Nairobi — Traditional money transfer firms face tough times even as banks come up with new strategies to counter blistering competition from mobile cash transactions that put a strain on their deposits growth.

In addition to aiming to become the world's largest entertainment network through its vast share of the mobile handset market, Nokia, the Finland-based firm, now aims to become the world's largest mobile bank as well.

The mobile phone giant with up to 1 billion customers around the world is seeking to tap into a market of at least 4 billion unbanked people globally with its money transfer service.

The company recently unveiled Nokia Money, a service for extending cash transfer to those without banks around the world which is expected to be gradually rolled out next year to selected markets worldwide.

On December 7 in Cairo, Alex Lambeek, Nokia vice-president for mobile phones, told journalists from Middle East and Africa that the firm is currently building a wide network of Nokia Money agents where consumers can deposit or withdraw cash from their accounts.

He said the firm is also seeking regulatory approvals from various countries and, at the same time, growing its partnerships ahead of the official rollout of the service.

Growing interest

In addition to news about Nokia Money, in what appears to be growing interest from global firms in markets in Africa and other emerging regions, Nokia also launched its latest devices in the company's range of handsets focused on mapping and navigation, the Nokia 2710 Navigation Edition.

Normally, firms unveil new products in developed economies and later gradually roll them out in countries in Africa. But this launch was the opposite, demonstrating the potential that the continent and Middle East have to the growth of companies. The new handsets will be available in the second quarter of next year.

When Nokia Money is established in the region, it will join Zap, Zain Kenya's money transfer platform, and M-Pesa, Safaricom's flagship mobile money transfer service.

This is expected to further tilt the scales in the money transfer market that is already very competitive.

Early in the year, Zain enhanced Zap to allow any of its over five million customers in the three countries where the service is active - Kenya, Uganda and Tanzania - to transfer money in seconds using the mobile phone platform.

Users can receive cash from anywhere in the world directly to their mobile handsets as well as send funds directly to their bank accounts.

Eddy Rizk, general manager Nokia North Africa, says unlike the current service providers, Nokia Money will enable transactions to be done by subscribers to any network in the world.

The service will not be limited by national borders as it is with local or regional players.

Nokia will roll out its service in partnership with Obopay, a service provider for payments via mobile phones in which Nokia bought a stake earlier this year.

Debit cards

Obopay operates a mobile payment platform that facilitates the use of international credit and debit cards like Visa and Master Card to use the system to pay money.

Nokia intends to integrate Nokia Money with other payment services and banking platforms.

Those likely to bear the brunt of the latest move are expected to be formal banking institutions and traditional money transfer agents like PostaPay, Western Union and MoneyGram.

Inter-bank transfers can account for up to 20 per cent of a bank's profits, costing anything from Sh500 upwards to send money to foreign accounts.Within Kenya, Western Union and MoneyGram are already beginning to feel the effects of M-Pesa, and Zap.

Mobile phone firm Safaricom recently launched an international money transfer service on its M-Pesa platform.

The service will enable Kenyans residing in the United Kingdom remit money directly to mobile phones of intended recipients in Kenya. Since its establishment in early 2007 until September this year, M-Pesa has transferred Sh230 billion person-to-person.

Nokia's move is likely to increase the share that mobile operators hold in the transfer business as it will enable the firm to tap into the lucrative international remittance market which is currently estimated at $268 billion.

Recently, Financial Sector Deepening, a research firm that conducted a survey for the Central Bank of Kenya, found that the rapid growth in mobile phone money transfers is piling pressure on formal and informal money transfer platforms that dominated the multi-billion shilling industry before the advent of the phone-based system, driving down their market share and revenues.

Dwindling fortunes of money transfer companies is reflected in the sharp decline of PostaPay's revenues in the last three years.

Launched in 2006 by the Postal Corporation of Kenya, PostaPay grew steadily in the first nine months to record a pre-tax profit of Sh48.4 million from gross commissions of Sh143.9 million earned from the local money transfer business.

Pre-tax profit soared to Sh186.3 million while total revenues rose to Sh383.2 million in 2007/08 - its first full year of operation which also coincided with the launch of M-Pesa.

A forensic audit of PostaPay early this year, however, found that gross commissions had plummeted to Sh91.6 million leaving the business with an estimated pre-tax profit of Sh13.8 million in the first six months of 2008/09 fiscal year.

A big selling point for mobile operators has been their relatively low transaction costs.

While it costs at least Sh550, Sh300 and Sh200 to send Sh10,000 using MoneyGram, PostaPay and Western Union respectively, M-Pesa charges about Sh105 for similar transactions.

The intense price competition forced Western Union to cut its charges for local money transfers in June.

Next step

Mobile payments will be the next step for delivering financial services to hundreds of millions of people, both urban and rural, who are underserved by existing payment means, especially in emerging economies.

Nokia said its target is to have 300 million active users of its services by the end of 2011.

Whether Nokia Money signals the true beginning of a paperless economy remains to be seen; credit card companies like Visa have tinkered with bringing debit and credit card functionality to mobile devices, only to be stymied by technological hurdles and, more importantly, privacy and security concerns.

Other companies are also trying to crack the mobile transaction market.

Facebook, for example, is developing a mobile payment system for its virtual currency, and individual banks are trying to make it easier for their account holders to conduct financial transactions via mobile devices.