The Central Bank of Kenya (CBK) has given six banks the green light to launch a mobile money transfer platform, heralding a new dawn in the highly competitive and lucrative financial services market segment.
The Kenya Interbank Transaction Switch, which has been developed by the Kenya Bankers Association (KBA), will, among other services, facilitate real-time transfer of money between banks without going through mobile money platforms that are owned by the three telecom firms.
Habil Olaka, the KBA chief executive, said half a dozen of the association’s 43 member banks have now received regulatory approval to pilot the product and sign up customers in preparation for its launch in the next two months.
“At the moment, about six banks have received approvals to launch the product. Approvals started coming in around two weeks ago,” Mr Olaka said.
“We started operating the system on a pilot basis towards the end of last year and will now move to incorporate the approved banks and their customers as and when they receive the go-ahead,” said Mr Olaka.
Co-op Bank, Family Bank, Diamond Trust Bank, Consolidated Bank, KWFT, NIC Bank, Paramount Bank, Guardian Bank, First Community Bank, Spire Bank and Stanbic Bank are in the list of 22 institutions taking part in the trial phase.
The real-time, round-the-clock platform, to be operated by KBA’s Integrated Payments Service Limited (IPSL), promises to cannibalise cheques, which take at least two working days to clear and to increase competitive pressure on mobile money products such as M-Pesa, Airtel and Orange Money.
It should also reduce reliance on real-time gross settlement (RTGS) systems that process payments between 8am and 3pm on weekdays, but reflects on receiving accounts after four hours or more.
“Once a bank gets approved, they immediately start onboarding customers onto the system,” Mr Olaka said, adding that clients will have to visit their individual banks to get on board the service.
“We expect to launch the platform in about eight weeks, or even less, depending on how comfortable we shall be at the time. We do not need to get all 43 banks on board in order to go live; we simply need a critical mass of customers.”
KBA had planned to launch the switch last August but this failed to happen following delays in getting the green light from the regulator.
Member banks submitted applications to the CBK to approve products they plan to provide through mobile, Internet, over-the-counter, agency networks, ATMs or a combination of them.
Founded under the CBK’s National Payment System (NPS) guidelines, the IPSL is expected to interconnect all banks, cut transaction costs while keeping the revenues earned from such transactions among the banks.
The switch company will be in charge of receiving any new bank/branch registrations, monitor connectivity between banks and act as an arbiter in case of any disputes.
It will also provide guidance on processing fees and set up SMS and email notifications.
Three years ago
Commercial banks conceptualised the platform more than three years ago in the heat of financial pressure from Safaricom, Airtel, Telkom Kenya and Equitel, who have been eating into their transaction fees revenues with mobile money products.
The lenders resolved to set up their own money transfer system that would enable any mobile phone owner to send and receive money without relying on the telecom operators.
“The new system will enable customers make one direct transfer between accounts without having to go through several systems such as mobile money wallets, which charge you at every stage,” Mr Olaka said, adding that anybody transacting Sh500 and below will not pay any fees.
“Customers will be able to push money between different accounts and the funds will reflect within 45 seconds. These are some of the system’s efficiencies,” he said.
KBA last year said its members would charge about Sh20 to transact Sh2,700, which is, for instance, slightly more than half what market leader Safaricom charges to move a similar amount through M-Pesa.
The recipient of money transferred through the new platform will get a code from the sender and use it to make payments to another person’s bank account or withdraw the cash from banking agents.
A key plank of this plan is to open the cash by code service to customers with no bank accounts.
Users will be able to bypass mobile money accounts such as MPesa or Airtel Money and deliver the text directly to individual mobile phone numbers.
KBA Tuesday said it had tapped Jennifer Theuri, an executive from an American electronic payments firm, to head the IPSL.
Ms Theuri has previously worked as a senior account director at VeriFone Mobile Money where she oversaw the roll out of mobile "tap and go" payment solutions at retail stores across Africa.
The bankers’ lobby also appointed Michael Mbuthia as chief information officer. Mr Mbuthia worked for seven years as head of IT risk and controls at Co-operative Bank and also serves as a lecturer at Strathmore University.
Paul Munguti, formerly head of projects and service delivery at Kenswitch, is now products manager at the bankers’ mobile money unit.