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Safaricom takes on banks with cross-border cash transfers

A Safaricom agent carries out an M-Pesa transaction. Photo/FILE
A Safaricom agent carries out an M-Pesa transaction. Photo/FILE 

The Central Bank of Kenya (CBK) has awarded Safaricom a cash remittance operating licence, enabling the telecoms giant to transfer money out of the country and opening new markets for its popular mobile money transfer service, M-Pesa.

Safaricom’s acquisition of the new licence enables it to take the battle for outward remittances to the doorstep of commercial banks and forex bureaus that have traditionally acted as agents for global money transfer providers such as Moneygram and Western Union.

Betty Mwangi-Thuo, the general manager financial services at Safaricom, told the Business Daily that the new licence opens the door for M-Pesa to offer outwards cash transfer services it could not offer previously.

The firm’s cross-border operations have been restricted to cash inflows.

“The biggest benefit to us (Safaricom) is that we will now be able to transfer money out through partners, which was not possible before,” she said, adding that Safaricom will need to sign agreements with partners to offer M-Pesa services in the new markets.

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The new service area means Safaricom must also come up with commercial rates for remittances across the borders, a task Mrs Mwangi-Thuo said is yet to be done.

“We are yet to come up with the tariffs. However, consumers should expect M-Pesa rates to be competitive,” she said.

Safaricom has been offering one sided international cash transfer services under a licence that only allowed it to move money into Kenya through partners such as Western Union and MoneyGram.

Under the old licensing terms, Safaricom was not allowed to handle outward cash transmission even to neighbouring Uganda or Tanzania.

This legal constraint drove part of the money transfer market underground where unscrupulous traders offered illegal M-Pesa services in countries such as Uganda in response to demand from the large population of Kenyan students who depend on remittances from their parents or guardians.

The acquisition of the new licence comes at a time when Safaricom has intensified the uptake of M-Pesa services such as Lipa Na M-Pesa, and as two mobile virtual network operators Equitel and Tangaza prepare to enter the mobile money transfer market.

M-Pesa is a pivotal arm of Safaricom’s operations that has helped sharpen the telecom giant’s competitive edge by locking in a huge chunk of subscribers.

Safaricom has successfully grown M-Pesa subscriber base to 19.95 million from 14.9 million in 2012 and a large network of agents that now stands at 80,335 from 39,401 in 2012.

In the six months to September Safaricom generated Sh15.6 billion revenues from M-Pesa.

The CBK introduced money transfer operator licences last year to calm fears of their use as avenues for money laundering and financing terrorism.

Kenyan law defines money transfer business as “a service for the transmission of money without any payment accounts being created in the name of the payer or payee.”

Kenya has 10 licensed money transfer service providers, including Dahabshill -- the first licensed operator.

Others are Kendy Exchange, UAE Exchange, Continental Money Transfer, Bakaal Express and Kaah Express. Most of the service providers were forex bureaus that converted to remittance service providers under the new law.

Milestone

Telecoms operator Airtel Kenya -- through its parent firm, Bharti – in October announced plans to launch cross-border mobile money transfer operations in Kenya, Tanzania, Uganda and Rwanda subject to getting regulatory approvals from the four countries.

Full commercial launch of the services across the region is expected in the next one year.

Airtel Money head Chidi Okpala told the East African Business Summit in Rwanda last month that the service is a “key milestone… because a big virtual barrier has been removed and customers will be able to transact with ease across borders”.

The Airtel service came eight months after Tanzania telecoms operator Tigo launched cross-border money transfer services between Tanzania and Rwanda.

Money transfer operators are required to hold a minimum capital of Sh20 million and an insurance bond of not less than Sh5 million.

Diaspora remittances have become a new battlefront in the financial services sector where transactional commissions, foreign exchange earnings and cheap deposits for banks have become big revenue earners.

The CBK requires all institutions transferring money to be licensed as money remittance providers, banks, microfinance institutions or the post bank.

The Kenyan diaspora has mostly used banks as the preferred medium of sending money back home but the market has attracted new entrants, including Saccos.

Data from the CBK shows that Sh606 million was transferred in the first three months of the year to March 2014 through Safaricom’s M-Pesa. Saccos, through the IRNET system, remitted more than Sh60 million in the three months.

In the nine months to September Kenyans working in the diaspora had sent home Sh90 billion up from Sh85 billion in a similar period last year.

The CBK has attributed the growth in diaspora remittances to increased competition, which has lowered commission fees charged for such transactions.

The fees, however, remain high compared to global standards. The World Bank has reported that transferring money to Kenya costs about 9.2 per cent of the value of the transfer compared to the global average of 7.9 per cent.

The CBK mainly introduced the money remittance providers’ licence to keep track of cash transferred through the largely informal Hawala platform.

Hawala, which is widely popular in the Middle East and parts of Asia, had been gaining popularity in Kenya, particularly as a cash remittance system for residents of Eastleigh Estate in Nairobi who receive money from friends and relatives in Somalia and farther across the globe.

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