By Matina Stevis And Patrick McGroarty
NAIROBI, Kenya--In Kenya, where telecom companies dominate the
mobile-payments market, one of the country's largest banks is
fighting to retake some of its traditional turf.
George Kabiria, who makes decorative sculptures for this city's
lush garden homes, recently sold a small iron frog to a customer
through M-Pesa, Kenya's most popular mobile-payments service.
Mr. Kabiria's customer punched in a few numbers and transferred
700 Kenyan shillings, or about $8, to the iron monger. With the
money in his M-Pesa wallet, Mr. Kabiria can pay other M-Pesa users
or withdraw cash from agents at convenience stores and roadside
stands across Kenya.
Fearing theft in crime-rife Nairobi, Mr. Kabiria operates mostly
through M-Pesa, owned by Safaricom, the Kenyan subsidiary of global
telecom giant Vodafone Group PLC.
"I don't like having cash in the shop," he says.
M-Pesa, launched in 2007, handles $18 billion in transactions
annually. They come from cow herders in the country's dusty Rift
Valley villages, pedicab drivers in the bustling port of Mombasa
and technology entrepreneurs in traffic-clogged Nairobi. Together,
they are equivalent to 43% of Kenya's economic output.
Now, a top Kenyan bank is challenging that business. Equity
Bank, Kenya's largest in terms of customers, wants a piece of
Safaricom's brisk trade in charging mobile customers for financial
transactions. It also aims to draw users into traditional banking
products such as loans and savings accounts.
Earlier this year, Equity acquired a telecom license and made
plans to distribute to its customers SIM cards that would enable
them to access all their accounts without visiting a branch. The
ultrathin cards are designed to be placed on top of any SIM card
already in a user's phone, effectively giving people one phone line
linked to Equity's bank service and another for Safaricom's voice
and M-Pesa services.
The bank has given the cards to its employees and hopes to
distribute a million to current customers within a year.
At the heart of this push: Equity's belief that banks are best
positioned to provide banking services. "We have a major problem
with the mobile provider also providing financial services," says
John Staley, Equity's chief of finance, innovation and technology.
"You can't have a freight company controlling the tracks."
Bob Collymore, Safaricom's chief executive, shrugs off any
threat. He says his firm isn't competing against Equity but for the
95% of Kenyan transactions that are still done in cash. "The market
is massive, it's there to be had," Mr. Collymore says. "I don't
worry about [Equity]."
Fewer than a quarter of Africa's 1.4 billion people have a bank
account, the World Bank says, but 70% have a mobile phone. That has
made the continent particularly fertile ground for mobile-payments
businesses.
On average, 4,361 out of 100,000 people globally were using
mobile-payments services as of June 2013, according to Groupe
Speciale Mobile Association, an international
mobile-telecommunications group, and the World Bank. In sub-Saharan
African, the figure was six times that -- with nearly a quarter of
the population banking on mobile phones. In contrast, for every
100,000 Europeans and Central Asians, just 416 used such
services.
Still, Safaricom has taken steps to counter Equity's attempt to
enter the market. Just as Equity was about to roll out its new
mobile-payments service in July, Safaricom filed a petition with
the Kenyan communications regulator, contending that Equity
services designed to coexist with Safaricom would expose M-Pesa
users to security risks, such as fraud.
Equity's Mr. Staley called the complaint "completely
unfounded...obviously a delay tactic."
Before the legal move, the Kenyan bank had been advertising in
English and Swahili inviting Equity customers to punch *247# into a
phone carrying a new Equity SIM card to activate Hapo Hapo, the
Equity mobile-banking account. Safaricom's petition has forced
equity to suspend marketing and distribution for its new
mobile-payments service.
A spokeswoman for the regulator declined to say when a decision
would be reached.
How the Kenyan regulatory body rules could shape the way banks
and telecom firms collaborate and compete on mobile transaction
services across Africa.
In Zimbabwe, leading mobile company Econet Wireless bought
Steward Bank in 2012 for the banking license that would allow it to
expand its mobile-money platform, EcoCash. In Tanzania, Millicom's
Tigo mobile has joined with with 17 banks to spread its Tigo Pesa
system (Pesa means money in Swahili). And in Rwanda, the same
company is lobbying the central bank for a license or regulatory
change to allow it to expand its mobile-money offering.
Safaricom's dominance in Kenya--the company hosted nearly 70% of
mobile connections in the first quarter--helped the growth of
M-Pesa. Safaricom has also teamed up with Kenya Commercial Bank to
offer more sophisticated financial products such as savings
accounts, payroll and microloans.
Such services have helped Mr. Kabiria earn interest on a mobile
savings account through a service dubbed M-Shwari that is managed
by KCB. The money he saves in the account can also be used as
collateral for a home or business loan.
Equity says its edge over Safaricom's suite of products will be
lower charges per transaction. Equity plans to charge a 1%
transaction fee capped at 25 Kenyan shillings, about 20 U.S. cents.
M-Pesa doesn't cap charges, which can be more than 100 shillings on
large transactions.
The fight could help customers of both Equity and Safaricom in
the long run, says Melissa Cook of African Sunrise, an investment
consultancy. Both Equity and KCB, Safaricom's banking partner, have
operations across East Africa, meaning both can scale their
services well beyond Kenya. "These are flexible services, giving
small businesses especially the ability to transact across
currencies and borders," Ms. Cook says.
With such high stakes, Equity says it expected Safaricom to try
to elbow out fresh competition. "When you've had the sandpit to
yourself," says Equity's Mr. Staley, "you don't want to let someone
new in to play."
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