How Equity mobile money service will work

Customers at an Equity bank lobby. Equity has unveiled a new strategy seeking to change the way Kenyans transact to an easy convenient electronic form through the mobile phone. PHOTO | PHOEBE OKALL | FILE  NATION MEDIA GROUP

In Summary

• According to Kestrel Capital, an investment bank, it “believes that the most expensive process for a financial institution is converting cash from its liquid form to electronic form and back to its liquid form.”
• Firms are realising that future returns from traditional business such as brick-and-mortar banking are falling. Mr Mwangi’s team has taken time to think up a system that knocks down technological barriers.

By David Kimondo

As far as mobile revolutions go globally, Kenya is undoubtedly a technology hotbed.

The contribution of money transfer services such as M-Pesa by Safaricom and Airtel Money has propelled the economy, changed the way people transact business and placed Kenya on the world’s technology map.

Yet, a recent announcement by Equity Bank, which turned from a fledgling mortgage lender of the 1980s into the biggest bank by customer base today, may have opened a new chapter as it seeks fresh growth. Equity has unveiled a new strategy seeking to change the way Kenyans transact to an easy convenient electronic form through the mobile phone.

The bank’s plan is straightforward. According to Kestrel Capital, an investment bank, it “believes that the most expensive process for a financial institution is converting cash from its liquid form to electronic form and back to its liquid form.”

In so doing, Equity hopes to cut costs by allowing customers to have direct connectivity with their bank accounts instead of the current scenario where the funds are first withdrawn from bank accounts.

Currently 96 pc of all transactions in East Africa are carried out using liquid cash. Equity’s idea to charge transactions at 1 per cent of the transaction value compared to the prevailing market charges of 16 per cent may turn the tide.

The announcement is the result of a change in law allowing companies – called mobile virtual network operators, or MVNOs - to operate as telecoms even if they do not have a mobile network of their own.

In April, industry regulator Communications Commission of Kenya (CCK) issued licences to three MVNOs – Zioncell Kenya Limited, Mobile Pay Limited and Finserve. It is the latter outfit, owned by Equity, that has enabled it to make this new foray.

An MVNO enters into a business agreement with a mobile network operator to obtain access to network services. It then uses this network to offer services such as banking, retail or insurance and set prices independently.

In its case, Equity will use Airtel’s network, issuing its own SIM cards which will also act as debit cards. Customers who choose not to take up the SIM card will be issued with debit cards in the form of film stickers at the back of their phones. The service will go live in July.

“We feel that innovations and technology have given us a perfect opportunity to continue our tradition of rewarding our customers with control and freedom of choice. All our customers will receive their SIM cards ready for use as soon as we roll out,” said Equity Bank CEO James Mwangi at the company’s headquarters.

Certainly, most of the capabilities of the new service have been done by other mobile solutions. But the creativity and sheer scale of the new proposition in connecting consumers to other banks’ systems and telecoms networks eliminating middlemen is unprecedented.

If it succeeds, the bank will surely have pulled the revenue rug from under Safaricom’s M-Pesa service, with its disruptive technology. Will it be Equity’s third-time charm?

Several reasons are driving this new trend. First, traditional mobile operators are embracing MVNOs to maximise returns. The economics makes sense: operators such as Airtel will make money by offering their excess network capacity; and MVNOs will use their expansive footprint to create new revenue streams. Equity will also benefit from Airtel’s regional presence, especially in Tanzania, Uganda and Rwanda where both companies operate.

Secondly, technology systems and devices are increasingly able to exchange, interpret and share data. This may attract other players kicking off a huge battle for online customers.

Firms are realising that future returns from traditional business such as brick-and-mortar banking are falling. Mr Mwangi’s team has taken time to think up a system that knocks down technological barriers.

But Equity’s ingenious proposition is prone to challenges. If unchecked, technological hitches and its poor customer service may impede take-off.

Airtel will offer 60 per cent of its unused network and will further commit to invest in overlap of network availability.

Whatever the outcome, the bank’s latest foray is bound to upset the applecart -- and the forward march in Kenya’s technology sector will have taken a new drumbeat. How soon will it take to join in the dance? Time will tell.

Mr Kimondo is a PR Director at H+K Strategies East Africa. The views expressed here are his own. Ahmednasir’s column resumes next week.