Category Archives: bank charges

Bank’s Need to Embrace MPesa

banks need to adapt to M-pesa, not fight it

A recent Nairobi Star story links banks to m-pesa probe in an underhand move to stifle the growth of mobile company Safaricom’s money transfer service – M-Pesa.

How much growth? As a recent article put it four million Kenyans can’t be wrong in reference to those who have signed up for the M-pesa and which the company recently stated to be clocking up to 10,000 new registrations per day!

Here’s why:

1. It makes sense and that’s all the law it needs Is it illegal and does it need more legislation? The answers are probably not and yes. Probably Not – because you can’t legislate everything, more so the simple payment of cash from person A to person B – whether a prostitute or a priest. And Yes, M-pesa agents need to beef up security, systems and training of staff as its popularity grows.

But the argument that M-pesa will be used for money laundering or other crimes is laughable – who launders less than $500? (Kshs. 35,000 is the maximum transaction amount on m-pesa) You are more apt to find a transfer of Kshs. 35 million at a bank – and banks were themselves used to prop up the numerous local pyramid schemes before they all imploded.

2. M-Pesa is affordable banking: Is it unfair? What’s to stop a bank from operating branch-less accounts? Several small banks have 1 – 3 branches and can comfortably and profitably serve their customers. Most Kenyan banks still don’t want to serve the unbanked and M-pesa has evolved because banking is still too expensive for the masses. There’s Mzansi in South Africa and in the absence of a similar program, Kenyan masses have created their own Mzansi in M-pesa. It is not Safaricom’s fault that they are so popular – take away m-pesa and people will go back to stuffing cash in tins, rolling them in blankets and mailing them in cartons on buses. They will not go back to open new banks accounts or queue at western union.

3. M-pesa is better than banks in some functions: Two scenarios
– Having a bank account is of no use sometimes, as one executive told me. She may be in Malindi looking to hook up Flavio Briatore or find Obama’s village (Nyangoma – not Kogelo) – her bank account is in Westlands (Nairobi) she has no way of reaching that money (avoid credit cards) – but her bank has no presence in many parts of the country, but from where she can access M-Pesa
– I received a small cheque payment of Kshs. 10,000 shillings ($130) that I deposited in my bank account on 19th December – today it’s 10 days later and the cheque has not cleared – reason is that four working days have not elapsed – (banks don’t count weekend or holidays – thought they work six days a week). What the banks does – transferring money from a creditor to a debtor (me) is no different than what M-pesa is doing. But with access to the same technology and similar resources, M-pesa takes 3 minutes, while the bank system takes 10 days.

4. M-Pesa is going to get more mainstream: More corporations are embracing the cost cutting and simplicity of M-Pesa. You can now pay for satellite TV (GTV), some insurance plans, and mutual funds (Old Mutual) by M-pesa. Next up will probably be two large companies that are in dire need of a cheaper alternative of money transfers
– Safaricom with its 800,000 new shareholders will probably have to pay a dividend next year. The use of text messages/e-mail and M-pesa will save the company millions of shillings that would be spent on printing, postage and cheque processing charges
– Kenya power & lighting company; as KPLC takes electricity to thousands of new customers in rural Kenya and inner cities, it has a dire need for cash collection points. It has used the banking system and the post office (paying an average Kshs. 30/= for each payment), but M-pesa would be a cheaper (for them) and more convenient option (for distant customers) who can also have been alerted by SMS on how much to pay.
– Also microfinance institutions (and shylocks) – who make small loans, for short periods of time. The sooner they can transfer funds, the clock is ticking, and their customer can access funds immediately and pay them back at the last minute without each having to wait for cheques to clear. M-pesa fits into the last minute thinking of many Kenyans – who tend to wait till the last minute to do many things including payment of electricity bills!

Banks need to change and embrace M-Pesa as it is able to do some things they can’t or won’t do. e.g. The lady in scenario one has a relationship officer at her bank, who can move her funds from one account to another – why not also enable her to M-pesa the next Ms. Briatorie her money? This can be an extra service from bank from which they can earn some income, instead of opening a branch in Malindi?

They should take a cue from other players such as

– Pesa point (ATM network) who may be losing some business to M-pesa but have now have embraced and partnered with them so that customers can withdraw cash from M-pesa 24 hours a day at any of their Pesa Point ATM
– Western union whose local money transfer system may have been eroded by M-pesa will now be the international arm for remittances through Safaricom’s M-Pesa
– Banks like Housing Finance and Family Bank already process M-pesa payments for their customers.

FYI
1. Are you a heavy M-Pesa user? Did you know you can get a statement of your M-Pesa transactions – a statement of the last three months costs Kshs. 500 from Safaricom, which is about what many banks charge for interim/instant statements
2. Want to become an M-Pesa agent?
3. Other interesting recent posts about M-Pesa.

