Equity, Co-op win race for control of diaspora cash

Equity and Co-operative banks rode on their large presence in retail banking market to gain control of the diaspora remittances, according to the latest Central Bank of Kenya data.

Each of the two banks handled Sh1.1 billion or 12.3 per cent of the Sh8.9 billion remittances in January, opening a new revenue stream that helped propel the growth of their deposits and transaction incomes.

The data are in line with industry trends that have given lenders with large customer base and branch network an edge over their rivals in the multi-billion-shilling international money transfer market.

“Banks with large numbers of retail customers and footprint are well positioned for control of the inward remittances market,” said Gideon Muriuki, the chief executive of Co-op Bank that has 3.5 million customers.

“More customers mean you handle a high volume of the remittances and a widespread presence offers convenience for recipients of the cash,” said Mr Muriuki.

KCB — another large retail bank — finished behind Equity and Co-op with Sh1 billion or 11.2 per cent market share.

The battle for control of the diaspora remittances market has intensified in recent times as the lenders jostle for a share of the transactional income that has become a multi-billion-shilling revenue stream.

(Read: Kenyan companies rush to tap diaspora market)

The revenue comes in the form of fees that recipients of the fees pay banks for the transfers.

Equity, with eight million customers, earned Sh2.3 billion in transactional fees in 2011 or 22 per cent of the bank’s Sh10.3 billion net profit for the year.

For most of the lenders, the remittances also help build their deposits. The money is mainly used in short-term lending activities or to strengthen the lenders’ liquidity position.

KCB, for instance, opened 300 accounts worth millions of shillings for Kenyans living in the UK in the run-up to the London Olympics last year.

In the past three years, top banks have deepened their foray into the remittances market with the development of products and services targeted at investment needs of Kenyans in the diaspora.

The products include advisory and facilitation of transactions such as purchases of property, stocks, and fixed income instruments.

The diaspora market has also offered the lenders the opportunity to sell multiple products, giving an edge to the most diversified institutions.
KCB and Co-op, for instance, offer retail banking, mortgages, and investment or wealth management services to Kenyans living abroad.

A steady growth in remittances cash has seen banks like KCB and Co-op establish departments that exclusively cater to the diaspora market. The latest data show that the effort is starting to bear fruit.

Diaspora remittances rose by 31.2 per cent to Sh93.5 billion last year compared to Sh75.7 billion in 2011 and have more than doubled from a base of Sh49 billion in 2007.

(Read: Diaspora remittances rise on US economic recovery)

Northern America accounts for half of the total remittances followed by Europe at about 30 per cent. The rest of the cash comes mainly from Africa and Middle Eastern markets.

CBK data, however, shows that the remittances market is dominated by large retail banks or those that have strong partnerships with money transfer firms such as Moneygram.

Diamond Trust, which focuses on the SME market, is ranked fourth after KCB, having handled Sh800 million worth of remittances in January riding on multiple partnerships it has formed in the global money transfer space.

DTB has signed deals with Moneygram, Western Union, and NationHela — a money transfer service owned by the Nation Media Group.

Western Union, one of the oldest providers of international cash transfers, finished fourth with Sh558 million worth of remittances in the same period.

Safaricom, which has taken its M-Pesa service global, finished in the 15th position having transferred Sh126 million mainly from the UK.

Barclays Plc used its recently launched money transfer service Pingit to transfer Sh382 million leaving its local subsidiary in the ninth position. Pingit is a mobile-based service that allows customers to send money to each other.

Barclays is using the free money transfer service to attract retail customers and grow its deposit as it consolidates it subsidiaries in Africa.
The bank is in the final phase of a consolidation process that began four years ago and is expected to raise its share of the remittances.

Barclays announced last November that it is establishing a back office centre in Kenya that will link and process transactions in Sub Saharan Africa.

Insurers, who make most of their money from investing, are targeting Kenyans living abroad with investment products that are linked to the real eastate market.

The underwriters are also offering insurance covers to businesses and locally based relatives of Kenyans living abroad.

The battle for control of the remittances market is expected to intensify as the battered global economy recovers raising the earnings of Kenyans in diaspora.

“The volumes can rise further if Kenyans in the diaspora find reliable means of investing their money. Many complain of being ripped off by relatives,” said Nelson Kuria, the chief executive of CIC Insurance.

CIC, which plans to develop its 200-acre estate in Kiambu, says Kenyans in the diaspora have expressed interest in 300 of the planned units.
Property is the most preferred investment class by Kenyans abroad targeting profit from rents or capital gains.

Returns from Kenya’s property market have weathered the global economic downturn to remain stable — staying ahead of volatile equities and bonds.

Kenyans in the diaspora have relied heavily on friends and relatives to buy or build houses, exposing them to major financial losses when the money is diverted to other uses.

CIC is offering insurance cover to businesses and relatives of Kenyans abroad for whom it is also identifying investment opportunities, said Mr Kuria.

KCB, the largest mortgage financier, is also pitching investment opportunities in the real estate market to Kenyans living abroad while Equity has signed a deal with mobile phone firm Essar that allows its account holders to receive international remittances through the yuCash transfer platform.

[email protected]