Why plan to co-share mobile money agents stirs revelry and rivalry

This is a tale of two men trying to steer their businesses through an ocean with rapidly changing currents.

One is a mobile money agent. He is not the round-the-corner-kiosk type of agent. He controls 400 M-Pesa outlets, or cash merchants as they are known in industry lingo. He is Mr David Ongera and he wears shirts monogramed with his own initials.

The other businessman sells bootlegged Hollywood films from a cramped stall in Kasarani, Nairobi, that also doubles as a mobile money shop.

He is a cash merchant… but you are more likely to refer to him by the familiar but inaccurate moniker of “agent”. He is Mr Dennis Mutuku and his second-hand T-shirt cost him Sh100.

These two businessmen are part of a network that is arguably the best asset that East Africa’s most profitable company, Safaricom, has. “They form the human network that creates real value for the electronic network,” say the authors of Money, Real Quick, a book on the rise of M-Pesa in Kenya.

PROTECTED JEALOUSLY

It is an asset that has been protected jealously over the past seven years in a strategy that some have called uncompetitive. Mr Ongera and Mr Mutuku were, until recently, restricted to only doing mobile money business with Safaricom.

But the setting has changed. Safaricom has opened up its mobile money agent network to competitors. Mr Mutuku is free to sign up with Airtel and paint his small shop red as well as green.

If the agents can overcome the initial suspicion that there is a catch in this new policy, the development promises to change the way that thousands of Kenyans go about their business. Will it mean more profits?

Another shift is also taking place in the world of mobile money. The government is eager to actualise the “digital” philosophy, which it used to whip up votes during the last election. Cashless, or at least as cash-lite as possible, is the buzzword.

Public transport needs to go cashless, the government has declared. Electronic payments in government will be the panacea for corruption and inefficiency, it has been claimed. This State-led movement is also a mini-revolution in the making.

The money to be made in running a mobile money agency is in deposits and withdrawals. Increased adoption of electronic payments may threaten the current business model.

To predict how this story ends, you must go back to the beginning — to 2007. Telecoms were the inadvertent heroes embarking on a quest that would see them confront the monster of financial exclusion. In 2007, two mobile money transfer services were commercially launched in Kenya — Sokotele by Zain, which later became Airtel, and M-Pesa by Safaricom. The former floundered, the latter thrived.

DIFFICULT TO SELL

Mr Ongera, at the time, was running a cyber-cafe in downtown Nairobi. Today, the cyber-cafe still exists but the computers and printers have long ceased to be his main source of revenue.

“Initially, when Safaricom started, it was difficult to sell the concept. But I had seen the work they had been doing and I was sure that M-Pesa would bring in money,” says Mr Ongera.

It was partly on this faith in the brand that the network was initially built. Agents had to open outlets or contract sub-agents in at least three provinces.

But trouble came calling not long after. Banks protested against mobile money, with prophetic concerns of a meltdown in the financial sector.

A subsequent audit favoured mobile money, and the bank bosses, never shy about making a coin, quickly jumped on board, building partnerships with telecoms and adopting the agency model for their own operations.

The grousing, however, was far from over. While Safaricom claimed exclusivity of its agents, banks were required by the regulator to open up their networks to competitors.

The matter of exclusivity is a theme repeated again and again in the mobile money growth story in Kenya. Airtel went to the Competition Authority of Kenya (CAK), terming Safaricom’s exclusivity policy and cross-network mobile transfer fees as uncompetitive.

As if sensing the government’s mood, Safaricom pre-empted the regulators and opened up its network before it was forced to do so. The era of exclusivity is at an end, and disappearing with it, perhaps, is a season of lacklustre profits for mobile money agents. Last December, Kenya had 93,689 mobile money agents.

As of June, there were 26,750 bank agents in the country. Although there are vast areas of rural Kenya that are not adequately served, urban centres are at near saturation point. You can’t walk 10 metres in Nairobi without tripping over a mobile money agent or a banking agent.

LEAST PROFITABLE

This has taken a toll on earnings. According to research by Helix Institute for Digital Finance, Kenyan agents are the least profitable in comparison with their Tanzanian and Ugandan counterparts. Some 42 per cent of current Kenyan cash merchants expected that they would quit the business in a year.

Apart from high saturation, there is another key difference between Kenya and its neighbours. Neither Tanzania nor Uganda had a long-sustained culture of mobile money exclusivity.

In areas where the market is saturated, doing business with several operators made up for the difference in revenue.

