M-pesa deals with banks push agents into a tight corner

Safaricom’s tie-up of its money transfer service M-pesa with commercial banks is set to diminish the earnings of commission agents while lowering the cost for consumers and the firm.

While the telco pays the retail agents between Sh8 and Sh70 per transaction, commercial banks that offer the same services charge fixed commissions.

Safaricom is likely to save millions of shillings working with banks, say analysts, who add customers in the urban areas and enjoy increased access to ATMs will get more efficient services.

In an earlier interview, Eric Musau, a financial analyst, said that with the partnerships, the telecoms operator is looking at a long-term strategy to reduce its spend on agent commissions and run a more efficient outfit.

Safaricom has signed deals with banks like Family, Equity, and KCB that allows M-pesa subscribers to transact without the need for assistants.

Through such arrangements, users can deposit or withdraw from M-pesa accounts at ATMs or straight from mobile phones in the newly launched M-Kesho, a virtual bank account pioneered by Safaricom and Equity Bank.

Equity and Family take fixed commissions of Sh30 and Sh40 respectively for each M-pesa transaction, irrespective of the amount withdrawn.

The ceiling is Sh35,000 withdrawal in a day.

George Wainaina, CEO of Kenswitch, said the service eliminates the three-step process of withdrawing money from an ATM, “then looking for an agent to deposit the money into your M-pesa account, and transferring the money.”

Taking the traditional approach, withdrawing money from an ATM is either free or costs about Sh30 with certain banks, depositing into an M-pesa account is free, while sending the value to a registered user costs Sh30.

A recipient pays Sh25 and Sh170 for withdrawals between Sh100-Sh2,500 and Sh20,000-Sh35,000 respectively.

This means that an end-to-end transaction using the three-step process costs at least Sh30 more than accessing M-pesa services at a bank ATM. Most of the banks charge normal M-pesa fees.

Analysts say the new M-Kesho platform is, by far, the biggest threat to traditional agents.

First, the service is targeted at the economic bottom of the pyramid — the same target of M-pesa — that are likely to snap it up out of convenience.

Persistent shortage

M-Kesho is a mobile-based bank account that provides for a seamless movement of cash between an Equity Bank account and M-pesa.

The product, just like its rival ‘KCB Connect’, is likely to grab services from the agents.

“We are likely to see more virtual transactions in which value moves from the banking system to the mobile platform,” Mr Musau said.

This means that banks are now competing with ordinary agents on two fronts — ordinary agency business and by reducing the need for cash.

Besides, banks have their moneybags as an advantage.

Ordinary telecoms agents suffer persistent shortages of float — the amount of money kept with an appointed dealer to facilitate transactions.

Banks on the other hand have no such problems and offer access to cash round the clock, further boosting their appeal.

Since the agents may have limited cash for (sometimes urgent) transactions, they prefer customers seeking smaller amounts of money, which translates into high commissions from more volumes.

This, among other hiccups, is likely to reroute customers seeking high value transactions to the banks where they run self-service and minimise chances of disappointment.

However, rural agents, due to limited access to ATM services, will have to continue enjoying a more secure business environment save for possible increased competition occasioned by urban operators moving from towns.

Value-added product

In October last year, Safaricom revised its agent commission structure in a bid to encourage high value transaction by paying more for these.

Withdrawing or depositing cash of between Sh20,000 and Sh35,000 earns the highest commission of Sh70. Handling deposits of a similar range earns Sh40.

For Safaricom, a cheaper and efficient M-pesa service is more a means of perfecting a value-added product to protect its pole position in the competitive mobile telephony market than as a revenue source.

In 2009, Safaricom earned Sh1.5 billion from M-pesa, representing 2.1 per cent of total revenue for the financial year.