Will the real banks, please stand up?

To balance the bias towards withdrawals at rural centres, there must be complementary products to encourage rural m-banking users to either keep more money in electronic form or to deposit more cash into the system.

One obvious way would be to incentivize deposits into the system in the form of savings.

Savings can be encouraged by offering interest or other benefits.

Unfortunately, as Safaricom is not a licensed financial institution, they are restricted from earning interest on the deposits in M-Pesa, and are therefore unable to pay interest out to users.

In fact, to avoid too much attention from banks and regulators, Safaricom avoids advertising the deposit holding capability of their system, branding it only as a money transfer mechanism.

Besides savings, users could be disincentivized from cash withdrawals by allowing more cashless transactions to occur. For example, consumers could be encouraged to make payments for goods and services through M-Pesa instead of cash.

While this is occurring on a small scale, either informally or through M-Pesa’s bill pay system, Safaricom faces specific challenges to growing this functionality of the service.

For one, M-Pesa was developed by Vodafone specifically for peer-to-peer transfers from one phone to another.

The system has not been designed well as a customer-to-merchant framework.

Such a framework would require merchants to easily generate payment prompts to their customers through existing systems and then reconcile the payment with their inventory and accounting systems.

It would also require that merchants be allowed to easily open institutional accounts with M-Pesa that sidestep the KSh 35,000 deposit limit.

While this functionality could be developed, Safaricom does not actually own or control the M-Pesa platform, instead licensing the M-Pesa software from Vodafone.

This means they do not have the access or rights to create and distribute the supplementary tools that would integrate with merchant’s systems or to otherwise adjust the system to facilitate merchant interactions.

An opportunity therefore exists for an institution which can offer savings incentives and create a flexible technology platform to provide mobile banking services with lower agent management costs than Safaricom.

The associated cost savings would give such an organisation the ability to offer a lower tariff structure to end users while providing a more viable agency proposition to remote areas of Kenya.