From: Biniam Tekle (biniamt@dehai.org)
Date: Thu Nov 05 2009 - 12:58:48 EST
Rise of mobile cash transfer service
By MACHARIA KIHURO
Posted Friday, November 6 2009 at 00:00
Mobile telephony is a big business in Africa today.
It is amazing how M-commerce has quickly hit the market with a bang.
In less than a decade, the small gadget has done what e-commerce was not
able to achieve in eons.
It is believed that Africa has the fastest growing mobile phone market in
the world today and interestingly the field is largely dominated by local
service providers.
M-commerce has hit the ground running and daring to revolutionalise the way
we live and clearly it is no longer business as usual.
Not all countries have fully adopted the technology though.
While countries like Kenya and South Africa are hitting a record 100 per
cent penetration of mobile telephony others like Burundi, Eritrea, and
Rwanda are still estimated to be at less than 30 per cent.
In Sub-Saharan Africa, it is estimated that only one in five households have
access to banking or financial services.
Two years ago, over 70 per cent of Kenyan households did not have bank
accounts.
The size of the unbanked market continues to grow despite the market having
in excess of 40 banks.
Lack of formal financial services channels limits seamless market exchanges,
increases inherent risks and limits opportunities to save and invest.
However, the ability of the cellphone to do much more than its primary role
of communicating is what has made a big difference.
The money transfer services especially pioneered by Safaricom’s M-pesa in
Kenya heralded a revolution in the way business is done.
Another company, Zain, has introduced a similar mobile money transfer
service known as Zap.
Due to the earlier entry in the market, Safaricom’s M-pesa still dominates
the market.
For this innovation, Safaricom has won enough accolades for such an original
idea which reminds me of John Stuart Mill who once said that, “All good
things which exist are the fruits of originality.”
According to the Central Bank of Kenya statistics, In July 2007, there were
268,499 registered M-pesa customers and by July 2009, the number of
registered customers was 7,387,980—an increase of 2,652 per cent.
In July 2007, the total value of monthly transactions was Sh1.065 billion
($14.2 million).
This figure was Sh40.176 billion ($535.6 million) in July 2009.
The rapid growth of mobile phone banking in Kenya is largely an evidence of
the great need for low-cost financial services in developing countries.
No wonder some banks have been accused of pushing for gagging this momentous
growth through regulations that might tilt the balance in their favour.
The Central Bank of Kenya has undertaken various strategies to enhance the
oversight capacity effectively keeping abreast of innovation and
technologically driven financial services.
This is quite necessary to avoid pitfalls that might crop up as the product
grows.
South Africa’s MTN recently announced plans to establish a bank account on
mobile phones that will even come with an optional credit card.
The service will graciously be launched in other countries where MTN
operates.
Indeed, the growth opportunities in M-commerce are as many as you can lay
your hands on.
The most interesting aspect also is the way the way the services have been
adopted by the not-so-rich in the society.
The usage has also cut across generations and as you will get a young
urbanite in the cities using it so is the grandmother in the countryside.
In Kenya, M-pesa first became popular as a way for young, urban migrants to
send money back to their families in the rural areas.
It is now virtually used to pay for any service from school fees, settling
electricity and water bills among others.
Family bank in Kenya just recently introduced the service of repaying loans
through mobile phone money transfer.
Kenya Airways has also made it possible to pay for an air ticket through the
same channel.
However, as we celebrate this technology, it is critical we dig deep to
identify the inherent risks.
In this field, the main risk factors may include anonymity and poor
oversight.
Anonymity is the risk of not knowing a customer’s actual identity, and it
can be mitigated through enhanced due diligence on Know-Your-Customer.
This is the buzz word in the financial sector alongside the issue of
Anti-Money Laundering policies.
Poor oversight can be mitigated by ensuring there is transparent guidelines
on mobile services, open licensing, regulation of providers, and effective
risk supervision by the providers.
It is prudent to go further and “legislate” the regulations that will govern
the use of these money transfer services.
The pyramid schemes in Kenya is a perfect learning example of how-not-to
engage in un-regulated and phony businesses.
Macharia is a Risk Management Practitioner at Panafrican Housing Financial
institution, Shelter Afrique, Nairobi. Email: jkihuro@yahoo.com
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