Equity-Airtel deal steals Safaricom’s thunder with money-transfer platform

 

Seven years into the rollout of Kenya’s revolutionary mobile transfer service M-Pesa by Safaricom, regional banks are increasingly considering mobile phones as an important distribution channel. TEA Graphic 

By Peterson Thiong’o The EastAfrican

In Summary

• Airtel will allow it to issue the telco’s customers with the bank’s branded Sim cards.
• The platform will offer voice, data and a mobile money transfer service to take on Safaricom’s M-Pesa.
• The bank expects at least three million of its mobile banking customers to move to its new network.

Equity Bank has said it will lease up to 60 per cent of Airtel Kenya’s network capacity in a deal that will allow the bank to become the region’s first mobile virtual network operation (MVNO).

 

The Nairobi Securities Exchange -listed bank said on Monday that the agreement with Airtel will allow it to issue the telco’s customers with the bank’s branded Sim cards. The platform will offer voice, data and a mobile money transfer service to take on Safaricom’s M-Pesa.

Under the partnership, the bank will disburse loans and offer cash transfer services for its eight million customers. The deal, analysts said, could reshape the future of payment systems in the region by combining financial services and technology more closely than was previously thought possible.

Seven years into the rollout of Kenya’s revolutionary mobile transfer service M-Pesa by Safaricom, regional banks are increasingly considering mobile phones an important distribution channel.

In the year ending March 2014, Safaricom said M-Pesa revenues hit Ksh26.6 billion ($305.2 million), up 21.6 per cent from the previous year.

While most banks in the region offer some form of Internet and mobile banking services, Equity’s launch is significant because this will be the first time a bank of its size — with a customer base of 40 per cent of Kenya’s 20 million mobile subscribers — has partnered directly with a telco.

The bank expects at least three million of its mobile banking customers to move to its new network.

Equity said it will roll out the MVNO service in Kenya in July, after securing the licence early this year, adding that it will expand the service across other markets in Uganda, Rwanda, Tanzania and South Sudan where it has operations.

“We have agreed on a variable cost model where we only pay for what we use. Essentially, it lowers our entry costs while at the same time allowing Airtel to cash in on its current idle capacity,” said Equity Bank’s chief executive officer James Mwangi.

Equity will be taking on competitors like Kenya Commercial Bank (KCB), who have raised the ante on mobile banking, as they seek to distribute products cheaply, run the back office and enhance cross-selling products.

KCB’s mobile banking services, Mobi Bank and M-Benki, allow customers to transfer money from their bank accounts to their mobile phones and vice versa. KCB’s customers can also transfer money from their bank accounts to other bank accounts, whether with KCB or another bank.

READ: KCB launches M-Benki in race for micro-deposits

While the latest deal gives Equity Bank an entry into the mobile phone business, it also points to new paths that regional telcos — a number of which are loss making — could take as they seek to exploit excess capacity on their networks.

“It’s about maximising on our assets; the more customers both Equity and Airtel get, the more value we create for our respective shareholders,” said Adi Youssefi, CEO of Airtel Kenya.

Many regional telcos are struggling to build capacity usage because of low customer numbers, a factor that has lowered their earning potential and slowed down investment in infrastructure.