M - TRANSACTIONS FOR ENHANCING M - TRANSACTIONS FOR ENHANCING MDGs AT BOTTOM OF THE PYRAMIDMDGs AT BOTTOM OF THE PYRAMID

A Case Study for m-Banking in KenyaA Case Study for m-Banking in Kenya

Francis Wambalaba – School of BFrancis Wambalaba – School of Businessusiness

Akosa Wambalaba – School of Arts/SciencesAkosa Wambalaba – School of Arts/SciencesPhilip Machoka - ISTPhilip Machoka - IST

Purpose of the StudyPurpose of the Study

To investigate potential for using m-banking and To investigate potential for using m-banking and m-transactions at the bottom of the pyramid in m-transactions at the bottom of the pyramid in Kenya as an MDG e-money strategy.Kenya as an MDG e-money strategy.

Research Questions:Research Questions: What is the nature of m-banking/transaction practices What is the nature of m-banking/transaction practices

in the developing world?in the developing world? What are the prospects for m-banking in Kenya?What are the prospects for m-banking in Kenya? How can m-banking transform the economic How can m-banking transform the economic

experience of the poor in Kenya to enhance MDGs?experience of the poor in Kenya to enhance MDGs?

Research Design & SamplingResearch Design & Sampling

Desk top researchDesk top research

Field work researchField work research Use a combination of descriptive and Use a combination of descriptive and

exploratory research designs.exploratory research designs.Descriptive design develop historical patterns of m-Descriptive design develop historical patterns of m-banking and providing prescriptive guidelines for banking and providing prescriptive guidelines for an effective m-banking for the poor.an effective m-banking for the poor.

Exploratory design to engage in a snowball Exploratory design to engage in a snowball approach to identify further subjects to be included approach to identify further subjects to be included in the interview process.in the interview process.

Data CollectionData Collection

Case study interviews including:Case study interviews including: Two service providers (Safaricom’s M-PESA and Two service providers (Safaricom’s M-PESA and

Zain’s Zap)Zain’s Zap) Three banks (Commercial Bank of Africa, Cooperative Three banks (Commercial Bank of Africa, Cooperative

Bank and Equity Bank)Bank and Equity Bank) Two regulators (Central Bank of Kenya and Two regulators (Central Bank of Kenya and

Communications Commission of Kenya)Communications Commission of Kenya) Three ministries (Ministry of Finance, Ministry of Three ministries (Ministry of Finance, Ministry of

Communication and Ministry of Trade and Industry) Communication and Ministry of Trade and Industry) and 6)and 6)

Two customers/microfinance organizations (Faulu Two customers/microfinance organizations (Faulu Kenya and Jamii Bora)Kenya and Jamii Bora)

Completed InterviewsCompleted Interviews5 Done/7 Not Done5 Done/7 Not Done2 Service Providers – Safaricom done2 Service Providers – Safaricom done Zain not doneZain not done

3 Banks – Cooperative and Equity done3 Banks – Cooperative and Equity done CBA not doneCBA not done

2 Regulators – Central Bank of Kenya done2 Regulators – Central Bank of Kenya done Communication Commission of Kenya not doneCommunication Commission of Kenya not done

3 Ministries – Min of Info & Communication done3 Ministries – Min of Info & Communication done Min of Finance and Min of Trade & Industry not doneMin of Finance and Min of Trade & Industry not done

2 Customers/Microfinance – None done2 Customers/Microfinance – None done Faulu Kenya and Jamii BoraFaulu Kenya and Jamii Bora

PartnershipsPartnerships

..

Typical Areas for PartnershipTypical Areas for Partnership

What is the History of What is the History of Partnerships?Partnerships?

Regulatory partnershipsRegulatory partnerships Safaricom and Zain regulated by the Communications Safaricom and Zain regulated by the Communications

Commission of KenyaCommission of Kenya Operations of M-Pesa and Zap are overseen by the Central Operations of M-Pesa and Zap are overseen by the Central

Bank of Kenya.Bank of Kenya.

