Fascinating developments in the Kenyan mobile banking space – Equity Bank announced last month that they would become a mobile virtual network operator (MVNO) sometime in July. What on earth posses a highly successful bank to venture into the mobile business? It’s something between the desire to the last mile (literally) to serve clients, and responding to an existential threat, apparently.
Fletcher’s own Ignacio Mas and Equity’s John Staley make their case for the former in the CGAP blog, Why Equity Bank Felt It Had to Become a Telco – Reluctantly. He notes three reasons – lack of full security, unreliable speed and unfair price – behind becoming an MVNO to enhance Equity’s mobile banking offerings.
There seems to be a very strong additional motivator – MPesa has gatecrashed its way into the very client segment that was an Equity stronghold – low end retail market. This blog post makes a good case for why it’s a response to an “existential threat” from MPesa. MShwari is a savings-and-loan product offered by Safaricom in partnership with CBA, and has been phenomenally successful – it now has more than a million clients. They can save up to KES 100k, and take loans out for KES 20k. Surprising, considering how expensive its loan offering is, with APR clocking at 138% per annum when one conservatively compounds the 7.5% service fee, but it is also extremely convenient, because it allows one to not just save from the phone, but get almost immediate loans through ubiquitous MPesa agents.
What makes Equity think they can morph into part-telco to cater to this market segment? Their track record is not that stellar so far. Equity is no stranger to mobile money – it currently has offerings with pretty much all the major MNOs in Kenya – but their uptake is overshadowed by MPesa’s 73% coverage of the mobile money market. It also tried it’s hand at a partnership with Safaricom through the ill-fated M-Kesho project, but that did not end well. (Some details here and here.)
It does have one advantage though – because it is a bank with many other non-telco related sources of funds, it can cross subsidize the telecom services. Equity declares its desire to price aggressively already:
Mobile transfers will be charged at 1% of the transaction value compared to the prevailing market charges of 16%. The charges will be capped at Ksh 25 per transaction. Additionally, instant loans will be available at a maximum of 2% per month compared to the 7.5% per month offered in the market.
And as Ignacio and John point out:
To the extent that Equity customers use the telecommunications services that come along with their new SIM card, that will help to pay for costs associated with the roll out of the MVNO. But Equity does not see it necessary to fight the operator in its core business: all it needs is to break-even on the telecoms part.
Will Equity be able to provide a compelling enough mobile experience for clients to phone where they bank? Is this yet another significant shifting of the sands in the mobile banking landscape as the line between banks and telcos become more and more blurry? Either way, the winner from all this innovation and competition should be the Kenyan consumer.