Mobile money wars: Banks vs. telcos

Equitel’s launch this July in Kenya, heralds the beginning of banks taking back “what was theirs”. It was overrun by telecom operators, which is interesting as Equitel, a mobile virtual number operator, is owned by Kenya’s biggest bank, Equity Bank.

Banks and telcos in Africa have been at logger heads trying to beat each other in the money game for years. In Kenya, many wars have been fought between the two institutions with everyone trying to maximise their customer base and gain market dominance.

The 350 million unbanked people in Sub Saharan Africa is a key indicator of the opportunities that are there for banks and mobile money services.

Back before 2006, nobody imagined that telcos could enter the “banking” space and threaten to cut out a big chunk for themselves. But how have these wars benefitted the whole ecosystem? In a recent report from IDC, titled Mobile Money: Telcos Scramble for Africa, Leonard Kore an analyst, takes a look at the way mobile money is shaping the financial ecosystem in Africa and what we can expect.

The first war

When Safaricom introduced mobile money transfers in Kenya, many were sceptical. Even the Central Bank of Kenya (CBK) was not totally sold on this idea. It seemed too easy – too risky even.

Even with the background of a low uptake of financial inclusion, the idea of having a telco manage mobile money transfer was unheard of. According to a GSMA Report released in early 2015 named Enabling Mobile Money Policies in Kenya, most banks in 2005 were closing their branches in rural areas due to the high operational costs of maintaining them.

And although the CBK had regulatory powers over the banking sector it did not have regulation over non-banks.

The introduction of the M-Pesa platform in 2007 was greeted with scepticism but when the 2008 and 2009 post-election violence occurred, many used their M-Pesa accounts to get calling credits for their mobile phone. And out of necessity, the M-Pesa brand was established.

The pressure grew for the CBK to legalise and regulate the service. This first step by the CBK was to ensure that Safaricom was not operating as a deposit taking entity but as a money transfer entity.

“It was against this backdrop that the CBK addressed an application by the Commercial Bank of Africa (CBA), Safaricom Limited, and Vodafone Group to authorise M-Pesa, a mobile-enabled money transfer and payment service,” the report by GSMA said. CBA was to act as a holding entity in the money transfer.

In the Mobile Money: Telcos Scramble for Africa report, tough regulations have been sighted to choke the growth of mobile money in most African countries.

But the need to champion financial inclusion by government and other players did prevail in Kenya and in most countries. Right after M-Pesa was regulated, Airtel Money from Airtel Kenya, Yu Cash from Econet’s Yu Mobile and Orange Money from Orange Telkom soon entered the fray.

The second war

The new service became a buzzword in Kenya. Many started using it but many also believed mobile money was about to disrupt again. Banks were against this idea. And cried out foul over this new service, saying that Safaricom and other mobile money services, were acting as a bank and should be regulated as such.

“Currently, there is no legal framework within which these entities provide their services despite behaving like current account institutions,” John Wanyela, the executive director of the Kenya Bankers Association in 2009 said. “If these operators want to join the financial sector, they have to be properly licensed.”

Even though this war was won by the telecoms, it is still a sensitive matter in regards to banking, depending on a country’s regulation. In Nigeria, the CEO of Airtel Nigeria Segun Ogunsanya, said regulating mobile money and “forcing” them to partner with banks was unfair. He asked for the mobile money rules to be reviewed to have telecom companies push on by themselves.

The third war

The third war has been seen in recent times in Kenya. All major banks in the country rolled out their agent service to do similar jobs to mobile money agents. Bank agents help customers deposit and withdraw their money using the bank’s independent mobile service. Currently, Equity Bank, has over 20,000 agents across the country.

Kenya Commercial Bank, Cooperative Bank and many others have also launched their agency networks. But this might not be enough to challenge over 80,000 M-Pesa agents across the country.

The banking fraternity is also working on an interoperable system within the banks to allow bankers to easily send money from one bank to another. This will see the flow of mobile money cut off as users will not need to top up their mobile wallets but can send funds within the bank’s ecosystem.

Speaking at the launch of the Equitel network in early July, Fidelis Muia Director of Technical Services at Kenya Bankers Association an umbrella body for Kenyan banks, said that they are working on a switch system that will link all banks.

Peace at last?

In Kenya, many banks have partnered with mobile money services to give out banking services. Currently, people can open virtual bank account, apply for loans and withdraw and deposit funds through their phone.

KCB’s M-Pesa Account registered 2.1 million accounts within four month of its launch, underlining the demand for easy banking products across Kenya. “Over Kshs 2 Billion (US$20 million) has been disbursed in loans for the past four months it has been in existence—an average of Kshs 130 million (US$1.3 million) weekly,” the bank announced recently during its half year results.

Another product with M-Pesa – MShwari, has also seen billions of shillings being loaned and banked. According to Consultative Group to Assist the Poor, MShwari now has 10 million accounts with 4.5 million users being active applying for 50,000 loans every day.

There is definitely positivity in collaboration as Leonard Kore put it: “We will see telcos and banks working together, because telcos will need some of the banking facilities, for example, micro-credit.”

For banks, Kore states that they might not have the extensive reachability that some of the telcos have in terms of agents on the ground, in return they will have to work with telcos for this purpose.


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Vincent Matinde

Vincent Matinde is an international IT Journalist highlighting African innovations in the technology scene.

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