Decade old M-Pesa now confronts Pesa Link

What you need to know:

  • The CS was emphatic that M-Pesa was one of the top innovations Kenya has ever produced.
  • M-Pesa may be facing the greatest threat since its pilot days, when banks tried to get the acting Finance Minister, the late John Michuki, to shut it down
  • The banking community has come together to roll out Pesa Link, a service that enables real-time money transfers among bank customers.

Just over a week ago, Mr Joe Mucheru, the Cabinet Secretary for Information and Communications, was a special guest at the launch of a new banking product.

There, he lamented that in the last month, Safaricom had lost about Sh160 billion in value since a report leaked out.

In it, a consultant had found that Safaricom was a dominant company and that it was in the best interests of Kenya’s telecommunications sector if M-Pesa were hived off from Safaricom and run as an independent company.

The CS was emphatic that M-Pesa was one of the top innovations Kenya has ever produced. He said the government would protect its innovation investment in M-Pesa and would not be splitting it from Safaricom.

M-Pesa is now 10 years old. I recently found a copy of an M-Pesa agreement that I signed when I enrolled for M-Pesa in August 2007. 

The form indicated that M-Pesa would enable money transfer by SMS to people who did not need to have bank accounts. Money paid in ‘E-Money’ would be recorded on a register and held in trust. It would be redeemable by transferring to another user or to buy airtime or goods and services. 

GREATEST THREAT

It was a simple form and M-Pesa was also a simple product that has not changed much over the years.  But it has grown to overarch many aspects of payments in the country; even the mighty Uber had to bow down and adopt it to gain traction in Nairobi.

At Safaricom, M-Pesa revenue of Sh41.5 billion accounts for almost a quarter of revenue in 2016. M-Pesa and Safaricom are also key to the government which is the second-largest shareholder there.

A 2015 value report released by Safaricom showed that the company was a major contributor to government revenue, remitting Sh54.8 billion which was an improvement of 15 per cent from the year before. This comprised VAT of Sh12.2 billion, corporate tax of Sh20.6 billion; excise duty of Sh17.5 billion and license fees of Sh4.5 billion.

Yet as it turns 10, M-Pesa may be facing the greatest threat since its pilot days, when banks tried to get the acting Finance Minister, the late John Michuki, to shut it down.

BYPASS M-PESA

Besides the possibility of break-up, many cost-conscious Kenyans are, for the first time, seeing the real cost of transacting with M-Pesa. This information started being added to SMS confirmations on February 15.

Now they see that it costs Sh22 to pay NHIF and Kenya Power, Sh33 to pay Nairobi Water and Sh83 to pay the South African High Commission by M-Pesa.

It costs Sh15 to send Sh1,000, Sh55 to send Sh3,000, and Sh85 to send 8,000. In the next phase, customers will be able to see costs before they transact. Will that make them cancel transactions and look for cheaper or free alternatives?  

The cost disclosure followed a directive from the Competition Authority of Kenya (CAK), which has also asked Safaricom to reduce USSD financial service charges.

Also, the banking community has come together to roll out Pesa Link, a service that enables real-time money transfers among bank customers. While transactions can be initiated by phone, ATMs and the web, they bypass M-Pesa and telecommunications companies.

Customers will be allowed to move much larger volumes of money, up to the cheque limit of Sh1 million, all at a much lower price.

Meanwhile, in Parliament, the Deputy Minority Leader, Jakoyo Midiwo, and some of his party colleagues have advanced threats to make laws that break up Safaricom, which they feel is too big for the government to regulate properly.

REVOLUTIONARY SAVINGS PRODUCT

But it’s not all gloomy for M-Pesa. Across the border, in Tanzania, Vodacom is doing an IPO to comply with government regulation for all telecommunications operators to list at the Dar es Salaam Stock Exchange. The IPO prospectus shows that the growth of M-Pesa is key to the company (now 20 per cent of revenue) and that M-Pesa is a market leader, which has also helped connect many previously unbanked Tanzanians.

Safaricom was one of the key stakeholders as the government launched the M-Akiba government bond, a revolutionary savings product through which Kenyans will be able to invest in for as little as Sh3,000, right from their phones.  

Finally, a Bloomberg Terminal chart I read shows that from a low price of about Sh15.9 per share on March 9, Safaricom shares have since rebounded, and, for now, are back to about Sh17.9 per share, where they were at the beginning of the month.

Happy Birthday, M-Pesa.

Twitter: @bankelele