Category Archives: bank charges

Mapping Financial Inclusion in Kenya

This week, FSD Kenya launched an interactive tool called the FinAccess Spatial Map that mapped all the formal financial service points in Kenya.  This has been an ongoing private-public partnership, and it’s notable as a previous FSD study on the numbers of ‘unbanked’ Kenyans became the justification for the relatively unregulated roll out of m-pesa and mobile money in the country.  

The searchable tool interprets data like financial service points (GIS locations of bank branches, mobile money agent), county borders, and local population numbers from the census – to plot some interesting metrics.

The tool tends to find that there are more financial service points in wealthier parts of the country (no surprise) and that more Kenyans live closer to a mobile money point (58% are within 3 kilometers of one) than a bank branch (21%). It can  also pick out useful trends for further research e.g. at the launch, it was mentioned that in Isiolo, 40% of the population own mobile phones, but only 20% use mobile money, while in Nyeri, 75% own phones, but an even larger number – 80% use mobile money.

Partners in the FSD mapping program included the Central Bank of Kenya, Brand Fusion, SpatialDev, and the Bill & Melinda Gates Foundation.

Why Telco Mobile Money wins over M-Banking

Safaricom’s mobile money transfer service M-Pesa is only five years old yet it has about twice as many subscribers as all the bank accounts in Kenya. The numbers are not growing as fast any more and many commercial banks now offer services that link to telco mobile money, or promote their own m-banking platforms, or extend services to customers through agents

But the attraction of mobile phone companies as preferred mobile money wallets is that they have gained customer trust with simple tariff structures. Millions of Kenyans are comfortable sending and receiving money by mobile phone. They know what it costs e.g. Kshs. 30 shillings ($0.40) to send money, and Kshs. 30 to withdraw money on the other end.

But for banks, they enter the mobile phone relationship with a stain in the minds of many of their customers as they have a legacy and history of imposing dozens of fees on their account holders & customers. While there are banks that have no ledger fees (just transaction charges similar to mobile phones Kshs 20 or 30 per transaction) and others that have free ‘mobile’ banking, the legacy of banks is also one of changing customer terms, raising tariffs and interest rates, phasing out services, migrating customers to new costlier services, phasing out services that were promoted as ‘free’, migrating their customers to more expensive options at will.

For comparison, if you leave Kshs 1,000 (~$12) in your M-Pesa account it will be there until you use it, with no phantom charges eating it away (it won’t stay in your phone for 6 months). But if you leave the same Kshs 1,000 in your bank account for a few months, the money will be exhausted by various tariffs like ledger fees, dormant account fees, minimum balance fees and the account will be drained out and shut down. Unfortunately, a similar distrust extends to companies offering third party payment services m-commerce, payments, settlements etc. as they are new or unknown entities to customers until they establish a behaviour pattern with customer tariffs.

This should also be a caution to mobile operators not to shake up their cost structures too often. Safaricom recently changed their M-Pesa tariffs, but by having simple & clear disclosures and not levying hidden or unexplained charges, they will keep the trust that their customers have.

Cheque Truncation Part II

The deadline of new cheque modernization passed this week, on June 1. Yet many bank customers had not yet received new chequebooks, and many more were not fully versed with the process, which entailed a change of chequebooks.

The Kenya Bankers’ Association (KBA) left the public relations of the process to its’ member banks resulting in low awareness and did not communicate till May 31 with adverts in the newspapers re-assuring customers and the public that the old cheques will be used for an indefinite period. This paled in comparison to the introduction of mobile number portability (MNP), in which the regulator (CCK), service providers, and mainly mobile companies carried numerous advertisements about the transition to the new service. (Mobile companies ran extensive promotions to retain their customers or win over their competitors’ subscribers).