Kenya Bank Charges

The Central Bank released the latest report of a Kenya bank charges survey (PDF)

Notes
– It’s a good read, which may lead account holders to check their statement and shop around for cheaper banks. However many account holders get one or two statements a year at most, so this may not be useful to them
– Also, though some banks score good points for low charges there are other aspects to customer – service to be considered in the choice of where to bank.
– One flaw in the survey is that it assumes that the banking act is applied and that no charges are levied on savings accounts – I’m yet to see a bank that does not
– This years’ survey acknowledged bundled or flat fee accounts such as Move (from NIC) X from (Stanchart), Bouquet (Barclays), and Open (D-Trust)
– Customer who take loans calculated using the flat rate method end up paying more than the reducing balance method
– The final table shows a growing list of bank automated teller machines (ATM) which are being established for customers to use. But if there are 3 ATM’s next to each other at Nakumatt Junction, 3 next to each other at Kenyatta Hospital and 6 at the international arrivals terminal of JKIA, the spread is not very useful.

Bank charges survey

The Central Bank and FSD Kenya released a report on bank charges – a summarized version of which is now available from the CBK site.

It is an interesting report based on a survey of several hundred bank customers. CBK used to publish bank charges every quarter in the newspapers from about 2003 to 2005, which were not clearly understood by the public then they appear to have decided to used FSD Kenya to do a more comprehensive analysis.

The report highlights a problem, which many bank customers face. They start a relationship with a bank for one reason, but without knowing all the charges for various others banks services. E.g. it shows that you may take a loan at one bank because of the low-interest rates, but pay a lot more to service the loan, or you may open an account because of the low opening balance or free salary processing, but find it very expensive to do anything else.

Charges form an important part of bank income (the top 5 banks earnings based on commissions were Oriental, EABS, Baroda, Family Finance and Equity who all earned over 50% of their 2007 income from non-interest earnings).

In terms of bank charges, Equity Bank has been very popular for two reasons

(i) They came on to the banking scenes four years ago without any legacy charges; while other banks used to adjust their charges, based on what other banks were charging, Equity were able to set their own charges
(ii) Many of their services (with low charges) are offered to customers and non-customers alike – like 50-shilling banker’s cheques.

I hope the report, and others from FSD Kenya, will be republished in a daily newspaper for the millions of bank customers who don’t have Internet access to review (this is the case in Uganda)

2007 Kenya Bank Ranking Part III

winners

Asset growth 2006 – 2007
Equity 165%
Family 57%
DBK, City Finance 42%
Diamond Trust 40%
Fidelity 38%
Then K-rep, Barclays, Stanbic, Prime, I&M

Loan growth
Equity 100%
Stanbic 73%
Chase 61%
Family 59%
DBK, Baroda 57%
Then Diamond trust, Barclays, Fidelity, KCB, NIC

Deposit growth
City finance 131% yes but to 231m
Equity 93%
Diamond trust 45%
Transnational 42%
Fidelity 39%
Then Credit, k-rep, Chase, I&M, ABC, Baroda

Profit growth
Habib 1,600 %yes but to 107m
Bank of Africa 159%
EABS 149%
Equity 114%
Fidelity 88%
Then Co-op, Transnational, Bank of India, NBK, Prime, Consolidated, Chase

Losers

No profit City finance (-29m)
Declining profit: Guardian -47%, Giro & Dubai -30%, Fina & Equatorial -22%
Declining deposits: Middle East -19%, Victoria -6%
Declining loans: NBK -70%
Declining assets: Middle East -9%, Victoria -4%
Insider borrowing up 218% at Family, 189% at K-rep, 116% at Consolidated, Stanbic 74%, KCB 55%, while down by 90% at NBK
NPA’s : Up 233% at k-rep, 97% at chase, 59% Dubai, 51% at Equity and 48% at bank of Africa. And NPA’s were down 84% at NBK, 50% at Co-op, 40% at Barclays, 35% Southern credit and 34% at Housing Finance.

IPO Tales: 13 days to go

– Oversubscription: If 9 million Kenyans voted last year it’s possible a ¼ of them will buy shares. Or that ½ the people with bank accounts will apply for shares. On that, with two weeks to go, new banks with IPO loans include KCB (Uganda), CFC and even high street CBA.

Happy banks: Two banks may have crossed the 1 billion shilling mark for new IPO loans after just a week. They are also earning other fees such as placement/facilitation/arrangement of 1 – 2% of each loan, fees for bankers cheques, returned cheques, money transfer and other myriad charges from the IPO process.

And the fine print of many bank loans lack clauses that deal with some critical questions which borrowers should be asking before they take out 3 year loans, such as;

– If I don’t get a full allocation, can I pay back say 80% or entire loan of loan immediately?
– If shares rise to 10 shillings can I sell my shares in June and pay the bank?
– If price drops to 4 shillings and I want to cut my losses, can I sell the shares?

Multiple share accounts: CDS gets 30 shillings per application, and the transaction managers have warned retail investors not to open many accounts and apply for IPO shares in many names. I saw one I-bank report, which mentions that investors who do this will be charged a 1.5% consolidation fee, but that is not contained in the prospectus.