The move by banks, under their umbrella Kenya Bankers Association (KBA), to harmonise mobile switching is a perfectly-timed disruption.
The platform, known as the Kenya Interbank Transaction Switch (KITS), uniformises card and mobile switching. In their first phase, KBA through a subsidiary-Integrated Payment Services Limited (IPSL), is offering a mobile switching product under the brand name PesaLink.
Before KITS, Kenya didn’t have a national switch. Existing retail payment platforms are not integrated and the market has been characterised by non-interoperable platforms.
The Central Bank of Kenya (CBK) has not provided such an infrastructure, leaving it to the private sector. Instead, it invoked its policy formulation function by creating a regulatory and supervisory framework for payment systems and payment service providers through the National Payment System Act, 2011-which was operationalised three years later via the National Payment System regulations of 2014.
This regulatory framework provided an incubation platform for KITS. PesaLink, in my view, will enhance person-to-person account transfers and is also the perfect disruption for cheques and electronic fund transfers (EFTs).
CBK data shows that, in 2015, 20 million cheques valued at Sh2.6 trillion were written and 11 million EFT transactions valued at Sh523 billion were effected.
On a run-rate basis, another 20 million cheques valued at Sh2.6 trillion were estimated to have been written and 11-and-a-half million EFT transactions valued at Sh547 billion effected in 2016.
When PesaLink gains the critical mass, these figures, in my assessments, will go down significantly in the long term.
Safaricom’s entry into the market of person-to-person and person-to-business account transfers, through M-Pesa paybill function, was in response to a gap caused by lack of instant turnaround time.
For cheques and EFTs, the turnaround, at T+2, is still long.
However, M-Pesa paybill is limited to a maximum of Sh70,000 and is also relatively expensive (it costs me around Sh110 to pull-and-push from my bank to another bank via M-Pesa).
So, to me, banks have basically reclaimed their spot and I don’t see direct competition between PesaLink’s person-to-person account transfers and M-Pesa.
Additionally, PesaLink doesn’t have its own mobile wallet so cash extraction from a mobile wallet will still be effected through the mobile money transfer agents-a potential for collaboration with the telcos.
In any case, I would strongly advise IPSL against going this route. It can be a very expensive, onerous and painful route. The competition, in my view, will be in the add-ons, such as person-to-account transfers.
However, the biggest impact of KITS will be felt when the card switching is finally rolled out. I expect card transaction costs to drop significantly-especially for card transactions terminating locally using locally issued cards.
Today, I’m charged Sh145 every time I cross over an ATM (when I use a machine that doesn’t belong to my card-issuer). That’s ridiculous. Indeed, ATM cross-over costs are quite steep across board.
The problem is that banks see cards as a cash cow. In fact, when card transaction costs do drop, I also expect card issuance and acquiring fees could glide down. And banks don’t like this-which is why they are still unable to achieve a common ground on an optimal pricing that benefits the consumer, among other issues.
Some banks, especially the larger issuers, play the role of issuer and acquirer and still charge their customers on both sides, instead of sharing the advantages of those privileges with the customers.
These tendencies need to go, and I really hope IPSL is up to the task. In effect, I’m already looking forward to the launch of card switching-and so should the market.