A venture of this scale takes a while to put together – around a year in this case , but the timing of its launch was, if accidental, also incredibly useful: Safaricom’s protest against part of the new regulations was accompanied by a lot of noise in both established media outlets and on social media whether the CCK’s introduction of de-facto price controls was justified to counter the mobile operator’s market dominance. Just two weeks later, the M-Kesho product launch quickly changed the narrative:
In a partnership with Equity Bank, Safaricom introduced a new bank account called M-Kesho, a mass-market bank account that is integrated with Safaricom’s M-Pesa mobile money service:
- Account holders can make transfers to, and withdrawals from the M-Kesho bank account through their M-Pesa account.
- It offers safe savings facilities: Deposits in the M-Kesho account accrue interest from 0.5% p.a. up to 3% p.a., and funds are protected under the deposit insurance scheme.
- Subject to vetting and a six-month track record on either service, account holders can, for a fee, obtain small loans between KES100 and KES5,000. These have to be repaid in full within 30 days, so they effectively act as a short-term overdraft facility – something that is typically difficult to obtain in Kenya’s financial sector, especially for small retail clients.
- In addition, clients can use M-Kesho to buy insurance. For this purpose, Equity Bank and Safaricom have teamed up with Britak. Payments can be made weekly, monthly or annually.
Mobile to Banking
M-Kesho is a new bank account: Equity Bank clients will not be able to use their existing bank account for this. And the sign-up requirements are a little more demanding than for M-Pesa, for which an ID is sufficient. Although Equity Bank vets clients and reserves the right to reject them, the tie up will provide many M-Pesa subscribers with access to broader financial services than just an electronic wallet and a payment system, and provides some distinct advantages for both companies and their clients:
- If subscribers have some money left in their M-Pesa account at the end of the month, they can move the funds into their M-Kesho account to save. In addition to a modest interest on savings in the account, simply the fact that money can be moved out of the M-Pesa ‘electronic wallet’ and away from daily spending pressures can encourage savings. In addition, whilst payments from M-Pesa into the account are free, withdrawals incur a fee.
- For Equity Bank, the customer acquisition potential is significant: As long as clients make their way to a branch once to sign up for the account – confirmation of account processing is done via sms –, they will not have to enter a branch again. The network of M-Pesa agents outnumbers the Equity branch network by far, and so the co-operation gives Equity a hugely attractive outreach into rural areas. Safaricom also adds to the network that can process bank account applications by turning some of its outlets and M-Pesa agents into M-Kesho agents. At the moment, the company has 300 M-Kesho agents, but aims to increase this number to 5,000 by the end of July 2010.
- Safaricom will receive a small part of the revenue, but does not look at the bank account as a key revenue earner – the focus is, says Safaricom CEO Michael Joseph, client retention. This will become even more important once number portability is introduced in Kenya, planned to happen before the end of 2010. If clients’ phone numbers are tied to their M-Pesa account and now also a bank account, there is little incentive to take this number to another operator as this would cut off both M-Pesa and M-Kesho.
Perspectives: Changing Market Dynamics
Safaricom’s M-Pesa product had been a game changer, not just for the company itself, but also in setting an example for how services can be offered profitably to a low-income mass retail market. As a mobile operator, however, and lacking a banking license, the scope of financial services that the company could offer was necessarily limited. Enabled by the new agent banking legislation, the partnership with Equity Bank overcomes this limitation and will strengthen both companies’ market position. Safaricom aims to enter into more bank co-operations in a year’s time.
Two wider implications stand out:
- An indication how the nascent mobile money market can develop: When M-Pesa was launched, there had been allegations that banks were hostile to M-Pesa as it would eat into their clientele. Safaricom always argued that they were targeting a different, low-income clientele that banks had, in fact, not considered worthwhile. In addition, the mobile operator began to draw banks into the M-Pesa system by using them as super-agents. The co-operation with Equity Bank indicates that mobile payments can, indeed, integrate rather than compete with financial institutions, and widen the scope of the formal financial sector.
- A public good: Keeping money in an M-Kesho account rather than on the MPesa account means that it enters the formal financial system and can be put to work: Equity Bank stands to collect significant funds that the bank can then use to lend to its clients. Such intermediation deepens and broadens the formal financial sector.
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