There are still many unresolved questions, even with the extenstion:

– Old chequebooks were issued though the month of May, but customers then had to get the new chequebooks at month end. Who bears the cost of printing books that were about to be phased out?
– Do the new cheques clear faster? e.g. 1-day for Nairobi cheques? Speed is important for payments in the age of M-Pesa. The last statistics from the Central Bank (CBK) showed that in 2008, about 50,000 cheques were being cleared daily. Many suppliers now insist on getting paid by M-Pesa (which takes less than a minute) or by real time gross settlement (RTGS a.k.a corporate m-pesa done by banks – but this also carries a high risk of fraud risk of fraud – at 69% of bank crimes)
– What happens to post-dated cheques? These are used for debt repayments and for motor insurance loans (some banks use these for collateral over up to 10 months)
– There is no apparent difference in the design of the old and new cheques. So what has changed to warrant the exercise?
– Are cheque printers (mainly De la Rue) able to print enough chequebooks for a smooth roll out next time?
– Some banks said that old cheques will still be honoured in-house i.e. if drawn to people who also use the same bank, while others told their customers they would not be honored. KBA should communicate a clear deadline when all banks & customers must switch.

For now, the old and new chequebooks are in circulation, but more information has to be provided to resolve the cheque truncation process.

Cheque Truncation

There’s an ongoing exercise within the Kenyan banking fraternity (KBA) to standardize cheques issued in the country under a process known as cheque truncation – and this will enable transfer of electronic images of customer cheques replacing the current process of physical of exchange of cheques by different banks at a central clearing house

Odd and large size cheque will be withdrawn between March and May 2011 and replaced by standard size cheques that are 7” by 4” inches in size and with enhanced security features by June 1.

The new system may halve the time spent in cheque clearing, which is currently about four (4) working days for most people. This has made cheques uniquely unpopular for small people, not just because of the cost of operating a bank account, but because of the cumbersome week-long time delay in the age of instant money transfers such as M-pesa.

Why are cheques good? They are easy to use, offer verifiable proof, security, and credit. While some buyers wants to stretch payment, and sellers wants immediate payment, both buyers and sellers have been tripped up by the four day cheque clearing cycle, sometimes to the benefit of bank – and a reduction in the cheque cycle could mean more income for them. Of Equity Bank’s income in 2010, Kshs 1.1 billion ($14 million) was from temporary overdrafts/un-cleared effects – which means you wrote a cheque, didn’t have cash in account, but Equity cleared (did not bounce) the cheque and charged a fee for the service.

Barclays no longer flat

A few years ago Kenyan banks rolled out a variety of flat fee accounts; this was at a time that there was an outrage in the country over bank charges pumping up bank super-profits.

The flat accounts offered a range of services at one flat fee. NIC was the first with MOVE, then Diamond Trust, Standard Chartered with Diva (for Women) and later X Account (for Yuppies), while Barclays had Bouquet accounts that cost Kshs 490 ($6.5), 590 and 690 ($9.2) per month.

They are few now left. Diamond Trust took their fee lower, and NIC went higher to ease out the flat tariff. Now Barclays have joined suit; for a while, they may have felt they were being taken for a ride by their customers (perhaps business owners who funneled large volumes of transactions through the flat fee account, and a few months ago) they tried to disguise an increase in the minimum fee flat fee from 490 to 590, by claiming that they had added ‘free’ mobile banking.

One problem with flat fee accounts for some sustomer who underutilized the accounts (like myself) was that they were limiting in that you paid much more than you used and you could not get additional services without paying extra; flat fee accounts could not be altered, e.g. to get a cheque book or set up a standing order you had to move to a higher priced account

Last weekend Barclays did a system upgrade and one end product seems to be a removal of the flat fee monthly accounts in exchange for a more conventional transactional charge for each over the counter or ATM transaction. The new accounts are called bank account (reduced ATM fees), bank account plus (free banking if over 50,000 [$625] in account), business flexi (cheque book) and business bouquet (first 20 transactions free). They also have tie-in discounts with Tamasha/buffet Park. Nike shop, Nairobi sports house and Sherlock’s den