Safaricom, Western Union deal opens turf war with banks
Safaricom is banking on the convenience of consumers receiving money on their mobile handsets and going to any of its 20,000 M-pesa agents to withdraw the money rather than going to a bank. Photo/FILE
Safaricom’s expanded partnership with Western Union has opened a new competition front for commercial banks in the multi-billion international money transfer service industry.
Western Union, MoneyGram and other international money transfer firms handled 64 per cent of the Sh148 billion ($1.76 billion) remittances sent by Kenyans living abroad last year, according to a World Bank study dated this month.
About 17 per cent of the remittances were channelled through commercial banks, while foreign exchange bureaus, postal money orders and personal deliveries were used to send the remaining portion.
Analysts say the recent partnership between Safaricom’s mobile phone money transfer service and Western Union is likely to be a major hit with Kenyans sending money from abroad, in a development that could squeeze commercial bank’s earnings from the business.
“It (the partnership) will have an impact on the banks because there is the ease of withdrawing the money through M-pesa. There are a lot of commissions and banks have dedicated counters for this business. Now people will find it hard to go to the banks,” said Alex Gakuru, ICT Consumer Association chairman.
Safaricom is banking on the convenience of consumers receiving money on their mobile handsets and going to any of its 20,000 M-pesa agents to withdraw the money rather than going to a bank as a major attraction for customers.
Recipients of remittances will also able to transfer the money received to their bank accounts using their handsets or withdraw the money through automated teller machines.
“Our partnership is built on the desire to offer our customers an affordable, faster and more convenient avenue to international remittances,” said Bob Collymore, chief executive officer of Safaricom.
Withdrawing the money at any M-pesa agent will cost the consumer standard rates and transferring the money to one’s bank account will depend on rates charged by individual banks.
The maximum amount that can be sent at any one time has, however, been capped at Sh35,000 per day, while monthly and yearly limits depend on the country the money is sent from.
Most banks have dedicated counters for consumers who want to withdraw money, indicating the significance of the forex business to their overall strategy.
Equity and Barclays are estimated to control about 28 per cent of the remittances market, according to yet another World Bank study released late last year.
Co-operative Bank, Post Bank and KCB are cited among the popular money transfer channels in the study.
Safaricom’s deal will enable consumers to receive money from almost all major remittance sources for Kenya including the USA and United Kingdom and 13 African countries including Tanzania, Uganda and Rwanda where some local banks have expanded to.
The World Bank said the deposit of cross-border remittances directly into the mobile money account of the recipient has significant advantages to a mobile money provider, the international remittance service provider and to the consumers over traditional cash-based money transfer services.
“It increases the reach of remittance services, as the recipient can withdraw the remittance at domestic money transfer outlets,” said the World Bank in its report, adding that for the recipient, receiving remittances directly into a mobile money account makes it unnecessary to travel to the nearest town or outlet of the money transfer operator to receive cash.
“In Kenya, for example, the international remittance service provider can piggyback on the vast network of M-pesa agents, greatly reducing, if not eliminating, the need to build a costly network for distribution of international remittances or to form alliances with banks or post offices,” the World Bank added.
Edge over rival
According to the World Bank, the average transaction size decreased by 30 per cent between March 2009 and March 2007 to Sh2,300 from Sh3,300 and this may reduce further through the use of mobile phones because of the greater accessibility of M-pesa agents.
The convenience of mobile handsets is expected to give Safaricom an edge over the commercial banks while Western Union - whose money transfer charges are relatively higher that MoneyGram’s, its closest rival - will be able to use M-pesa’s 20,000 agent network and tap into a wider base of consumers.
KCB chief executive officer Martin-Oduor Otieno, however, said that the Safaricom-Western Union deal is “more of a convergence of financial service providers and telecoms” and that the deal would not have any effect on the bank.
