Banks take on mobile money behemoth, M-Pesa

Increasingly embattled by mobile money providers, traditional institutions are looking to wrestle control from industry leader, M-PESA, in a battle that could catalyse further innovation and financial inclusion in the region.

By Seth Onyango

“If you can’t beat them, join them” is the approach traditional banks in Kenya are adopting as they seek a greater slice of the mobile money market dominated by Safaricom’s M-PESA service.

Because of its widespread adoption by small businesses and individuals in Kenya, Tanzania, Mozambique, DR Congo, Lesotho, Ghana and Egypt, M-PESA is a dominant player in the African mobile money market. 

However, traditional banks in Kenya are now looking to take on the market leader by growing their own mobile money offerings – either by building their own platforms or by building on the back of existing platforms, including M-PESA itself.

This comes as a market report shows that the COVID-19 pandemic had a marked impact on non-cash payments to banks, with many banks quickly improving their digital offerings to remain competitive.

“A massive 49% of African banks said that they had greatly increased the speed of implementation because of Covid-19,” the Backbase report reads in part.

“Some banks were already trying to transition from the traditional model before the pandemic, due to the emergence of new competition on the part of African fintech and pure digital players.”

Kenyan banks are now looking to leverage the hard yards put in by the fintech innovators to quickly and easily tap the mobile money market, offering their customers the convenience of conducting their regular financial transactions as well as those usually reserved for M-Pesa and other mobile money apps, through their mobile banking apps. 

The apps offer both a broader range of financial services and more control over mobile money operations.

For example, Equity mobile, which replaces the bank’s EazzyBanking app, uses a common merchant Till Number (a payment channel), to let subscribers choose to pay a vendor from either their Equity accounts or from Pesalink, M-PESA or Airtel Money. 

Settlements for transactions are real-time and merchants can access these funds immediately, offering improved convenience. According to the bank, merchants are not charged a commission when they have the One Equity Till Number. 

KCB, one of Kenya’s top-tier banks, now offers a suite of mobile money services, allowing clients to pay for utilities, get loans, buy airtime, send and receive money, and pay school fees.

Co-operative Bank has also introduced mobile money services by partnering with existing mobile money providers to remain competitive.

But despite these efforts, many banks are still struggling to keep up with the popularity and convenience of mobile money behemoth M-PESA in its current architecture.

As a result, Kenya’s banks are this year looking to boost the appeal of PesaLink, launched in 2017 as an alternative to M-PESA, to provide a fast, secure, and convenient way for customers to make interbank transactions.

Unlike M-PESA, which has a transaction limit of roughly Ksh300,000 (US$2,400), customers can move up to Ksh 999,000 ($7200) between banks through PesaLink, making it convenient for bulk cash transfers.

The squeeze on traditional banks, meanwhile, continues.

The Central Bank of Kenya (CBK) on December 31, 2022 reinstated charges on mobile money transactions, with commercial banks swiftly announcing to their customers that mobile money transactions would cost more. The CBK had waived charges on March 16, 2020, to protect consumers from the economic fallout of COVID-19.

To cushion the blow, some banks, such as Equity Bank, KCB Stanchart, Coop Bank, and Family Bank, have reduced transaction fees for traditional transactions or are promoting the use of their bank cards through advertising campaigns on YouTube and SMS platforms. 

Coop and Family banks, for instance, have eliminated card charges to encourage customers to use their debit cards more and benefit from future innovations.

With banks across Africa looking to offer similar services, many will be watching the Kenyan mobile money wars, closely.Whichever way this goes, however, the final beneficiary is likely to be the long-suffering African consumer. (Bird story agency)