banks need to adapt to M-pesa, not fight it
A recent Nairobi Star story links banks to m-pesa probe in an underhand move to stifle the growth of mobile company Safaricom’s money transfer service - M-Pesa.
How much growth? As a recent article put it four million Kenyans can’t be wrong in reference to those who have signed up for the M-pesa and which the company recently stated to be clocking up to 10,000 new registrations per day!
Here’s why:
1. It makes sense and that's all the law it needs Is it illegal and does it need more legislation? The answers are probably not and yes. Probably Not - because you can’t legislate everything, more so the simple payment of cash from person A to person B - whether a prostitute or a priest. And Yes, M-pesa agents need to beef up security, systems and training of staff as its popularity grows.
But the argument that M-pesa will be used for money laundering or other crimes is laughable - who launders less than $500? (Kshs. 35,000 is the maximum transaction amount on m-pesa) You are more apt to find a transfer of Kshs. 35 million at a bank - and banks were themselves used to prop up the numerous local pyramid schemes before they all imploded.
2. M-Pesa is affordable banking: Is it unfair? What’s to stop a bank from operating branch-less accounts? Several small banks have 1 – 3 branches and can comfortably and profitably serve their customers. Most Kenyan banks still don’t want to serve the unbanked and M-pesa has evolved because banking is still too expensive for the masses. There’s Mzansi in South Africa and in the absence of a similar program, Kenyan masses have created their own Mzansi in M-pesa. It is not Safaricom’s fault that they are so popular – take away m-pesa and people will go back to stuffing cash in tins, rolling them in blankets and mailing them in cartons on buses. They will not go back to open new banks accounts or queue at western union.
3. M-pesa is better than banks in some functions: Two scenarios
- Having a bank account is of no use sometimes, as one executive told me. She may be in Malindi looking to hook up Flavio Briatore or find Obama’s village (Nyangoma – not Kogelo) - her bank account is in Westlands (Nairobi) she has no way of reaching that money (avoid credit cards) - but her bank has no presence in many parts of the country, but from where she can access M-Pesa
- I received a small cheque payment of Kshs. 10,000 shillings ($130) that I deposited in my bank account on 19th December – today it’s 10 days later and the cheque has not cleared – reason is that four working days have not elapsed - (banks don’t count weekend or holidays – thought they work six days a week). What the banks does - transferring money from a creditor to a debtor (me) is no different than what M-pesa is doing. But with access to the same technology and similar resources, M-pesa takes 3 minutes, while the bank system takes 10 days.
4. M-Pesa is going to get more mainstream: More corporations are embracing the cost cutting and simplicity of M-Pesa. You can now pay for satellite TV (GTV), some insurance plans, and mutual funds (Old Mutual) by M-pesa. Next up will probably be two large companies that are in dire need of a cheaper alternative of money transfers
- Safaricom with its 800,000 new shareholders will probably have to pay a dividend next year. The use of text messages/e-mail and M-pesa will save the company millions of shillings that would be spent on printing, postage and cheque processing charges
- Kenya power & lighting company; as KPLC takes electricity to thousands of new customers in rural Kenya and inner cities, it has a dire need for cash collection points. It has used the banking system and the post office (paying an average Kshs. 30/= for each payment), but M-pesa would be a cheaper (for them) and more convenient option (for distant customers) who can also have been alerted by SMS on how much to pay.
- Also microfinance institutions (and shylocks) – who make small loans, for short periods of time. The sooner they can transfer funds, the clock is ticking, and their customer can access funds immediately and pay them back at the last minute without each having to wait for cheques to clear. M-pesa fits into the last minute thinking of many Kenyans – who tend to wait till the last minute to do many things including payment of electricity bills!
Banks need to change and embrace M-Pesa as it is able to do some things they can't or won't do. e.g. The lady in scenario one has a relationship officer at her bank, who can move her funds from one account to another – why not also enable her to M-pesa the next Ms. Briatorie her money? This can be an extra service from bank from which they can earn some income, instead of opening a branch in Malindi?
They should take a cue from other players such as
- Pesa point (ATM network) who may be losing some business to M-pesa but have now have embraced and partnered with them so that customers can withdraw cash from M-pesa 24 hours a day at any of their Pesa Point ATM
- Western union whose local money transfer system may have been eroded by M-pesa will now be the international arm for remittances through Safaricom's M-Pesa
- Banks like Housing Finance and Family Bank already process M-pesa payments for their customers.
FYI
1. Are you a heavy M-Pesa user? Did you know you can get a statement of your M-Pesa transactions - a statement of the last three months costs Kshs. 500 from Safaricom, which is about what many banks charge for interim/instant statements
2. Want to become an M-Pesa agent?
3. Other interesting recent posts about M-Pesa.
17 comments:
Banks,
Fantastic post as ever. The banks are being unimaginative: you'd think they would figure out a way to make money off mpesa themselves?
great analysis. Banks are being too rigid and non-receptive to something that has been accepted by amolst all of their target customers. the most logical thing for them to do is help m-pesa conform to the said regulations and partner with it. no mater what they do, m-pesa is here to stay. it represents change we can believe in and no one can stop it now.
