Business Daily (Nairobi)
Morris Aron
24 March 2008
Plans by mobile phone company Safaricom to introduce its money transfer service to UK have hit a regulatory barrier with authorities demanding that the operator meets a set of conditions.
Failure to immediately launch the service in the UK - one of the top sources of remittances to Kenya which hit Sh50 billion in January - is a likely pull-back on the company's revenue growth plan at a time when increased competition and the levelling out of subscriber growth is expected to slow down income from voice calls.
Having handled more than Sh9 billion since its launch in the Kenyan market 11 months ago, M-Pesa was expected to form a critical part of Safaricom's diversification plan ahead of the expected roll-out of France Telecom, which acquired a 51 per cent stake in Telkom Kenya late last year and South Africa-based Econet into the local market later this year.
Safaricom's drive to have its parent company Vodafone Plc launch M-Pesa service in the UK is informed by the fact that the country accounts for more than 20 per cent of total remittances to Kenya.
With statistics showing that the volume of remittances rose to Sh50 billion in January, the highest ever in the records, controlling a significant fraction of this traffic would open a major revenue corridor for Safaricom.
It has emerged that UK authorities are demanding that Safaricom meets the regulatory requirements governing banking, money transfers and exchange rates before it can be allowed to enter into the lucrative international money transfer business.
The roll-out could further be kept on hold until Kenya passes appropriate anti-money laundering laws.
"There are a number of issues that we have to sort out first before we are allowed to go international. That has delayed the launch date," said Mr Michael Joseph, the Safaricom chief executive.
But Ms Pauline Vaughan, the head of M-Pesa service at Safaricom, said the trials with Vodafone and Citibank in the UK are ongoing, pointing to the determination by the mobile phone service provider to launch it.
Citibank was to provide banking solutions for the transfers in the UK.
"Through these trials, we are addressing regulatory issues, including Know Your Customer requirements in UK and Kenya, as well as optimising the customer experience," said Ms Vaughan.
The UK is among the top destinations of choice for Kenyans studying in foreign universities and it was expected that M-Pesa service would help parents and guardians to easily transfer money between the two countries.
Money transfer service to and from the UK is subject to high fees and lengthy clearance processes. To transfer money through these channels requires both the sender and the recipient to have a bank account, which the M-Pesa service does not require.
Ms Vaughan declined to discuss the future role of M-Pesa on international remittances, citing the Safaricom initial public offering, in which the Government is selling 25 per cent of its 60 per cent shareholding to the public through an initial public offering that opens on Thursday.
Recent strong growth in Safaricom's subscriber base and a robust voice calls market has raised Safaricom's valuation to Sh200 billion with the Government set to earn Sh50 billion from the sale.
Safaricom, through its parent Vodafone Plc which has a 40 per cent stake in the firm started M-Pesa trials in the UK in August last year.
Plans to extend the service to the UK hinged on the success of the electronic money transfer service in Kenya where it has attracted more than 1.6 million subscribers and transacted Sh9.3 billion since its launch 11 months ago.
It is currently one of the favourite channels to send money in Kenya, especially to rural areas where basic infrastructural amenities to support banking services are rare.
The majority of the rural population depends on mobile phones for both business and communication and have no access to bank accounts, making M-Pesa a godsend.
A typical transaction through the service starts with a Safaricom subscriber registering with an M-Pesa agent using proof of ID or passport. Their phones are then activated to reflect that they are M-Pesa subscribers.
For an M-Pesa subscriber to send money, they are required to deposit the amount at any M-Pesa outlet. The recipient receives a message on his phone advising him to collect the amount at any dealer shop. Subscribers sending money to unregistered people are given a secret PIN Number which they communicate to the intended recipient.
Upon receipt of the PIN number, the receiver presents themselves to any M-Pesa agent, identifies themselves and present the PIN number before being issued with the amount on the spot.
From the UK, registered users were to send money to a mobile phone in Kenya using their UK bank debit card on a secure web site.
Local recipients of the money would be alerted via an SMS, the remittance verified by agents in Nairobi and registered for the service before withdrawing the amounts sent.
"As things stand now, it will take a little longer to get the process going than earlier thought," said Mr Joseph.
Only recently, an International Monetary Fund (IMF) report ranked Kenya as the second biggest recipient of foreign remittances in Sub-Saharan Africa after Nigeria - a feat it attributed to the growth of investment opportunities that have attracted the attention of the diaspora.
Remittance transmission business by Kenyans in the diaspora was currently estimated at $1 billion (approximately Sh65 billion) last year.
The remittances are mostly received by households headed by women and are used largely to pay for education and health care, as well as to invest in real estate and shares at the Nairobi Stock Exchange.
Safaricom's decision to extend M-Pesa beyond Kenyan borders is expected to kick off fierce pricing competition against seasoned players in the international money transfer market such as Western Union, Postapay and Moneygram.
Already the company has started an aggressive campaign to extend the number of M-Pesa subscribers by partnering with established financial institutions such as Equity Bank, Post Bank and mortgage provider Housing Finance to use their wide network across the country as outlets for M-Pesa.
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