Markets & Finance

Banks launch firm to take on M-Pesa’s mobile cash dominance


Kenya Bankers Association (KBA) chief executive officer Habil Olaka. PHOTO | DIANA NGILA

Commercial banks have set in motion plans to set up a mobile money transfer platform, taking the battle for the fast-growing transaction revenues to the doorsteps of telecoms operator Safaricom’s M-pesa.

The Kenya Bankers Association (KBA) yesterday unveiled Integrated Payments Service Limited (IPSL) — the company that will facilitate direct transfer of money between banks without going through M-Pesa.

KBA chief executive Officer Habil Olaka described the platform’s launch as a key step towards creating an inter-operable mobile money transfer platform for all banks.

“The switch is exploiting a gap that has existed in the bank-to-bank payment system. It enables a P2P (person to person) funds transfer in real time where a customer in a bank can ‘push’ funds to the bank account of another in a different bank in real time,” Mr Olaka said.

KBA has been registered as the owner of IPSL on behalf of all 43 banks and will remain the key driver of the Kenya Interbank Transaction Switch that will facilitate money transfer from bank to bank.

Founded under the Central Bank of Kenya’s (CBK) National Payment System (NPS) guidelines, IPSL is expected to interconnect all banks, cutting the transaction costs to customers while keeping the revenue earned among the banks. 

The switch company will be in charge of receiving any new bank/branch registrations, monitor connectivity between banks and the switch as well as act as an arbiter in case of any disputes.

The company will also be in charge of registering users for P2P service (account-based transactions), setting up online interface configuration parameters (IP address, port) for customer connection with banks as well as providing routing switch for P2P transactions (authorisation process).

The switch will also maintain the look-up table, provide guidance for processing fees and set up SMS and e-mail notification template preparation for alerts.

Mr Olaka said the firm will inform policy direction and manage risks associated with electronic payment systems in the market, while providing technical and related guidance to KBA member banks.

IPSL is also expected to drive financial inclusion efforts by opening diversified commercial banking delivery channels, including mobile and Internet-based platforms as Kenya gears to become a cash-lite economy in line with the global digitisation trends.

The launch of the joint switch plan has been suspended twice — the last timeline having elapsed last month.

Rare show of unity

Commercial banks hatched a plan to established a mobile phone-based direct money transfer system more than three years ago in the heat of financial pressure from growing mobile money service providers, who have been eating into their transaction fees revenue.

In a rare show of unity, the local lenders resolved to set up their own money transfer switch that will enable any mobile phone owner to send and receive money without relying on any mobile money service owned by the telecoms operators.

The recipient of money transferred through the new platform will receive a code from the sender and use the code to make payments to another person’s bank account or withdraw the cash from the banking agents.

A key plank of the commercial banks’ plan is to open the cash by code service even to customers with no bank accounts. Users will be able to bypass mobile money accounts such as M-Pesa or Airtel Money and deliver the text directly to individual mobile phone numbers. Both the sender and the receiver will get a code.

The recipient will get an SMS with a numeric code, reading, for example, “You have received money. Kindly go to any bank agent, ATM or branch to withdraw using this 873921. Request the Sender for the additional 3-digit code.”
The sender will on the other hand receive a three-digit code which they will forward to the receiver for use to withdraw the money from a bank branch, bank agent or ATM. The code can also be used at a merchant location to pay for goods and services.

KBA believes the new service will cut e-money transaction fees, relieving customers of the financial burden.

“The plan should yield lower transaction fees. Currently it costs Sh55 to move Sh2,700 through Safaricom’s M-Pesa,” KBA said, adding that it aims to fix its transactions fees at Sh20 for a similar amount.

The price per transaction based on the business case is estimated at Sh2.50. This will gradually decline at an annual average of 10 per cent and by year six to Sh1. The SMS will cost Sh2.

CBK data show that Sh2.312 trillion was transacted through mobile phones in the 10 months to October 2015 and the figure is expected to rise with increased mobile money subscriptions and the entry of Equity Bank in the mobile money market.

The establishment of a company to run the new money transfer platform adds yet another feather to Kenya’s financial innovation cap after M-Pesa.

Last year, Safaricom corporate affairs director Stephen Chege reckoned that the bankers’ plan would not shake the telcoms operator’s M-Pesa service, describing Kenya’s payment market as “nascent and still growing”.

“This is an expected development as it is provided for in the National Payments Systems Act and the Regulations thereunder.

Safaricom believes that there is room for more innovative solutions in the payments space,” Mr Chege said.