Zain targets global cash transfers with mobile offer

The balance of power within the money transfer market has tilted further in favour of mobile service providers following the launch of a new service that will allow mobile subscribers to send and receive money from any bank in the world for just Sh10 using their mobile phone.

Mobile service provider Zain has enhanced its mobile money transfer product, Zap, to allow any of its five million customers within the three countries where the service is active – Kenya, Uganda and Tanzania - to transfer money in seconds using the mobile phone platform.

Users can now receive money from anywhere in the world directly to their mobile handsets as well as send funds directly to their bank accounts.

“We have received full approvals for the service in East Africa and some countries in West Africa from the respective financial regulators. This means a relative in Washington D.C can send money from their bank account to a Zap customer in Nakuru who will receive it almost instantly,” said Mr Rene Meza, managing director of Zain Kenya.

The evolution of Zain’s mobile commerce product into an international money transfer service will have several implications for players in the global telecommunications and financial industries.

The likely casualties of Zain’s latest move are expected to be formal banking institutions and traditional money transfer agents such as PostaPay, Western Union and MoneyGram.

Inter-bank transfers can account for up to 20 per cent of a bank’s profits, costing anything from Sh500 upwards to send money to foreign accounts.

On their part, money transfer agents typically charge as much as three times more than Zap, which offers transfers of any amount for a flat fee of Sh10.

Within Kenya, traditional money transfer providers like Western Union and MoneyGram were already beginning to feel the effects of M-pesa, Safaricom’s mobile money transfer solution.

A recently released CGAP report revealed that mobile money transfer services had eaten into the profits of the two operators as the services were typically cheaper and faster.

According to the firm’s research, use of formal transfer services has halved in the last year as corresponding use of mobile transfer services increased, with M-pesa and Zap now facilitating half of the transfers in the country.

Zain said it and its international and regional banking partners were confident that Zap will increase access to banking services in Kenya, Tanzania and Uganda, where formal banking services are largely restricted to urban populations.

Eighty per cent of Kenya’s population and ninety-five per cent of Tanzania’s and Uganda’s populations currently do not have access to banking services.

“This has the potential to transform banking in Africa and will help overcome many of the obstacles presented by providing banking services to remote and rural communities who are now able to access global funds swiftly,” said Mr Bhartesh Shah, general manager of Retail at Standard Chartered Bank.

Zain’s achievement also propels the company to the forefront of the race to globalize mobile transfer solutions.

The push to create a solution that could allow people abroad to send money to mobile phones using money transfer platforms have so far been delayed by security and policy barriers.

M-pesa, which has been attempting to set up a service between Kenya and the UK for over a year, is still in its trial phase, although market sources indicate it could be approved in weeks.

While M-pesa’s will be an extension of its local service, which allows transfers between M-pesa accounts, Zain’s allows transfers between bank accounts, which are then accessible on Zap.

Zain’s move is likely to increase the share that mobile operators hold in the transfers business as it will enable the firm to tap into the lucrative international remittance market, which is currently worth $268 billion.

Analysts said the launch of the international Zap service would also create new synergies between the financial and telecommunications industries.

In order to roll out the service, Zain is relying heavily on the banking industry, through its partnership with Standard Chartered and Citigroup.

The two banks will process transactions using existing relationships with banks all over the world.

In order to operate the new service, Zain will pool funds in an account held at Standard Chartered under the name Zap Trust Company. It is into this account that any deposits or withdrawals between banks are made, before the Zap system forwards the virtual money to a Zain subscriber on their Zap accounts.

George Held, the products and innovation director at Zain Group, said that regulatory issues such as how much can be transferred on the service are being worked out on a country-to-country basis.

“We are riding on the existing banking infrastructure. The money moves from the Zap system to Standard Chartered, which then transfers money to any world on a secure platform,” said Mr Held.

Mr Held said that at the moment, transactions fall within the standard Zap limits of Sh100 to Sh35,000, but that figure could increase if it falls within regulatory windows of the countries.