Sunday, December 21, 2008


After a year or so of pretending to be mildly irritated while feigning disinterest, local banks have now woken up to the danger mobile cash transfer service M-PESA poses to their business and moved to curtail it.

The first signal that the industry was not happy was when out of the blue the finance minister John Michuki directed that M-PESA be investigated by the Central Bank of Kenya to prevent its misuse by money launderers or pyramid schemes.

Apparently, the banks have chosen a three-pronged attack. One, lobby parliament to become hostile to M-PESA although this hasn't worked as well as they expected. Two, use Central Bank of Kenya which is their regulator, to insist that M-PESA be halted until regulations are in place. How effective this approach is not known but it is worth noting that Zain which intended to launch its own money transfer service last month (November) had to hurriedly cancel it when CBK intervened citing legalities. Lastly, and curiously enough to sponsor cases against the service in courts across the country.

A closer look at M-PESA's growth reveals why banks would be worried. The service in less than two years (It was launched on March 6th 2007) has grown to more than 5million members and sees volumes of more than Sh10billion transacted every month according to official figures.

And its potential is even greater. Delayed by lack of regulation and non-recognition of electronic evidence by the Evidence Act, the service's potentially lucrative applications such as buying goods and services with M-PESA or running commercial websites where the service could be used for processing payments.

It is this fear that has prompted banks to circle the wagons to ward off this invader into their territory. Four banks led by KCB and Equity Bank along with Postbank and Cooperative Bank have formed a committee to "kill" M-PESA.

The four are said to have the support of international banks who because of corporate governance rules would not like to be directly associated with the committee.

However, efforts to bring Barclay's and Stanchart into the mix has failed while players in the industry say bankers are divided over the issue.


coldtusker said...

There is a factor you are over-looking... why can't banks run a similar service?

Actually, banks are NOT allowed to run an M-Pesa like service... too many KYC rules among other absurdities!

I think the banks should be allowed to move towards M-Pesa-like structures/services rather than shut down M=Pesa.



Actually I would say it is regulation. Bankers are regulated by the Central Bank while telecoms are regulated by the CCK.

We are yet to have (although sources indicate we could soon) a Financial Services Authority like the FSA in the UK.

Such a body would ideally not regulate people or organizations or sectors but PRODUCTS AND SERVICES.

With a service like M-PESa which is so far ahead of the curve that no regulation exists anywhere in the world to borrow notes from, you can understand the inertia our local regulators.

Additionally, until the President signs the Kenya Communications (Amendment) Bill into law, banks will be reluctant to engage in commerce that is not protected by any law.

As it exists now, the Evidence Act does not recognize electronic evidence.

But the KCA bill seeks to introduce electronic signatures and digital certification services.

Until then, Banks may just resort to these underhand tactics.

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