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.