Regulator gives M-Pesa a clean bill of health

By Jackson Okoth

The battle for control of low-income customers between Safaricom and commercial banks has taken a new twist.

This follows an approval of M-Pesa money transfer service by the Ministry of Finance.

An audit by Central Bank of Kenya says while the system transacted Sh17 billion in August last year, the net deposit value was Sh203 per customer.

"This demonstrates that M-Pesa has not been regarded as an alternative bank account with sums staying in the system," said Treasury PS Joseph Kinyua in a signed statement.

Commercial banks have used the lack of a legal framework in the money transfer business to fight M-Pesa.

Treasury has formulated the National Payment System Bill to enable it regulate and supervise various payment systems, including money transfer.

It is expected that the Bill will be tabled in Parliament soon for enactment into law.

But the service provider has expressed fears that the onset of CBK rules is likely to increase transaction costs in M-Pesa.

Presently, customers are charged Sh30 for transferring between Sh100 and Sh35,000.

Following an aggressive expansion of M-Pesa, commercial banks have been forced to eliminate charges on their customers when sending cash.

Treasury insists there is no evidence to support allegations that the service is competing directly with commercial banks.

A study funded by the UK-based Department for International Development shows that while 55 per cent of adult Kenyans have access to a mobile phone, only 19 per cent are banked.

Niche market

There is therefore a huge market that has access to mobile phones, but not financial services and it is this niche that M-Pesa is serving.

Commercial banks have insisted that M-Pesa is operating banking services (deposit and withdrawal of cash) and should be brought under the Banking Act. But the real fear facing banks is what Safaricom is capable of, with its innovations and large network.

M-Pesa is operating at the low-income retail end of the market, also a key target for commercial banks.

While commercial banks are partnering with retail chains, petrol stations and other consumer outlets to enable their customers settle various utility bills, M-Pesa service has also grown into this niche.

Other services

For instance, registered customers can pay for their Safaricom Advantage (Postpay) bills as well as bills for services received from a selected number of M-Pesa partners.

There are 10 partners on board and the numbers continue to grow daily as more companies enlist.

The maximum transaction amount a day is Sh70,000 and the maximum amount transferable per transaction is Sh35,000.

The other advantage that M-Pesa has over banks is that one can transfer cash to those without bank accounts.

This audit report by CBK provides comfort to thousands of M-Pesa customers who have been anxious over its fate.

With rival Zain’s Zap money transfer service set to hit the market, the stage has been set for convergence between banking and mobile phone services.