Equity picks a new fight with Safaricom over M-Pesa fees

Equity Bank Group has written a protest letter to the Central Bank of Kenya (CBK) objecting to Safaricom’s intended increase of charges on bank-to-MPesa transfers, which once effected will raise fees charged on Equitel — its mobile banking service.

Safaricom has been charging banks a flat rate of Sh33 for customers who move money from their bank accounts to their own M-Pesa accounts or those of third parties.

The telecommunications operator has, however, notified the lenders that these transactions will, effective December 1, be charged at the same rate as those incurred by customers sending money from their M-Pesa accounts to other M-Pesa subscribers.

This means that the rate of transferring cash from a bank account to the M-Pesa account will rise sharply for amounts exceeding Sh1,500.
The fees will, for example, rise 233.3 per cent to Sh110 for those moving Sh70,000 from their bank accounts to M-Pesa.

Equity’s new mobile money service Equitel has been hit hardest by the changes, with cash transfers from the platform to M-Pesa rising from the flat rate of Sh33 by up to 266.6 per cent to Sh121 on a transfer of Sh35,000.

While the decision is set to earn Safaricom more revenue on the bank-to-MPesa transactions, Equity sees it as a move to discourage the uptake of its Equitel service as it will now be more expensive to send money to M-Pesa.

“We cannot rule out the increase being a retaliation to the increasing uptake of Equitel, an innovative channel to access the bank made available in partnership with our affiliate Finserve Africa Limited that is licensed by the Communications Authority,” Equity CEO James Mwangi told CBK governor Patrick Njoroge in the letter dated August 28.

Mr Mwangi said the reasons given by Safaricom for revising its charges are calculated at entrenching the use of M-Pesa — the country’s most successful mobile-based financial service — at the expense of viable alternatives.

In a letter to Equity dated July 9, Safaricom says it is responding to rising cases of errors in bank-to-M-Pesa transactions, especially those where people send money directly to third parties without depositing the sums in their own M-Pesa accounts first.

“In particular, there is a cause of concern where money is sent to a wrong M-Pesa account holder than was intended by a customer or where fraudulent transactions are made in favour of a third party M-Pesa account holder unknown to the customer,” Safaricom’s enterprise general manager Rita Okuthe said in the letter.

“In order to reduce incidents of this nature, it is our advice that you strongly consider only facilitating bank-to-MPesa transfers to a customer’s own M-Pesa account in order to discourage the occurrence of the aforementioned incidents.”

Ms Okuthe added that the new tariffs — which lowers fees on transactions below Sh1,500 and raises it on those above it — are an incentive to have customers move money to their own M-Pesa accounts first before proceeding with other transactions thereafter.

READ: Equity offers cheap loans to good borrowers on Equitel

Mr Mwangi, however, argues that the justification offered by Safaricom has no basis and is a ploy to ring-fence M-Pesa.

“The reasons given for the variation in tariffs upwards are neither bona fide nor justifiable. The existence of errors in effecting transfers is not caused by the direct transfer from the bank to M-Pesa as the same errors exist even for transfers from one M-Pesa account to another,” says Mr Mwangi.

“From an operational and risk perspective it is not justifiable that a manual deposit into M-Pesa can be free but prohibitive charges are imposed for electronic transfers that eliminate cash handling risks.”

Equity wants the CBK governor to intervene in the matter, arguing that financial inclusion is at stake.

The bank says the timing of the M-Pesa tariff review and the justifications are suspicious.

Equitel was launched in January, with the lender betting on its large presence in the retail banking market to drive its uptake.

The bank has over 10 million customers whose potential uptake of Equitel would nearly match Safaricom’s active M-Pesa users of about 14 million.

M-Pesa has grown exponentially since its launch in March 2007, transforming from a cash transfer platform to a financial services product enabling users to pay bills and buy goods.

Safaricom’s revenues from M-Pesa grew 23 per cent to Sh32.6 billion in the year ended March, making it the second most important earnings stream after voice, which rose four per cent to Sh87.4 billion.

For Equity, Equitel offers a chance to earn more on transactions as well as grow its basket of more efficient delivery channels, including ATMs and Internet banking.

The bank had signed up one million Equitel users as of June, doubling the half a million subscribers it had in the first month.

The bank sees mobile banking as an important value-add that also serves to cut costs by eliminating the need for customers to visit banking halls for ordinary transactions like withdrawals and cash transfers.

READ: Equitel eats into Airtel's mobile customer base

The value of Equity’s mobile banking transactions stood at Sh42.3 billion in June, rising nearly eight times from Sh5.4 billion in January. The volume of the transactions increased nearly seven times to 77.7 million from 11.3 million in the same period.

Loan disbursements through the bank’s mobile banking rose steadily to peak at Sh2.4 billion in value and 623,171 in volumes in June.

Equitel took a 1.9 per cent market share in Kenya’s mobile subscriptions in the first quarter, ranking fourth after Safaricom (67.1 per cent), Airtel (20.2 per cent) and Telkom Kenya (10.8 per cent).

Besides mobile banking, Equitel offers telecommunications services through a partnership with Airtel as a mobile virtual network operator (MVNO).

The partnership is to be expanded to other African markets, including the Democratic Republic of Congo where Equity is set to close the acquisition of the ProCredit Bank Congo for Sh5.8 billion.