the world.
Orange’s rivals Safaricom and Zain have signalled their intention to outgrow basic money transfer service through addition of e-commerce solutions to their M-Pesa and Zap platforms to match the competition. Iko-Pesa is said to have soured the relationship between Equity and Safaricom, whose contract with the bank ensured that M-Kesho remains largely in the firm control of the telecoms operator.