We had a fairly tedious discussion at stockskenya on this issue http://www.stockskenya.com/newsite/stkForumTopic.aspx?stk=1005&top=11322.
It boils down to the banks waiting for 18months to get someone (who is probably too old to appreciate what mpesa is doing?) instead of embracing or bringing in substitutes (as Equity has done).
Daniel Waweru: It's the 'unbanked' who have made M-pesa, but more 'banked' are realsing its potential
Ka-investor: We (They) are risk averse, things liek e-banking have been put on the back burner, whiel many of the phone banking products are too expensive
MainaT: will check out the SK thread.
(This time Equity could also be on the receiving end)
you know m-pesa is like aboon to many kenyans but several issues.... it is housed in sky scraper in britain, where a server cues the transactions realtime. it is like equity bank which has one back office for most of its new branches where all transaction are relayed before being transitted relatime to the front office or branch where the customer is.
while michuki was alrmist, a five minute hitch for m-pesa means a queue of transactions that is almost three days long as, the company sorts out the threads...knowing kenya and how companies like nakumatt and charter house operated in the wide open air, it would be possible to launder money through m-pesa, note that 1. anyone can own a lie, even though you present identification, there is the atm function and if done cosnsistently doesnt raise a red flag. one person can operate ten different m-pesa accounts. but i think the service is a blast... kudos safaricom....
by the way i am trying to get my blog www.panderosa@blogspot.com back in business.... a few pointers anyone....
adam: good points, as you know m-pesa is owned by vodafone who have licensed it to safaricom - maybe more (local) processing centres would be in order?
- on laundering, i disagree, it's too cumbersome to repeat $500 transacations each time!
the reason cbk and the ministry are yelling so loud is because they cannot monitor transactions... as far fetched as it sound this thing could actually work... as long as you control m-pesa, what is to stop you from running you r cash through it at whatever amounts... may be not in the form we are thinking about it right now but as usual we will find out six or seven years after the bargain... the main reason i quoted charter house.... they actually laundered billions for nakumatt before the cbk caught on. paying off people quietly has taken years. but at least the cases are dying away quietly.... remeber, michael joseph actually owns several acres down in lewa, inside the conservancy, he lives close to ian craig.. that palce is a hunting club....just open ua mind.. ps these are not accusations, they might be a lot of hot air but me thinks we should be asking about mobitelea again. just think of the safaricom dividend. billions. with western union now in the mix... where this thing stops is anyones guess. imaginantiv her.
people used to launder money using western union $500 dollars at a time, until the patriot act came along. so definitely mpesa is an avenue. but me thinks that should be the least of GOK's concerns they have bigger issues to deal with
Why use mpesa for laundering when we have hundreds of convenient CASINOS?
Walk into any Casino in Kenya and look around you.
I don't see MPs gambling... Who else gets easy money - if not gangsters and politicians?
Who are these rich folks who can afford to lose millions every day?
Mpesa is teeny weeny and irrelevant compared CASINOS - thats where it all happens.
Kenyan banks have a long way to go as far as providing service. It may be that the banking laws are outdated but their operations are sub-par. A good example is the cashing of yourc check. In the US, the funds are made available the moment you bank the check and you can actually cash the check over the counter.
i think that the media in kenya are often misused by politicians.. michuki looked like he had a score to settle even when he put out his comments on mpesa.. either that or he knows more than he is telling.... like ktn and those one year after the fact stories yesterday... any comments anyone.. put them on my blog.. www.panderosa.blogspot.com
You guys are missing the crucial questions:
Are there different sets of laws/regulations for banks & M-Pesa for the money transfer business?
If yes, why?
Ssembonge: You are mistaken...
YOUR bank might give you instant credit BUT banks are allowed 2-5 working days before they make your funds available depending on where the drawer's bank is located vis-a-vis yours.
Some US banks provide 'instant' credit based on your credit history, relationship, amount of the chq, etc. This 'trust' is earned.
BTW, some cheques e.g. Fed & State chqs get next day availability by law in most (if not all) states.
Some Kenyan banks will do the same especially the smaller banks that know/trust the customer. Of course, the bank will look at your history as a customer e.g. minimal bounced chqs, amount of the chq, overall banking relationship...
Actually I would say it is regulation. Bankers are regulated by the Central Bank while telecoms are regulated by the CCK.
We are yet to have (although sources indicate we could soon) a Financial Services Authority like the FSA in the UK.
(www.kenyaaudit.blogspot.com)
Such a body would ideally not regulate people or organizations or sectors but PRODUCTS AND SERVICES.
With a service like M-PESa which is so far ahead of the curve that no regulation exists anywhere in the world to borrow notes from, you can understand the inertia our local regulators.
Additionally, until the President signs the Kenya Communications (Amendment) Bill into law, banks will be reluctant to engage in commerce that is not protected by any law.
As it exists now, the Evidence Act does not recognize electronic evidence.
But the KCA bill seeks to introduce electronic signatures and digital certification services.
Until then, Banks may just resort to these underhand tactics.
With the passing of Kenya communications amendment bill (2008) Safaricom will now pay its shareholders through MPESA,yet another chance for Safaricom to deny the banks much needed deposit. There is no way money deposited in MPESA account will find its way in a bank vault.
What is the security of MPESA,
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