Battle royale looms between banks, M-Pesa

Me thinks that the most formidable competition for M-Pesa is going to come from the new money transfer platform launched by the Kenya Banker’s Association recently under the name PesaLink.

The unfortunate thing is that PesaLink is a camel built by a committee. All over the world, innovation tends to spring from small nimble players who come to the market with innovative ideas to disrupt the established giants.

I do not think that PesaLink is much of an innovation because most of what it offers is already in place. For instance, transferring money from one bank account to another has been with us for many years. Loading money into your mobile phone from your bank account is possible. Depositing money from M-Pesa into your bank account is also possible.

And withdrawing money with a mobile phone from an ATM has been possible for several years.

Thus, what the bankers have come up with amid the pomp and noise is no more than a platform that makes it easier for customers to access bank accounts through all these existing channels.

PesaLink is more or less an omni- channel that gives customers greater convenience and choice in accessing funds from their bank accounts and in moving their money around. It is not a big product innovation that the bankers make it to be.

Still, we must all recognise that banks are coming into the battle with M-Pesa  with formidable strengths. First, banks have a monopoly over operating bank accounts. As at 31 December 2015, banks had 36 million accounts.

Indeed, bank accounts now almost equal the number of mobile communications mobile phone subscriptions.

With M-Pesa, you are restricted to moving money by transactions and daily limits. The banks have enhanced the value of mobile-to- bank trasnsactions to Sh1 million.

Finally, banks are the only Central Bank of Kenya approved settlement members.

How I wish that banks had used these formidable strengths they have to come up with a truly game-changing product innovation in the payments space.

M-Pesa’s greatest strength is its simplicity: the fact that you grandmother can use the platform without much training.

Indeed, M-Pesa works on any telephone, scaling from the Mulika Mwizi all the way to the most sophisticated of smartphones.

What the banks are offering will require you to acquire a smartphone. There are many more M-Pesa agents than bank branches. Indeed, the number of bank branches are a parltry 1,500 compared to M-Pesa agents who exceed 130,000.

As a matter of fact, commercial bank agents are primarily M-Pesa agents who have just added banking agency as a side hustle.


Today, M-Pesa is systemic  and  part of the nation’s critical financial markets infrastructure.  Finally, my views on the raging debate about the proposal to hive off M-Pesa from Safaricom by creating a separate company. In my view, regulation on market dominance should focus on consumer protection.  In formulating competition policy for Kenya, and as we continue groping in the dark for the appropriate legal framework for dealing with  market dominance, an important  distinction will have to be made between promoting competition in the interest of consumers per  se and protecting the interests of Safaricom’s weak and insolvent competitors.

 And I still maintain that Analysys Mason, the consultants who did the dominant market study, displayed a shallow understanding of our national payments system.

Telcos don’t have a central clearing counterparty, are not licensed as CBK settlement members- and don’t have a single float. Two of the flagship recommendations by the consultants, namely, wallet- to- wallet interoperability and agent- to- agent interoperability require a single trust account.

While the law can be changed, global standards including guidelines by the Bank of International Settlements and also the Financial Action Task Force, mandate that central banks should be the central settlement counterparties in any nation mainly because of their responsibility of maintaining safe and sound financial system.

Suggesting that  Telco can create a settlement  institution of their own within 12 months as implied by the consultants is further evidence that they did not weigh the implications of some of their proposals.