Agent NetworksAgent Networks Super agent - Commercial Bank of Africa.Super agent - Commercial Bank of Africa. Retail agentsRetail agents

Micro-lending institutions.Micro-lending institutions. Faulu Kenya and Jamii BoraFaulu Kenya and Jamii Bora

OthersOthers Government /ParastatalsGovernment /Parastatals International and National Financial Institutions International and National Financial Institutions

Safaricom’s M-Pesa PartnershipsSafaricom’s M-Pesa PartnershipsIn February 2007 M-Pesa was launched In February 2007 M-Pesa was launched as a mobile payment solutionas a mobile payment solutionA sample of partnerships includeA sample of partnerships include East African AirwaysEast African Airways Air KenyaAir Kenya Aircraft Leasing ServicesAircraft Leasing Services The Rift Valley RailwaysThe Rift Valley Railways Akamba Bus ServicesAkamba Bus Services Crown Bus ServicesCrown Bus Services Busways CompanyBusways Company Western Union (UK)Western Union (UK)

Source: DFID Report 2006Source: DFID Report 2006

Zain’s Zap OperationsZain’s Zap Operations

Zain launched Zap m-transfer service in Zain launched Zap m-transfer service in February, 2009February, 2009 much lower cost of 10 shillings per transaction.much lower cost of 10 shillings per transaction.

Formed partnerships with 3,000 dealers.Formed partnerships with 3,000 dealers. Within 3 months, it had transferred Ksh. 700 million. Within 3 months, it had transferred Ksh. 700 million.

Within first 6 months it had over 300,000 Within first 6 months it had over 300,000 registered customersregistered customersZap’s advantage was operation in 3 countries in Zap’s advantage was operation in 3 countries in East AfricaEast AfricaTheir partnerships include funding Millennium Their partnerships include funding Millennium Villages communications in rural areas.Villages communications in rural areas.

Motivation for Partnerships?Motivation for Partnerships?

Distribution of retailer reduces security risk of Distribution of retailer reduces security risk of carrying large sums of money.carrying large sums of money. Providing efficiency in money transaction services.Providing efficiency in money transaction services. Providing cost savings through established Providing cost savings through established

distributors.distributors.

Providing regulatory framework and institutional Providing regulatory framework and institutional capacity which are inadequate.capacity which are inadequate.To complement each other and leverage on the To complement each other and leverage on the MTO’sMTO’s outreach. outreach.Opportunity to bring the poor into the financial Opportunity to bring the poor into the financial transactional environment.transactional environment. Empower and liberate bottom of the pyramid, through Empower and liberate bottom of the pyramid, through

real time low cost communication/transfers.real time low cost communication/transfers.

Why Partnerships?Why Partnerships?

Telcos must enter into partnerships with other Telcos must enter into partnerships with other banks to carry out m-transactions as payment banks to carry out m-transactions as payment and transfers.and transfers. Mobile transactions do not offer savings as banks Mobile transactions do not offer savings as banks

would. would. Regulatory framework as provided for under the Regulatory framework as provided for under the

Banking Act, they cannot infringe upon banking Banking Act, they cannot infringe upon banking services.services.

Can not accept money deposits from public that are Can not accept money deposits from public that are repayable with interest. repayable with interest.

Can not use money for lending or investment.Can not use money for lending or investment.

Partnerships assure regulators concerned about Partnerships assure regulators concerned about vulnerability to fraudulent activities.vulnerability to fraudulent activities.

Future Prospects for Future Prospects for Partnerships?Partnerships?

Regulatory framework put together to make Regulatory framework put together to make possible e-commerce.possible e-commerce. Working to include ticketing and purchase of Working to include ticketing and purchase of

international flights.international flights.

Provision of better informal financial education Provision of better informal financial education through individual use of mobile technology.through individual use of mobile technology.

Provision of 2Provision of 2ndnd round mobile led knowledge round mobile led knowledge

Development of culture of professional Development of culture of professional interconnectedness.interconnectedness.

Economic ImplicationsEconomic Implications

..

Mobile Phone Take Up in Different Mobile Phone Take Up in Different RegionsRegions

..

TechnologyTechnology

..

