Kenya’s mobile banking trend a hard act to follow

Mobile phones are bound to change the way banks deliver their services and fund their balance sheets. FILE PHOTO | DIANA NGILA | NATION 

By George Bodo

In Summary

• Safaricom is dominant in market, making money while the rest of the players on most part unfathomably post full-year operating losses.
• Banks have now realised that the mobile phone will be a powerful alternative delivery channel and are increasingly seeking partnerships with Safaricom on this front.

Kenya’s mobile telephony market is probably the most unique in the whole of sub-Sahara Africa. It is unique in two ways: First, it is the only market where only one operator (Safaricom) makes money while the rest of the players on most part unfathomably post full-year operating losses.

 

While the jury is still out on whether this is a net factor of regulatory environment, Safaricom is a dominant player. At the close of December 2013, the company had nearly 70 per cent market share, which numbered 31 million subscribers.

Across the key markets in sub-Sahara Africa, there is no single operator with such huge market share.

In Tanzania, the leading operator has 36 per cent market share while in Uganda it has 43 per cent stakeholding. In South Africa, the leading operator, Vodacom, has an estimated 59 per cent market share, while the figure is 46 per cent for Nigeria and Ghana.

Secondly, the average Kenyan caller is price insensitive and, in most cases, seems to care less about upward tariff adjustments — the price elasticity of demand in Kenya’s mobile phone market is still below one. The Kenyan consumer will simply talk more and more.

But perhaps what continues to entrench Safaricom’s dominance is the famous ‘club effect’, where subscribers are increasingly finding it hard to leave the network for one reason or another, but in most instances customers cite M-Pesa as the main reason.

In fact, in its full-year period ended March 31, 2014, Safaricom’s voice traffic totalled 24 billion minutes, of which 95 per cent were on-net. Again, the jury is still out on whether this can be classified as loyalty.

And now something more powerful is emerging — mobile banking and the growing convergence between banking and mobile telephony.

Banks have now realised that the mobile phone will be a powerful alternative delivery channel and are increasingly seeking partnerships with Safaricom on this front.

First it was Commercial Bank of Africa (CBA) with its M-Shwari and now KCB with M-Benki. And many more could be lined up in the coming months. It is now a reality that the mobile phone is bound to change the way banks deliver their services and even the way they fund their balance sheets.

This is something that continues to be unique to Kenya and will not be easily replicable across many African countries. And this is one primary reason Kenya doesn’t have migration risks especially when it comes to mobile phone lending products.

In other markets, notably South Africa, Nigeria, Uganda, Tanzania and Ghana, the market share is evenly distributed hence serial defaulters can easily borrow via one operator, switch off their SIM card and buy another line from another operator.

There are high possibilities for such actions to occur because of the lack of credit referencing on mobile banking.

In Kenya, migration risks are still bound to be low for some time given the fact that Safaricom still has the bulk of the market and chances of serial defaulting remain low.