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February 21, 2019

Kenya still maintains lead as mobile banking goes global

digital: Customers make an M-Pesa cash withdrawal at a Diamond Trust Bank ATM Machine.
digital: Customers make an M-Pesa cash withdrawal at a Diamond Trust Bank ATM Machine.

A recent survey by industry group GSMA has shown that the success of mobile banking in East and Southern Africa has led to increasing numbers among the world's 2.5 billion “unbanked” gaining access to the service.

Thanks to the fast uptake in Kenya, the practice of using mobile phones to pay bills, transfer money and receive salaries is spreading fast to other parts of the emerging world such as Latin America and Asia - and is now even found in Europe.

GSMA's "live tracker" shows that there are 246 live mobile money services globally, with a further 112 planned. There are over 100 money services in Sub-Saharan Africa, including six in Kenya - although the region’s global market share has reduced year on year from 58 per cent in 2011 to 52 per cent in 2013.

In May of this year, Vodafone, the major shareholder in Safaricom, announced it would be expanding its mobile banking operations into Eastern Europe, launching initially in Romania, but with potential to move to Albania and Turkey.

The service is set to revolutionise areas where traditional banking facilities are limited. In Central and Eastern Europe credit card penetration is below 20 per cent, while prepaid mobile plans are used by 70 per cent of subscribers, giving the region a rich platform for mobile banking firms keen to expand.

And it is not just Europe: the GSMA survey further shows that last year, mobile banking was rolled out in nine new countries, including Ethiopia, Egypt, Brazil and Vietnam. Bangladesh, Pakistan, and even the tiny Pacific island of Fiji have seen numerous services launched.

Of the new markets, Latin America exhibited the fastest growth in live services, with a 53 per cent year on year surge. There are now 33 services available in South and Central America.

“Mobile banking met a need that was already there, while the market at consumer level has been innovative," Eric Muriuki, general manger of M-Shwari at Commercial Bank of Africa, told the Star in an interview on Monday.

"It has tens of applications on the same core idea."

Muriuki said that only 24-30 per cent of Kenya was covered by formal banking infrastructure, and that larger institutions did not have local agents.

On the movement of mobile banking to Europe, he added: "The need in Europe is not as apparent as in Kenya, but what you can do on a [credit] card is not the same as on a phone. A phone is like a small computer.

"There will be a boiling point when they realise they're being left behind."

Apart from geographical expansion, the type of service being used on mobiles has evolved, according to the survey, as the use of "bulk payments" such as salary payments and government-to-person transfers grew.

In Kenya, topping up payments for mobile phone airtime remained the most popular service, but "bulk payments" rose 617 per cent in 2013 to account for one in every 15 payments made.

In 2013, M-Pesa accounted for Sh1.9 trillion in transactions, equal to 60 per cent of Kenya’s gross domestic product, indicating a growing level of institutional acceptance for mobile money.

The success of mobile banking in Kenya has been attributed to the high cost of sending money by other methods, the initially low regulatory barriers, Safaricom's clear and effective marketing campaign (“Send money home”), and the need for a secure money transfer service during the post-election violence of 2008.

Now East Africa is seeing new entrants to the market expand the range of services on offer, while competition in the market place increases. Kenya Commercial Bank's M-Benki, which links M-Pesa's existing infrastructure to KCB's retail accounts, pioneered a new model of mobile banking. Equity Bank is seeking a different route, entering a deal with Airtel to try and disrupt Safaricom's dominance as the mobile banking "middle man".

The company had planned for the service to go live this month, but wrangles over the bank's 'thin sim' has caused delays. When they launch, Equity will place pressure on their competitors to lower transactions fees, as they are set to charge just one per cent of the transferred amount, with a cap of Sh25.

Equity also said it will be offering loans, dubbed Eazzy, on a minimum amount of Sh500, at between one and two per cent interest a month, depending on statistical information held within the phone.

So, in a fast-moving industry it appears it will be consumers who benefit from fierce competition and rapid innovation, a fact reflected by international companies such as Vodafone scrambling to roll out similar schemes abroad.

In a bid for market share Equity even claims to be issuing 300,000 smartphones to supermarkets, restaurants, kiosks, and barbershops free of charge - all call points to facilitate cashless transactions and boost its income from processing payments.

The message is that mobile banking infrastructure is cheap and so uptake across regions can happen quickly.

This means that over time more and more people will be brought into formal banking, crucial for development and macro-economic expansion through access to micro-finance for SMEs, something which is expected to be replicated in other developing and middle-income nations.

The reduction of costs is also a major benefit for businesses. In Kenya mobile banking has reduced costs from the 7 per cent associated with handling cash, to less than one per cent.

The future of mobile banking appears bright, both within Kenya and around the world, and it will remain to be seen what heights the technology first launched in our national heartland can reach.

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