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The East African : June 2nd 2014
40 MOBILE MONEY TRANSFER DEAL Equity-Airtel partnership TURN FROM PAGE 39 by Safaricom — resulting in reduced costs and increased penetration. Equity said it will cap the cost of sending cash at an upper limit of Ksh25 ($0.28) to send money to any network. Safaricom currently charges a maximum of Ksh110 ($1.26). But, while Equity is not expected to offer competition on the voice segment — sources told The EastAfrican that the firm will charge at least Ksh0.1 above Airtel’s current rates — the firm’s primary focus on using the MVNO to grow its share of the payments market could present a challenge to Safaricom’s dominance. “We do not feel these changes will bring about any significant valuedestroying competition. The main competitive focus is likely to lie in the payments space, which is being spurred by regulatory initiatives that focus on e-government,” said Standard Investment Bank (SIB) in a note to investors. Its entry into the mobile money transfer segement, as well as an increase in the product variety of its mobile-based financial services, will help Equity Bank attract smaller deposits and reduce expensive branch-based transactions. Equity Bank does more transactions through agency banking than it does through its branches. Using agencies helps the bank cut costs, and increases customer satisfaction. According to the World Bank, about five per cent of the cost of a loan is due to expensive deposits, implying that mopping up more deposits would cut operational costs for the bank. Equity Bank estimates that as much as 96 per cent of Kenya’s transactions are cash-based. In Safaricom’s estimates, the M- Pesa service handled an average of Ksh100 billion ($1.14 billion) per month — about $30 million per day — in the year to March 2014. The biggest growth came from businessto-persons and persons-to-business transactions, which grew by about 70 per cent compared with the 16 per cent growth for person-toperson transactions. Airtel Kenya CEO Adil Youseffi, Finserve chairman John Waweru, Equity Bank CEO James Mwangi and chief officer-finance, innovation and technology John Staley at the unveiling of the bank’s mobile virtual network operator (MVNO) network at the Equity Centre on May 26. Picture: File Safaricom and Equity see this opportunity for growing businessdriven transactions as key in driving future growth: Companies pay an average of one per cent of the value of each transaction to payments providers — in this case, Safaricom and Equity. To lock in this market, Safaricom has recruited about 120,000 outlets on its Lipa na M-Pesa service— which allows customers to pay for goods and service through MPesa. Equity says it will distribute 300,000 smartphones to merchants, allowing them to process payments from its MVNO and cardholders. “The primary focus is on payments. We want to grow our merchandise payments. Each Sim card we offer will serve both as a debit and credit card,” said Mr Mwangi. “We want to grow our merchandise payments. Each Sim card we offer will serve both as a debit and credit card. James Mwangi, Equity Bank CEO The card payment segment is Equity’s fastest growing business, expanding by an average of 90 per cent per year over the past four years. Currently, the company processes about Ksh1.2 billion ($13.79 million) in merchandise business, generating Ksh40 million ($0.45 million) in earnings per month. The entry of Equity comes at a time when the government is forging ahead with plans to digitise its payment systems and abolish cash payments in the public transport sector. But even as Equity enters the mobile payment market, analysts say Safaricom’s entrenched market dominance will pose a serious challenge for the lender. For example, whereas Safaricom has in excess of 90,000 M-Pesa agents, Equity has just 11,000. Second, going by the poor portability results, it is unlikely that customers will be willing to ditch their current Safaricom Sim cards for Equity’s — though the bank says it will give customers who are not willing to shift to its network the option of adding a thin film on top of their current Sim cards enabling them to use its mobile service. Ha≥monisation of EA ≥ules too slow By STEVE MBOGO Special Correspondent FAILURE TO fast-track harmonisation of regulatory regimes in the EAC has become a major impediment to cross-border trade, slowing down the realisation of the full benefits of the Common Market protocol. Regional business leaders say harmonisation of the various laws is slow, with only Rwanda showing the enthusiasm to move faster. “Delay in the harmonisation of regulatory rules means there is more bureaucracy, which is a business risk, cutting out a lot of opportunities,” said Tom Mulwa, the chief executive officer of Liaison Risk & Pension Consultants, which operates across the EAC. This lack of rules means that, for instance, a Ken- yan insurance company seeking to enter the Tanzanian