Banking and lessons learnt from Kenya’s M-Pesa

The year is 2007. A company in Kenya launches a platform that allows its customers to receive and send money through their mobile handsets.

In its first few weeks, only 19,000 active users sign up, a year later this figure grows to a million, a decade later this figure grows to twenty million active monthly users.

In 2016, six billion transactions were processed on the platform with cash transacted on the platform amounting to an estimated Rwf12 trillion per quarter in 2018 but even more impressive a 2016 study by Georgetown University and the Massachusetts Institute of Technology concluded that this platform had lifted 2% of Kenya’s population out of extreme poverty.

Kenya’s Daily Nation newspaper reported that it is estimated that mobile money transactions amount to almost 50 percent of Kenya’s GDP. Today, this platform now includes functions such as international transfers, loans and other services.

No, that company wasn’t a bank. Its name is Safaricom a Telecom company and the platform is M-Pesa. Eleven years after that day, Safaricom is now a global leader in digital financial services.

In fact, so important to the Kenyan economy is M-Pesa that a few hours of downtime causes ripples in the financial sector and losses of billions to the Kenyan economy and rumors were going on a few years back about a secret Government proposal to nationalize M-Pesa due to its national importance.

Why the history lesson you may ask. The answer is the missed opportunity that this represents to banks and other financial sector players.

To have a Telecom become the biggest player in financial services in an economy surely must sting but it also represents the new way of doing business.

Innovation and imagination have now become the cornerstone of successful companies globally.

Apple which started as a company manufacturing desktop computers is now a global leader in handheld devices, Amazon which started off as an online book retailer is now the go-to retailer for everything you can possibly think of and Samsung which was known in the 90’s for their TV’s and Fridges is now the market leader in mobile phones with a global market share of more than 20%.

Coming home, Rwanda’s banking sector has registered phenomenal growth over the past decade on all possible parameters.

However, the opportunities that still exist for banks and other financial services players remain many and diverse. As more and more Rwandans transit from poor to middle class the quality, turnaround time and customer service that accompanies our products and services must be innovative and transformational.

Future trends such as middle class growth, tourism numbers, mobile phone penetration, regional integration and diaspora trends must be a foundation that informs products and services.

Continentally, as the implementation of the Africa Continental Free Trade Area, signed here in Kigali, nears; the demand for more synchronized but also customized banking services will grow.

To be able to support our existing clients and new ones as they search and explore new opportunities across the continent will represent key revenue lines in the next decades.

The growth, in leaps and bounds, in technology with next generation solutions such as 5G networks will create opportunities for banks to come up with new products and solutions to common problems bedeviling banking such as perennial downtime for ATM’s and other digital platforms but also become an opportunity to introduce cutting edge systems that will make the banking sector more responsive to clients.

As more banking transactions move away from branches and into the digital space, the opportunities are endless. The catch 22 is that if as a banking sector we don’t come up with these solutions then our non-banking competitors such as Telecoms, Insurance Companies,

Web based companies such as Branch and Tala and even new startups will come up with these solutions and continue reducing the relevance of our core services.

The huge segment, across Rwanda and Africa, that are still using informal financial systems such as table banking and cooperatives are an untapped market that a highly innovative and forward looking banking sector can bring onboard into the formal banking structure.

The benefits in deposits and loan portfolio would be immense.

As huge infrastructure projects like airports, railways, highways, sea ports and power generating projects, financed mostly by foreign banks, spread across the continent it behooves the banking sector to stake its claim on this hugely profitable trend instead of looking on from the sidelines as foreign banks take over financing of these projects.

This can only be done through reinvention and retooling of the banking sector to ensure that we are responsive to the immense demands of such projects. The United Nations projects that infrastructure projects worth 150 Billion USD will be spent by 2025.

Financial Sector Regulators like central banks will also need to support and encourage a more innovative banking sector while still safeguarding depositor’s funds and ensuring stability in the financial sector.

Oh, and by the way, speaking of M-Mpesa; the Kenyan Bankers Association, an umbrella organization representing 46 banks, launched a similar platform in 2018. Ten years too late I think.

The writer is the Strategy and Business Analytics Manager at BPR part of Atlas Mara, with over 10 years of experience in Financial Audit, Consultancy and Banking.

The views expressed in this article are personal and do not necessarily represent those of his employers or The New Times.

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