Mr Mutuku has seen this phenomenon of poor revenue first hand. When he became an M-Pesa sub-agent in 2011, he made enough to cover his stall’s monthly rent of Sh15,000.

Today his earnings have fallen 46 per cent. There are at least five other M-Pesa agencies within 100 meters of his shop and a new one is coming up right next to his stall.

“I only keep M-Pesa because it brings traffic to my shop. Otherwise, the security risk associated with the money would not be worth the gains,” he says.

Almost a year ago, he was robbed at gunpoint at his stall.

IRRESISTIBLE CARROT

PEP Intermedius was the first agent to break the Safaricom exclusivity agreement, long before any such orders were made by the government.

The company offered an irresistible carrot, having struck a deal with retailer Nakumatt to set up cash merchant business in its stores.

PayNet Group, which owns the PesaPoint brand, this year concluded acquisition of PEP Intermedius. The plan is to provide a one-stop shop which breaks exclusivity not only across networks but also across sectors.

The cash merchants will also sell banking and insurance products and offer utility bill payment services. PayNet chief executive Bernard Matthewman says this will maximise the earning potential of agents and cash merchants.

The opportunity for agents to serve multiple partners will also become easier with the entry of new companies into the business.

Equity Bank has set up a telecommunication subsidiary which will focus on financial services.

Tangaza Pesa, which offers cross-network money transfer services, will also take on the incumbents after it was awarded a telecom licence.

“It’s like a retail shop that sells general goods; the more you stock fast moving items, the more you will make sales daily. Opening up the agencies will give the agents a wider range of products to sell to consumers — bank services, mobile money, Sacco services, etc,” said Tangaza Pesa chief executive Oscar Ikinu.

However, this improvement of fortunes will be heavily reliant on usage by Kenyans. Even with the increasing ubiquity of agents from other networks, Kenyans may not shift allegiances significantly to make a difference. This assertion is based on historical evidence.

Despite the introduction of mobile number portability and lower tariffs on rival networks, mobile subscribers have not been wooed away from the market’s largest player, Safaricom.

CASH-IN, CASH-OUT VARIETY

The impact of the growing drive for cashless payments is murkier. The primary use of mobile money services in Kenya remains the cash-in, cash-out variety.

In the proposed “digital” Kenya, you could potentially go a whole day without handling cash. Money can be moved from the bank account to the mobile money wallet and then used to pay for goods or matatu fare.

Such an eventuality would take away the bread and butter of mobile money agents. Only the operator makes money in transfer transactions.

“If it remains a strict deposit, send-and-cash-out business, that’s good for agencies. If the so-called e-money loop gets longer and people are not cashing out, agencies will see their commissions decline,” reads Money, Real Quick.

However, this scenario may be a long way off and it may not be quite so dramatic. Some 98 per cent of transactions in Kenya are still done using cash.

Mr Mutuku has set up a Lipa na M-Pesa account which he says is used only twice or thrice a week.

Mr Ongera argues that mobile money still remains a product for the unbanked. These people will still need an affordable money transfer system to send cash to relatives. They will need a platform where they can save their money easily.

On the other hand, Mr Ikinu says that going cashless may actually provide new opportunities to agents.

“A cash light society means large transactions for agents as customers look for access points and channels for loading cash,” he says.

Mr Matthewman says that although change is inevitable, the future of mobile and banking agents lies in diversifying their services beyond deposit and withdrawal services.

For the two businessmen, the conclusion of this story remains unclear.

They will wait and see whether Safaricom remains true to its word, whether other operators will offer competitive terms and whether cashless payments will pick up, before deciding on a course to take.

NEW OPPORTUNITIES TO HAVE MULTIPLE PARTNERS

• PEP Intermedius was the first agent to break the Safaricom exclusivity agreement, long before any such orders were made by the government.
• The company struck a deal with retailer Nakumatt to set up cash merchant business in its stores.
• PayNet Group, which owns PesaPoint brand, this year concluded acquisition of PEP Intermedius.
• The plan is to provide a one-stop shop which breaks exclusivity not only across networks but also across sectors.
• The cash merchants will also sell banking and insurance products and offer utility bill payment services. This will maximise the earning potential of agents and cash merchants.
• The opportunity for agents to serve multiple partners will also become easier with the entry of new companies into the business. Equity Bank has set up a telecommunication subsidiary which will focus on financial services.
• Tangaza Pesa, which offers cross-network money transfer services, will also take on the incumbents after it was awarded a telecom licence.