market must meet all the conditions that a com- pany from say, South Africa, has to meet. Lead health specialist at the International Finance Corporation Khama Rogo said the delay in effecting uniform standards across the region has been one of the key limiters to foreign investment in the region’s health care sector. “Big investors want bigger markets. Rather than go for 40 million people in Kenya, they want to go for East Africa. We should be able to bring on board South Sudan and Ethiopia as one market so that when you register a product here it should be able to move freely across regional borders,” said Prof Rogo. The benefit of allowing big players to join the re- gional market, he said, is that there will be greater competition and therefore costs will come down. Business leaders now want the EAC Secretariat to fast-track various regulatory rules in order to ease the cost of doing business. Banking services are available on smartphones. Picture: File The EastAfrican BUSINESS MAY 31 - JUNE 6, 2014 COMMENTARY Mobile financial se≥vices adopt new technologies TURN FROM PAGE 39 money. In mobile payment services, the money is kept by the banks and the service is provided by telecommunication firms. This causes a yet unsolved problem of how the two institutions share revenues. The mobile handset is never the less emerging as the key device of doing business. Who will be the winners in the market for mobile financial services in the next two years? Will it be telecoms provid- ers that maintain and strengthen their position based on their golden asset, mobile payment platforms that are still walled gardens? Or will it be banks that are launching new user-friendly ways of contactless (small) payments? Or neither of those parties, because a new technology driven entrant will shake up everything — like Google, which already holds a banking licence issued by the Central Bank of the Netherlands? Google may follow the example of China’s search giant Baidu. Baidu Wallet offers interbank transfers for free and lets you pay for online purchases and utility bills. Winning over consumers Investments in innovation will be the key driver for winning the heads and hearts of the consumers. So for all parties, it is more rel- evant to look to the future and see what disruptive innovations need to be anticipated, instead of looking at the present and disputing who should get access to whose conventional assets. Kenyan banks can learn from Garanti, one of Turkey’s largest banks, which offers a free mobile app that gives customers personalised offers and advice based on their location and past spending. The app uses GPS and Foursquare to tell customers if they are close to a store with special offers, provides saving suggestions, and estimates how much customers will have in their account based on past spending. Some progress has been made by the banking sector by developing payments systems based on near field communication (NFC). Consumers swipe a plastic card along a reader to make payments. The telecoms sector is likely to bypass this convenience by applying NFC embedded in a chip in smart phones, as mobile phone penetration rises. NFC chips could also be placed inside “wearables” like a smart watch or a ring. There is also the potential of either (or a third) party picking up innovations that the leading smart device manufacturers are launching, based on biometrics. This would initiate a much broader use of fingerprints to pay for things. All details are held in the cloud and can be accessed wirelessly. Shops are likely to adopt the Bluetooth Beacon technology that allows them to identify customers when they enter the premises. After crossing a store’s “digital fence” payment occurs online, with the cashier simply confirming your registered picture for purchase security. It’s a winning system, because the consumer feels respected and recognised. So why has neither the financial nor the telecommunications sector picked this up? We would overestimate the next two years by predicting a clear winner or winning sector. It’s more likely to become a race where a party from one sector overtakes another from a competing sector. This race is and will be entered by new participants in the telecommunications sector — MVNOs — coming from the financial sector, for which the profitable clientele for mobile financial services is the catch. It will be only after two years that the market calms down, when mergers between parties from opposite sectors will define the new landscape. The winner will then be the party that has the strongest merger negotiation position in terms of client base, customer loyalty and profitability. These will all be the result of timely and customer-centric innovations. Erik van der Dussen is Senior Manager Technology, Media and Telecommunications at Deloitte East Africa and Sadiq Merali is Director, Financial Services In- dustry. The opinions here are not necessarily those of Deloitte EA.
May 26th 2014
June 9th 2014