Kenyan banks are looking to take on M-Pesa in the money transfer space with a new interbank transfer service known as PesaLink, which will allow users to transfer money to and from their bank accounts through their phones.

PesaLink, which was launched by the Kenya Bankers Association, allows users to transfer money between banks without the need for an intermediary. Previously, these users would have to transfer money from their bank accounts to their mobile money wallets, and then on to another user's mobile money account, incurring transaction costs at every step of this rather convoluted path.

With PesaLink, however, anyone with a bank account can make payments to other bank accounts in real-time around the clock.

M-Pesa's dominance in the mobile money transfer industry has for long received criticism, much of which has been from the KBA member banks. It’s estimated that at least 40 banks at one point used M-Pesa mobile money transfer platform to grow their deposits, issue out loans and facilitate bills payments serving over 3.1 million customers every month.

In 2012, KBA estimated its members were losing up to $22 million annually in commissions to mobile money providers such as M-Pesa and Airtel Money. This informed the Bankers’ union in 2013 to invest in an integrated information-sharing network to cut through the layers of bureaucracy that one would need to go through for a bank-to-bank transfer.

“PesaLink will enable customers to make payments between banks in real-time, around the clock, without having to go through intermediaries. This revolutionary peer-to-peer (P2P) product is offered by Integrated Payment Services Limited (IPSL), a fully-owned subsidiary of KBA formed to implement the platform upon which this and other digital innovations will run", the Kenya Bankers Association said in a statement.

KBA has received a go-ahead from the Central Bank of Kenya to initiate the roll-out of PesaLink to banks and their customers. The phased implementation will begin with twelve banks which have completed the pilot exercise and have received product approvals. As the first set of banks roll out the product to their customers, the rest of the banks are in various stages of testing the system.

KBA Chief Executive Officer Habil Olaka sees PesaLink as a complementary tool to existing products including Mobile money.

“The investment by KBA in this product is focused on delivering an advanced solution that can handle bank customer transactions around the clock,” said Olaka. “The system will enable users to transact as low as KES10 to as much as KES999,999 across the banking system. In effect, it will facilitate both large transactions, as well as such micropayments that millions of Kenyan settle in cash every day, including paying for groceries at the market, a haircut or bus fare,” he said.

Can PesaLink Rival the dominance of M-Pesa in the Mobile Money Transfer?

M-Pesa controls 85% of person-to-person money transfer valued at over US$7 billion in the first half of 2016. In second place is Equitel, a mobile money service operated by Equity Bank, at 15% with $1.1 billion in transfers in the same period.

KBA the umbrella body of the banking industry is aiming to change the dominance by Safaricom’s M-Pesa mobile money transfer by allowing its clients across the member banks to make payments between banks in real-time.

KBA is also set to offer competitive cost of transactions, users can transact up to $5 free of charge unlike M-Pesa’s feeless limit of $1. They also don’t have to rely on M-Pesa or other mobile money services and can simply transfer money from one bank account to another in real time using the banking sector platform.

While M-Pesa limits daily money transfer amounts to 140,000 Kenya shillings (US$1,400), banks have set the limit at up to US$10,000 meaning they are likely to attract a larger constituency of high-value transfers. PesaLink transactions can also be initiated from the mobile phone, the banks’ branch, at the ATM, at agency banking outlets or via the Internet

Financial experts opine that PesaLink could be a major competitor in the multi-billion dollar mobile money industry; this is attributed to the fact that banks enjoy a large customer base, which they say will boost their transactions. The banks’ clients get to keep their bank accounts and still transact with people having accounts in other banks in real-time.

The cost and waiting period associated with transacting large amounts of money is also a major factor addressed by PesaLink, according to KBA statement, the cost will decline significantly compared to previous processes involving drawing of cheques or making electronic funds transfer, which are lengthy and costly.

However, financial experts warn that M-Pesa’s dominance will not be overtaken easily. They argue that M-Pesa has made it convenient for millions of its customers to access financial services. This market exists because the cost of owning a bank account is way too high, and the terms are often seen as benefitting the banks rather than the customers. For this reason, banks will find it difficult to disrupt this relationship.

Cover Image:KBA Vice Chairman John Gachora, IPSL CEO Jennifer Theuri, and KBA CEO Habil Olaka at the PesaLink launch | Kenya Bankers Association

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