M-Pesa’s mobile money-transfer service has been a sweeping success story in Kenya. But advances in the banking sector are catching up and new rivals are joining the race with their own mobile platforms.
Kenya is the global leader in mobile money. Of the 45 million people living there, over 30 million have mobile phone subscriptions and over 23 million are mobile money users. This is largely due to internationally renowned M-Pesa, founded by telecommunications giant Safaricom in 2007. By 2010, it had become the most successful mobile phone financial service in the developing world, and has held onto that supremacy ever since.
Then, two events last April shook the status quo. First, the Kenyan banking lobby, hoping to force M-Pesa to review its pricing, invited rival banking firms to offer services in direct competition with M-Pesa. Second, the Communications Commission of Kenya licensed new Mobile Virtual Network Operators to provide mobile money services.
- Telecommunications company Safaricom founded M-Pesa without help from formal banking institutions. However, Safaricom did partner with Commercial Bank of Africa to provide M-Shwari, a savings and loan platform and a complement to M-Pesa.
- Kenya Commercial Bank runs two mobile banking platforms - Mobi Bank and M-Benki. These services can be accessed with any telecommunications provider.
- Finserve Africa Limited, a subsidiary of Equity Bank, is one of the April recipients of a mobile virtual network operator license. Equity partnered with Airtel for its savings and loan platform.
Equity Bank was the first challenger, teaming with telecommunications company, Airtel, to provide mobile banking services to Airtel’s 8 million customers. Equity Bank touted its services as less expensive than the Commercial Bank of Africa. For instance, Equity offers microloans at 1 to 2 percent interest per month, while CBA’s M-Shwari, the savings and loan platform that complements M-Pesa, charges 7.5 percent.
Currently, Equity, Commercial Bank of Africa and Kenya Commercial Bank are jockeying with M-Pesa for the biggest slice of the mobile money pie. CBA’s M-Shwari has overtaken Equity in number of borrowers; yet, it is the least profitable of the three banks. Why? CBA executives admitted in February that 140,000 M-Shwari customers had defaulted on their loans – bringing the expediency of their high interest rates into question.
In their bid for customers, Equity and KCB adopted some unconventional strategies. KCB runs two mobile banking platforms, and allows its customers to transfer money to bank accounts with other lenders, making its services accessible to a larger customer base. Meanwhile, Equity also hopes to partner with other banks, as well as issue its branded SIM cards to all of Airtel’s subscribers. With patented new technology, the Equity SIM sits on top of an existing card provided by any operator, so customers can access the mobile money services with any phone.
Mobile money services benefit the poor: One study found that incomes rose 5 to 30 percent in rural Kenyan households that used M-Pesa. But Equity managers think financial inclusion will expand even further if the M-Pesa monopoly crumbles, claiming that healthy competition among the mobile banks would make services more accessible, flexible, convenient and affordable. So far, it looks like they were right. When Equity announced cheap transaction costs for money transfers – between one cent and 28 cents – Safaricom responded by slashing its transaction costs up to 67 percent, to comparable amounts.
Furthermore, industry leaders now have their sights firmly on improving the problems of access for the poorest customers.
“The biggest problem with accessing a bank is not bank charges, it is the cost of access.” explains James Mwangi, Equity Bank’s CEO. “I will have to go 70 kilometers to where the bank is; I will have to pay public transport; I will have to spend the whole day to get to the bank.
“If we really want the masses and low-income people to join banking, then we should make financial products more affordable, and that is the value proposition that we are making to the market.”
But with increased competition come new challenges. Price wars could create confusion for customers trying to navigate products with new features, pricing, and standards of service.
Safaricom also asked Kenyan courts to review its contractual commitment to its customers who choose to use Equity’s SIM card, claiming that the SIM could expose Safaricom subscribers who use it to financial fraud.
As the battle for control of the mobile money market heats up in Kenya, one thing is clear: The world’s most advanced mobile money market is about to become the most competitive. And with mobile money spreading to other regions in Africa and elsewhere, the insights gleaned from Kenya’s experience may have far-reaching implications. Your move, M-Pesa: over 30 million mobile phone subscribers are on the line.