Why Central Bank position on mobile banking attracts wrath

By FJ Reporters

Even as the Central Bank of Kenya (CBK) goes the extra mile to accommodate the innovative mobile money transfer concept, this has not gone down well with the banking fraternity.

While a new law on mobile banking is being hatched, players in the banking sector are uneasy with the CBK, which has lately been warming up to mobile phone service providers, eager to give credence to the two mobile money transfer services — M-Pesa and Zap.

The banks say the change of tune by CBK is seen as encouraging competitors to ‘encroach’ into their own turf.

"We are open to all proposals. The market is developing and we cannot hold them back. Banks can create platforms for money transfers and we license those frameworks as long as they are sound and safe," says Prof Njuguna Ndungu, CBK Governor.

Electronic money transfer service has for long been an exclusive domain of commercial banks, but this revenue stream has since seen the entry of M-Pesa and Zap- Pesa Mkononi, services offered by Safaricom and Zain respectively.

partnership

CBK maintains it has given commercial banks the option of partnering with these service operators, an offer many are still reluctant to take up.

A Zap money transfer dealer serves customers at one of the Zain outlet. Electronic money transfer service has for long been an exclusive domain of commercial banks, but this revenue stream has since seen the entry of mobile operators.

So far, only five commercial banks have entered into partnership agreements with the mobile operators. These include among others, Kenya Commercial Bank (KCB), Consolidated Bank and Post Bank.

The CBK Act prevents commercial banks from going into micro payments space, where M-pesa and Zap feature strongly. " CBK is yet to open space for banks to compete in this space. But they are free to partner with these service providers, Stephen Mwaura Nduati, Head, National Payments System told participants at a banking conference held last week at Kenya School of Monetary Studies.

While commercial banks have held the notion that M-pesa was the creation of Communication Commission of Kenya (CCK), a seal of approval by CBK on this money transfer service has brought discomfort in the banking sector.

owning up

"We were not sure that M-Pesa was a baby for the CCK until CBK owned up. I wonder why we were left out in the consultations that were done before M-pesa came into being," John Wanyela told participants at this conference.

By nature, the local banking industry has been conservative and slow to innovation, to the advantage of cutting edge products offered by mobile phone service providers, especially the M-Pesa money transfer service.

In response to stiff competition offered by Safaricom’s money transfer service; commercial banks are now working round the clock to improve speed of cheque processing, which currently takes a minimum of three days.

"We are establishing a centralised data base to enable faster and automated clearance of cheques," reckons Wanyela.

This cheque truncation system is expected to be up and running before the end of this year, taking cheque clearance a notch higher in what is seen as desperate attempt to win back the confidence of its consumers.

cheque processing

Apart from an automated real time cheque processing, KBA-which runs the Clearing House, intends to remove high value items from the house to real time gross settlement system (RTGS), to make the former faster and more efficient. This is expected to happen in the second-half of this year. CBK officials maintain that it has done due diligence and put sufficient safeguards on the M-Pesa service, including a Sh35,000 cap, the maximum amount that can be transferred by an individual transaction per day.

"This is to ensure that the service runs in the low value segment so that it does not have systemic relevance," says Nduati.

While M-pesa moves an estimated Sh500 million within its system per day, this figure pales against Sh60 billion that commercial banks move between themselves in a day.

CBK is also dismissing fears held by commercial banks that amounts moved through mobile money transfers are large and therefore a threat to the velocity of money and could even be impacting on inflation trends.

Through the explosive growth of mobile phone services, commercial banks have been lobbying for stricter regulation of telecoms to create an level playing field. On the other hand, telecoms, which are operating until now under the protection of CBK, have been expanding their services and penetration.

According to Charles Njoroge, the CCK Director-General, telecommunication companies are simply coming in to fill up voids, which commercial banks have not been able to bridge.

"On the issue of who is going into the domain of who, why can’t we have a neutral agent (bank agent) who shall be able to send money irrespective of the network," says Njoroge

adapt to change

He says banks ought to think carefully about forming collaborations with mobile phone operators as a way of adopting to the emerging technologies.

"These are some of the things that the banking industry need to think about in order not to be rendered irrelevant by the growth of technology," says Njoroge, adding "On our side as a regulator we will ensure the networks are connected."

Michael Joseph, the Safaricom Chief exective has often emphasized that M-Pesa is keen to form strategic alliances with banks and other financial institutions to offer services that compliment each other to meet consumer needs.

Njoroge says while the current regulatory space does not give guidelines for such business transactions, dual regulatory framework between CCK and CBK was necessary in order not to stifle technological advancement.

According to data from the Commission, the estimated number of mobile subscribers has grown from as low as 15,000 in 1999 to 17 million by March 31,2009 compared to 500,000 fixed line/wireless subscribers.

bank accounts

The M-Pesa mobile phone money transfer service, which was launched in March 2007, is however transforming the lives of thousands of Kenyans, many of whom do not even own a bank account because either they can't afford to, or even if they can, there's no bank nearby.

Kenya's banking infrastructure is so poor that it doesn't reach 81 per cent of the adult population.

Even though just 19 per cent of the adult Kenyans own bank accounts, over 54 per cent of the adult—including the rural poor—own mobile phones.

The use of mobile phones for micro-transactions has attracted huge interest in a country like Kenya, where only 6.4 million out of a population of 36 million have bank accounts.