Coop Bank takes on Safaricom and Equity with digital overdraft product

A Cooperative Bank branch in Nairobi /HANDOUT

The Co-operative Bank of Kenya has unveiled a digital overdraft facility aimed at enabling customers to overdraw their accounts by up to Sh100,000 to complete transactions.

Dubbled Kamilisha, the product targeting to boost business operations, especially for small businesses, places it in direct competition with Safaricom's market-leading Fuliza and Equity Bank's Boostika service.

In a statement, the lender confirmed the service is designed for both individuals and businesses, enabling them to complete payments for essentials like rent, utilities, and stock purchases when their account balances are insufficient.

"The overdraft service allows you to complete transactions when you don't have enough money in your bank account. It bridges the shortfall between what you have and what you need to pay," the bank said.

According to the bank's official terms, the Kamilisha facility is structured as a short-term loan with a maximum repayment period of 30 days from the first use.

Funds are automatically recovered from any subsequent deposits made into the customer's account.

The bank, based on a customer’s account activity, including salary deposits and business turnover, determines eligibility and overdraft limits.

The expansion of Co-op Bank's digital loan portfolio, which already includes products like the Flexi Plus Salary Advance, signals a strategic shift by traditional banks to capture a larger share of the lucrative fintech market.

Kamilisha has a monthly credit life insurance premium of 0.034 per cent, a daily maintenance fee of 0.2 per cent on the outstanding balance, and a one-time access fee of two per cent on the borrowed amount.

The loan will also be subject to a 20 per cent excise tax on the access costs. As per the charges, a customer who taps a Sh1,000 overdraft will incur Sh20 in access costs, Sh4 in excise tax, a Sh0.34 insurance fee, and a daily fee of Sh2, for a total of Sh60, if the full amount is not paid that month.

“When there are insufficient funds in your bank account, you can still execute transactions by using the overdraft service. It enables you to complete important transactions by filling the gap between what you have and what you must pay," the bank said in a statement.

The introduction of Kamilisha signifies increased choice and the potential for more competitive pricing in the digital credit market.

The facility's slightly lower cost compared to its competitors could pressure other players to review their fee structures, ultimately benefiting the borrower. The service provides a crucial financial buffer, enabling users to manage cash flow gaps and meet urgent payment obligations without resorting to unregulated lenders.

The move puts Co-op Bank in direct competition with the Boostika service from Equity Bank and the Fuliza service from Safaricom, both of which provide short-term digital credit with maximum limits of Sh100,000 and Sh70,000, respectively.

Currently, the monthly cost of Equity's Sh1,000 Boostika loan is Sh85, which includes a five per cent processing fee, one per cent insurance, and 20 per cent processing fee excise duty.

Fuliza, on the other hand, charges Sh6 per day on a Sh1,000 loan, which comes to Sh180 a month.