Mobile money transfers edge out rival operators

Pre-tax profits soared to Sh186.3 million while total revenues climbed to Sh383.2 million in 2007/08 – its first full year of operation that also coincided with the launch of M-pesa.

A forensic audit of PostaPay early this year, however found that gross commissions had plummeted to Sh91.6 million leaving the business with an estimated pre-tax profit of Sh13.8 million in the first six months of 2008/09 fiscal year.

Safaricom’s financial report shows revenues attributable to M-pesa increased to Sh2.93 billion (4.1 per cent of the company’s total) in the financial year that ended in June.

“Competitors such as Zain and Safaricom offer substantially lower transaction fees compared to PostaPay,” says the forensic report done by consulting firm Deloitte.

Deloitte reckons that available information shows that profit margins for MoneyGram and Western Union’s money transfer services have been on a steady decline in the past three years.

Financial services sector analysts say operators of local money transfer businesses face an uphill task competing with the mobile phone-based operators and will have to be innovative to survive the cut-throat competition.

A big selling point for the mobile operators has been their relatively low transaction costs. While it costs at least Sh550, Sh300 and Sh200 to send Sh10,000 using MoneyGram, PostaPay and Western Union respectively, M-pesa charges about Sh105 for similar transactions.

The blistering price competition forced Western Union to cut its charges for local money transfers in June.

“The adjustment in pricing to address this specific target market ensures that we are priced well,” said Karen Jordaan, Western Union’s regional director for Southern and East Africa. But even a slash in transaction costs to match the mobile companies’ rates does not fully address the convenience advantage that mobile phone transfers offer.

“Many people, especially the young, do not want to be bogged down by tedious processes,” says George Okech, a marketing manager at Paynet Kenya, which also runs an electronic funds transfer business. “Players in this industry will have to be innovative to survive.”

Paynet has partnered with Safaricom to offer M-pesa users who wish to draw money from its ATMs card less transactions.

Currently, international money transfers offer MoneyGram, Western Union and PostaPay competitive edge over the mobile phone providers.

Safaricom’s application for authorisation for an international operating licence from UK authorities hit a snag last year, but the company has since entered into a transfer agreement with Western Union to get over the hurdle.

Business models used by the mobile phone operators that leave agents with the responsibility of settling all claims from own revenues has also limited growth of mobile money transfers – especially in rural areas.

This is mainly because most rural-based M-pesa and Zap transactions involve withdrawal of money sent from urban-based relatives and friends with very little deposits to settle the claims.