The World of FinTech that Revolves Around M-Pesa and the Threat it Poses to Banks

M-Pesa is simple, Banks are not...


Mpesa, Vodafone India, ICICISince M-Pesa was launched back in 2007, it is not a secret that lives have been changed. M-Pesa has changed how Kenyans do transactions, how businesses operate and through Lipa Na M-Pesa, even propelled the growth of e-commerce. M-Pesa drove financial inclusion to a whole new level, and it did not stop at that.

A few years down the line, Safaricom introduced M-Shwari, a paperless banking service offered through M-PESA that would enable users to open and operate an M-Shwari bank account through their mobile phones. M-Shwari would enable M-Pesa customers to save and borrow unsecured loans through their phones.

Safaricom referred to M-Shwari as a “product for everyone who feels that banking should be hassle-free. No forms to fill in, no branches to visit. Just one click on your phone and you have a savings account!”, and thus M-Pesa was officially competing with banks, without the frustrations that come with banks.

It took a while for banks to realize this threat and they have tried to do “damage control” through a service known as PesaLink, an inter-bank mobile money transfer platform which would enable customers send and receive money across different bank account using their mobile phones. But too little, too late?

Anyway, today we’re simply looking at the unsecured loans ecosystem that revolves around M-Pesa. So, let’s get back to M-Shwari. M-Shwari, which is hosted by the Commercial Bank of Africa (CBA) had issued loans amounting to KES.29 Billion as December 2015. M-Shwari’s deposits stood at an excess of KES.153 Billion during the same period. As of August 2016, M-Shwari was processing an average of 70,000 loans daily.

In March of 2015, KCB and Safaricom joined hands to launch KCB M-Pesa, a direct competitor to M-Shwari, that offers exactly the same service. As of August 2016, the platform had been advancing between KES.25 million and KES.30 million in loans daily. At that same time, the joint venture between the bank and Safaricom has signed up 6.4 million account holders with over KES.286 million saved on the platform. By November 2016, KCB M-Pesa had disbursed KES.17 Billion in mobile loans.

We have one more class of services that make use of M-Pesa without having ties to Safaricom. These are mobile loan services apps such as Tala and Branch. These apps allow you take simply sign up, and borrow loans of different amounts (depending on your credit worthiness that the app determines by scanning your M-Pesa text messages). The amount borrowed is sent to your M-Pesa and you repay the loan through M-Pesa.

Tala, which has over 1 Million downloads on the Play Store, was launched in 2014 as Mkopo Rahisi. As of 2015, the service had issued a total of KES.1 Billion in loans with a reach of 75,000 customers. Branch (launched in April 2014) on the other hand, has a little over 500,000 downloads on the Play Store. Tala is said to have a 24.9% market share, coming second to Branch which is said to have 27% market share, according to a study by Djuaji Research published early 2016.

An analysis released by CBA shows that, 59 percent of M-Shwari customers are male while women account for 41 percent. The 24-35 years age group are its highest users and women tend to save more than men on the platform, while men over of 40 years save at a higher rate than their younger counterparts.

What do we gather from all these numbers? It is evident that young Kenyans are no longer reliant on banks to get loans, especially small loans to push them through a hard week, or maybe even for capital for their small businesses. The threat posed by M-Pesa to banks is real, and the dominance of M-Pesa in the market is also being felt by competitors.

I am no economist or a banker in any way but I do realize that banks need to innovate. How many times have you prefered to “Lipa na M-Pesa” as opposed to using cash or even your credit/debit card? MasterCard has been trying to come up with ways to steal the crown from M-Pesa, through innovations such as Masterpass QR, but they miss the point, Kenyans are not yet ready to switch from M-Pesa, it has become part of our lives and only about 10 million subscribers use smartphones, the other 25 million plus are on feature phones.

My thoughts are, there’s no need to try and out-innovate M-Pesa, why not use M-Pesa as a platform to introduce a service that Safaricom hasn’t yet? For instance, I would like to pay for my goods, using M-Pesa, without having to input a pay bill number or the amount (*cough* Masterpass QR should run on M-Pesa *cough*). Or send money directly from Facebook Messenger/Telegram to my friends or buy goods directly on Instagram without having to leave and look for the SIM toolkit. Give me such a solution and I will be your number one fan, we have M-Pesa API for a reason you know! – P.S You will owe me royalties for the idea.


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