M-payments service provider
M-Pesa has stolen a march on traditional banks in Kenya and built
up a customer base of 12m in less than three years. Louise Naughton
talks to M-Pesa, as well as some of the banks currently playing
catch-up, about the way the Kenyan cards industry is
changing.
Go deeper with GlobalData
It took advantage of a loop-hole,
got in, and spoke to the regulator nicely,” says Florence Owuor,
head of cards for Kenya’s Equatorial Commercial Bank, when asked
about M-Pesa. “But we are now playing catch-up,”
With a perceived monopoly, a threat
to Kenyan banks and a view it is flying under the radar of
regulatory bodies, mobile money transfer service M-Pesa is
certainly causing a stir among Kenyan banks as they wake up to the
reality that they are being outplayed by a telecommunications
operator.
M-Pesa was developed by Vodafone
and run on a domestic Kenyan network Safaricom (35% of which is
owned by Vodafone). It launched in Kenya in 2007 and boasts 12m
users compared to fourm banked customers, revealing a significant
market share in a relative short space of time.
When the subject of M-Pesa arose at
a recent VRL Financial Kenya roundtable it was clear there
were some strong views as to whether its existence is good or bad
for the Kenyan banking industry.
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By GlobalDataEcobank card centre manager Susan
Gichia kicked off the debate and claimed M-Pesa acts as a positive
influence and brought significant benefits to Kenya’s financial
services market.
“M-Pesa has helped me; it has
brought me customers who wouldn’t have otherwise walked into the
bank,” she said.
“Most of the smaller businesses
that act as agents regularly run out of their e-money float, which
is very frustrating for customers. The bank will never run out of
float so we are better positioned to guarantee a better service to
M-Pesa users.”
Participants were in unanimous
agreement they are currently playing catch-up to the mobile money
transfer service. Equity Bank director of finance and shared
services John Staley brought the debate to life by firmly stating
his view in believing M-Pesa to be a threat to Kenya’s banks due to
regulatory concerns.
“I do not see M-Pesa itself as a
threat,” he said. “In most countries the regulator defines what a
mobile operator can do and what a bank can do, but they haven’t
done that in Kenya. I believe the grey area between the banks and
M-Pesa is too big.
“We now have mobile operators
moving into our market. Is this where we want to go in the
long-run? I’m saying ‘no’, banks must control the financial
transactions.”
But Staley failed to mention that
earlier this year Equity Bank made a strategic move to partner with
M-Pesa to launch M-Kesho, a savings account that links an Equity
bank account to an M-Pesa account. Customers can withdraw and
deposit funds from and into either account and can also earn
interest.
An opportunity not a
threat
Susie Lonie, product lead for
M-Pesa for Vodafone Group Services, confirms the mobile money
transfer service has had its fair share of run-ins with Kenyan
banks over the last three years but claims it is working on a more
collaborative basis with banks now.
“There are more than 15 banks that
use M-Pesa as a channel,” she said. “Banks act as super-agents on
behalf of the service is also overlooked. The small businesses that
act as agents for M-Pesa, allowing customers to make withdrawals or
deposits will often then turn to banks to balance their
e-money.
“One banking group based in Nairobi
told us it was acting as a super-agent, turning those small
businesses into banked customers.”
Nick Hughes was the former head of
international mobile banking solutions for Vodafone before becoming
a managing director at Signal Point, an investment and advisory
firm for m-banking in emerging markets.
Hughes 
argued banks are
taking a defensive attitude in claiming M-Pesa has a monopoly and
says it is not M-Pesa’s fault that banks have failed to reach
Kenyan consumers through their traditional methods of distribution
of its products and services.
Lonie and Hughes told CI
they do not believe this to be a ‘them and us’ situation and as
they look to move into markets with less ambiguous regulatory
environments, they hope to work in partnership with banks.
“We don’t mind being regulated; we
just need to know the rules,” said Lonie. “Until there are good
e-money regulations in place and unless we work in partnership with
banks we are always going to have uncertainty. I really believe
products like M-Pesa can become another part of the banks’
portfolio but they need to become more inclusive.”
One banker who participated in the
Kenyan roundtable revealed at least three other banks around the
table were looking into their own mobile banking solutions in a bid
to ‘beat’ M-Pesa. As the current mobile money transfer service
currently limits a user to one network, the banks’ perceived
strategy is to widen the net to include more mobile networks in
their m-banking offerings.
“We were sleeping when M-Pesa came,
let’s not kid ourselves,” he said. “We thought we were the kings
and people had to come to us. But something has happened since
then. Banks are now waking up to say, M-Pesa has done it and I am
going to do it better than them.”
Even if banks were to become direct
competitors of M-Pesa Lonie remains optimistic it could provide the
basis for further collaboration and strengthen relationships.
“If banks do decide to launch their
own mobile money or m-wallet initiatives I would hope we would work
with them, rather than against them. It is not a war,” said
Lonie.
The Kenyan roundtable revealed some
resentment towards M-Pesa but also an acceptance of the banks’
failings in meeting the needs of the unbanked population.
As Lonie points out, the technology M-Pesa used to launch its
service was available for banks to use at any time but still they
seem to favour traditional methods even after witnessing M-Pesa’s
success. As banks start to look forward in their bid to challenge
M-Pesa’s dominance in Kenya, this tension is only set to
increase.
