Kenya: Equity gambit rattles both telcos and banks

Equity, East Africa’s biggest bank in terms of customer numbers, has shaken up the business environment yet again by launching a new mobile telephone business. Equity’s foray into mobile telephony is an undisguised assault on the hitherto dominant position of Safaricom. Wanjohi Kabukuru presents the latest instalment in the ongoing battle of the telcos and banks.

When word leaked out in February that Equity Bank had submitted its application to operate a mobile telephone business to the Communications Authority of Kenya (CAK), both the banking and telecom fraternities were rattled. A quiet boardroom war between telcos keen to reap and forestall Equity’s ambitions ensued.

That is today water under the bridge, as in July Equity will be pushing Kenya’s business frontiers when it launches its money transfer platform, having met all the criteria.

In this new venture, Equity Bank, which is partnering with Airtel, will be seeking to digitise all bank processes including sending money, depositing, withdrawals, loan requests and payment options incorporating transactions with rival banks.

Under the deal Equity is rolling out, the bank’s branded SIM cards will be issued to the cellular phone company’s customers. This is not the first time Equity has dabbled in mobile money transfer or disrupted the market with its bold ideas. The lender’s entry into the telcos market was also not entirely unexpected.

In mid 2010, Equity partnered with Safaricom to launch M-Kesho (‘Mobile tomorrow’), in an effort to encourage a savings culture among low-income earners. At the time, Equity was Kenya’s largest bank in terms of account holders – a position it still holds – and Safaricom commanded the cellular phone market.

Both Equity, under James Mwangi, and Safaricom, led by Michael Joseph, were giants in their respective markets. The collaboration between Equity and Safaricom saw Equity increasing its account holders to the current 8m.

However, this partnership was short lived as mistrust, ego trips and disagreements on revenue sharing forestalled M-Kesho’s progress, which is said to have been ‘half a decade ahead of the market’. Nicholas Sullivan and Tony Omwansa’s book, Money Real Quick: The Story of M-Pesa, reveals the intrigues that befell M-Kesho.

“M-Kesho was hashed out through a series of one-on-one meetings between Joseph and Mwangi. You can imagine these two Goliaths of Kenyan business circling each other with caution.

The design process was slow but steady; the commercial negotiations somewhat more contentious”, Sullivan and Omwansa reveal in their book.

“Equity felt all transaction fees should accrue to the bank; Safaricom felt its distribution channel would bring customers to the bank. Eventually, after a series of breakfast meetings between the CEOs, they worked out a deal. Unfortunately for the customer, both Safaricom and Equity are getting transaction fees”.

Both partners went silent on the deal and never openly speak about it. The root of the disagreement, however, seems to have been over the SIM card, as John Staley, Equity Bank’s chief officer of finance, innovation and technology, is quoted in the book as saying: “If we are going to provide mobile services to customers, we need to access SIM cards. Whoever controls the SIM card controls the ecosystem”.

Equity on the offensive
Joseph eventually exited the scene and was succeeded by Bob Collymore. In November 2012, Safaricom returned to the banking scene collaborating with the Commercial Bank of Africa (CBA) in unveiling M-Shwari, which resembled M-Kesho. Equity did not utter a word. This newly found partnership saw CBA changing from a small bank, which had 34,884 depositors in 2011, into a big bank with over 5m account holders in 2013.

CBA is now only second to Equity in the volume of account holders. Since its launch, M-Shwari account holders have deposited Ksh 24bn ($274.3m). On its part, Safaricom’s M-Pesa revenues as of March 2014 stood at $305.2m.

So when Equity unleashes its mobile virtual network operation (MVNO) in July using its own-branded SIM cards and riding on Airtel’s network, it will not be business as usual in Kenya’s lucrative mobile money market as well as banking sector. Both telcos and banks in the region have in the recent past recorded major profits and the latest developments indicate the intensity of the competition expected.