Development in New TechnologyDevelopment in New Technology

Since 2008 banks in Kenya have continued to Since 2008 banks in Kenya have continued to embrace new technology by upgrading and embrace new technology by upgrading and replacing their core banking systems. replacing their core banking systems. there is an increased uptake in the use of mobile phone there is an increased uptake in the use of mobile phone

technology as a service delivery channel.technology as a service delivery channel. a number of new products are being introduced by a number of new products are being introduced by

financial institutions that leverage on ICT particularly financial institutions that leverage on ICT particularly mobile phone technology.mobile phone technology.

M-banking using SMS technologyM-banking using SMS technologyMobile banking and SMS banking are synonymous. SMS banking uses text messaging -- the Mobile banking and SMS banking are synonymous. SMS banking uses text messaging -- the iconic activity of cell phone use. SMS works in either a push mode or a pull mode. iconic activity of cell phone use. SMS works in either a push mode or a pull mode.

In pull mode, the bank sends a one-way text message to alert a mobile subscriber of a certain In pull mode, the bank sends a one-way text message to alert a mobile subscriber of a certain account situation or to promote a new bank service. account situation or to promote a new bank service.

In push mode, the mobile subscriber sends a text message with a predefined request code to In push mode, the mobile subscriber sends a text message with a predefined request code to specific number. The bank then responds with a reply SMS containing the specific information.specific number. The bank then responds with a reply SMS containing the specific information.

SMS banking has several advantagesSMS banking has several advantages::

It works on virtually every cell phone, regardless of manufacturer, model or carrier. It works on virtually every cell phone, regardless of manufacturer, model or carrier.

It’s a familiar, ubiquitous technology. It’s a familiar, ubiquitous technology.

Sending text messages is relatively cost-effective. Sending text messages is relatively cost-effective.

It accommodates two-way communication, allowing messages to be initiated by banks or by It accommodates two-way communication, allowing messages to be initiated by banks or by customers. customers.

The disadvantages of SMS The disadvantages of SMS

limitations of text messaging. For example, messages can only be 160 characters in length.limitations of text messaging. For example, messages can only be 160 characters in length.

Plus, there are no guarantees that a message will actually be delivered to its recipient. Plus, there are no guarantees that a message will actually be delivered to its recipient.

Most troubling for banks is the inability of SMS to deliver a custom interface. Most troubling for banks is the inability of SMS to deliver a custom interface.

More advanced mobile banking solutions, overcome these challenges with WA P enabled phones.More advanced mobile banking solutions, overcome these challenges with WA P enabled phones.

M-banking using USSD technology M-banking using USSD technology

PushPush PullPull

TransactionTransactionFunds transfer Funds transfer Bill payment Bill payment Share trade Share trade Check order Check order

InquiryInquiryMinimum Minimum

balance alert balance alert Credit/debit alert Credit/debit alert Bill payment Bill payment

alert alert

Account balance Account balance inquiry inquiry

Account statement Account statement inquiry inquiry

Check status Check status inquiry inquiry

Transaction history Transaction history

Mobile banking services.•Push transactions are not as complex as their pull counterparts. •Mobile banking solutions also vary in their degree of complexity, and some only offer a fraction of the services you would find in a bricks-and-mortar branch. •Mobile banking is not always full-service banking. •The factors that affect this are the type of phone being used, and the technology framework of the bank.

Zain network coverage.

Source: www.zain.com

35% coverage in the country of terrestrial fiber Optic Cable35% coverage in the country of terrestrial fiber Optic Cable

85% of the population can access broadband 85% of the population can access broadband

Concluding ObservationConcluding Observation

At proposal, situation was gloomyAt proposal, situation was gloomy

Today, high prospectsToday, high prospects

Work to be doneWork to be done Complete interviewsComplete interviews Complete analysisComplete analysis Complete reportComplete report Disseminate findingsDisseminate findings Work with and advice stakeholders.Work with and advice stakeholders.

M - TRANSACTIONS FOR ENHANCING M - TRANSACTIONS FOR ENHANCING MDGs AT BOTTOM OF THE PYRAMIDMDGs AT BOTTOM OF THE PYRAMID

A Case Study for m-Banking in KenyaA Case Study for m-Banking in KenyaAAsanteni sanasanteni sana

Thank you very Thank you very muchmuch

Merci boucoupMerci boucoup

AArigato rigato gozaimasugozaimasu