Kenya: Mobile phone companies irk banking industry

The latest tool is sending and receiving cash, a concept that has caused grumbling in Kenya's banking industry. The two cell phone operators - Safaricom and Zain have introduced money transfer services as a value addition to their business. The bankers have good reason to complain. For example, in July, the Safaricom MPesa service transferred KSh21bn with subscribers within the network transferring KSh6,8m amongst themselves.

Despite grumbling from the bankers to have the Central Bank of Kenya (CBK) explain what laws the mobile phone companies are operating under, the CBK has instead told the bankers to partner with telecommunication companies to provide better financial services to Kenyans. Equity Bank recently launched its Eazzy 24/7 service that allows its customers to do mobile banking like check banking statements, make forex rates enquiries and pay their utility bills.

Sokotele (Zain) and MPesa are money transfer services from the mobile operators. Both services are brands marketed by the two mobile operators. A mobile phone user can send cash as low as KSh500 to a maximum of KSh35,000. The MPesa service has been a huge success. By 31 July 2008, 3,6 million mobile users had registered.

For someone to send and receive cash via MPesa all they have to do is register and get a SIM card with the MPesa facility. To send cash to a person in another town, you go to an MPesa agent who sends the cash (via phone) for a minimal fee. There is an extra fee if the recipient is not registered. The recipient then goes to an agent and withdraws the cash also at a minimal fee. An MPesa user can use his/her phone as a “bank” by storing cash. All they need to do is go to an MPesa agent who loads the cash on their phone. The user can either send the entire amount or a bit or buy airtime. There is also has a facility that informs the user on the amount of cash they have in their MPesa account.

Zian's Sokotele works with a pay phone unit that can be used for making calls, printing airtime vouchers and money transfer. You do not need a SIM card or a phone. If someone wants to send cash, they need an identification number and name of the recipient. The Sokotele vendor then keys in the details and receives a unique reference number which the sender gives to the recipient. The recipient then collects his/her cash from a Sokotele agent on the other end by presenting their identification number and the unique reference number.

New bill

This new technology is something that the banking industry had not foreseen - based on their reaction. Some banks have quickly adopted and embraced the technology introduced mobile banking services that allow clients to check their bank balances but the cash transfer service is something that has caught the bankers unawares. Banks operate under the Central Bank of Kenya laws and currently there is no law that allows telecommunication companies to offer money services. According to a media report, the CBK says licensing (the mobile phone) money transfer services under the Banking Act may stifle services due to the rigorous requirements. The CBK is looking at regulating them under the National Payments Systems Bill to protect public interest which will go to parliament for debate.

Safaricom MPesa is not stopping. Two weeks ago, it partnered with PesaPoint to offer a service where MPesa customers can withdraw cash at PesaPoint ATM points. This is a win for Safaricom as it will see the number of MPesa users grow. MPesa registered users will be able to withdraw cash from any of the 110 PesaPoint ATMs in 46 towns in Kenya.

About 29 banks have joined the PesaPoint ATM network as a way of increasing cash accessibility to their clients. Through PesaPoint, customers can withdraw cash from the PesaPoint ATM, view bank balances, get a mini-statement, and transfer funds between accounts and even top up their mobile phones.

The mobile telephone services in Kenya started in 1992 with the Extended Total Access Communication System (ETACS) analogue system which was commercially launched in 1993. Then the elite of the society were the only ones who could afford them. A mobile handset retailed at KSh250,000. This resulted in a marginal mobile subscriber growth of less than 20,000 for a period of seven years (from 1993-1999). The enactment of the Kenya Communications Act in 1998 saw the introduction of competition in the industry. The Communications Commission of Kenya licensed the newly privatised Safaricom Limited and a new market entrant, KenCell Communications (now Zain) and over the years, the industry has grown and the operators have diversified their products to include data services and the highly successful money transfer service.