Financial sector gets edgy as telcos plan how to convert phones into savings accounts

A year ago, the finance and telecom markets were abuzz with the anticipated entry of several new players into the mobile money transfer service.

Keen to catch up with the gains made by Safaricom’s M-pesa — which currently boasts of about nine million subscribers and has transferred over Sh352 billion since its launch in 2007 — several players had planned to roll out similar products. That was not to be.

However, as the market leader M-pesa quietly celebrated its third anniversary a week ago, shifts were taking place in the industry that could shape the future of the mobile money transfer service.

Threatening to stir the status quo, the UK Department for International Development (DfID) — the same outfit that gave a grant to Safaricom’s parent company Vodafone to develop M-pesa — was mulling a Sh923 million mobile money transfer solution that could introduce the concept of a mobile phone savings account.

This comes at a time when existing solutions such as M-pesa and Zain’s Zap are gaining more ground in the transfer of small amounts of money even as they continue to capture the interest of commercial operations keen to cut down on transaction costs.

Analysts say the mobile money transfer business looks set for a fresh battle with the changing market trends adding that the DfID’s announcement renews debate on the mobile phone’s encroachment into the financial sector.

“This is definitely something we will have to watch out for since it might have a big impact on the financial industry should it be adopted,” said John Wanyela, chairman of the Kenya Bankers Association.

Financial inclusion

A true marker that the mobile phone is now considered a financial inclusion tool, the new service will allow users to deposit money into mobile accounts rather than just transfer small amounts between handsets.

Mr Wanyela said that although Kenya had emerged as a vibrant market for mobile based financial solutions due to its loose regulatory framework, the industry regulator, the Central Bank was continually monitoring the sector to assess the potential of the mobile phone.

“Currently the CBK is carrying out an industry review and the sector is contemplating the introduction of agency banking in a month’s time,” he said.

Conceptualized in partnership with CGAP, a micro-finance centre based at the World Bank, the DfID initiative seeks to expand the use of mobile phones to increase access to basic financial services for the poor.

“The idea that a mobile phone could replace a bank branch has gone from concept to reality at an amazing pace. It’s time to get beyond the early excitement of the past few years and shift into the build-out stage for mobile money so that millions of poor people everywhere get access to formal financial services,” said Stephen Rasmussen, manager of the CGAP Technology Programme.

The launch is informed by data gleaned from a CGAP survey in 2009 which showed that there are 2.7 billion people globally who do not have basic banking services.