Capital Markets

Safaricom seeks unit trust, insurance launch approval


A woman stands outside a Safaricom shop on Kimathi Street on July 4, 2019. PHOTO | SALATON NJAU | NMG

Safaricom #ticker:SCOM is seeking regulatory approvals to launch insurance, unit trust and saving products as it races for a larger piece of the financial services market and tap more earnings from mobile money platform M-Pesa.

The telco has been testing the three products dubbed Bima (Insurance), Mali (mobile savings) and a unit trust investment product.

Now, the giant telco has sought approvals from regulators -- Capital Markets Authority (CMA), Central Bank of Kenya (CBK) and the Insurance Regulatory Authority (IRA) for commercial launch of these products.

This is the latest plan to grow the mobile money platform beyond sending and receiving cash, tapping loans as well as paying for goods to include insurance and wealth management.

Safaricom growth strategy hinges on widening M-Pesa offerings and bolster its data business through switching about four million 2G and 3G phones to 4G to offset a fall in revenue from mobile calls amid a saturated market.

Safaricom CEO Peter Ndegwa says the telco wants to tap into M-Pesa’s 26.7 million active customers that transact about Sh1.5 trillion a month to grow the savings, unit trust and insurance products.

“We are exploring the area of wealth management. We have developed a couple of products and we are seeking regulatory approval. Until the approval is given, we may not want to announce the specifics of the products,” said Mr Ndegwa.

Mr Ndegwa says the telco wants to use the new products as part of the strategy to broaden M-Pesa into a financial service provider that will rival banks, insurance firms and fund managers.

Mali (Kiswahili for wealth), will offer interest rates of 10 percent on deposits capped at Sh70,000 per saver based on a pilot test. It started testing the savings product in December.

Policymakers say Kenya suffers from a low national savings rate and analysts said that Safaricom could be looking to target the untapped market with the new savings product.

At 10 percent, the return from Mali is nearly double the current interest rate that banks are paying on savings.

Safaricom did not divulge details of the unit trust product, but it is expected to partner with a fund manager already licensed by the CMA, who will also approve the new product.

The product will generate new revenues from M-Pesa with Safaricom expected to earn fees from the wealth management service.

Kenya, like many other African countries, has a very low insurance penetration rate, estimated at below 10 percent of the population.

The figures have attracted international firms like Prudential Plc and Swiss Re, which have entered the market in recent years.

Safaricom is also racing to get a piece of the insurance business with its target being the uninsured, riding on its technology and data analytics to determine consumer behaviour and develop new strategies.

Unlocking market potential requires targeting uninsured people, particularly the growing middle class, in creative ways, with analysts citing how M-Pesa had transformed the notion of “unbanked” in Kenya.

The new products come at a time its parent firm, Vodafone Group, has disclosed that it wants to partner will Chinese digital payment provider, Alipay, to extend M-Pesa into financial services.

“Through a strategic technology partnership with Alipay, we are developing a new ‘super app’ that will offer customers a unified suite of financial services, entertainment, shopping, merchant services and direct marketing,” said Vodafone.

M-Pesa posted Sh35.89 billion revenue in the half year ended September, equivalent to 30.3 percent of the firm’s service revenues of Sh118.41 billion raked in during this period.

The firm forecasts M-Pesa will account for half of its sales in coming years as revenues from voice and SMS flatten.

Started 12 years ago as a service to allow Kenyans without access to the banking network to transfer money via mobile phones, M-Pesa now offers loans and savings in conjunction with local banks as well as merchant payment services.

Safaricom launched an overdraft feature called Fuliza on January 7 last year. Fuliza is underwritten by Kenyan lenders KCB Group #ticker:KCB and NCBA Group #ticker:NCBA, which already had partnerships with Safaricom to offer short-term loans under KCB M-Pesa and M-Shwari respectively.

It is not clear if the deposits in the new savings product will be used to back loans akin to the mode of operations in banks.