Equity Bank’s most recent foray into mobile banking, the launch of its own mobile network might be interpreted as yet another example of the bank’s impressive innovation record or C.E.O extraordinaire James Mwangi’s knack for good business. Some might wonder why a bank like Equity would want to go into the already overcrowded mobile money transfer market. A market that is dominated by de facto industry standard MPesa. In reality though the bank is responding to an existential threat.
Safaricom and CBA’s mobile banking product MShwari poses the biggest threat yet to Equity in it’s traditional target market, low income earners. MShwari is targeting the same customers that were Equity’s traditional customer base. The product is targeting the same deposits Equity relies upon thus affecting the banks ability to grow it’s liabilities. Liabilities, your deposits in the bank, are a good thing in this context.
More importantly though MShwari is affecting the bank’s ability to grow it’s asset book in the form of loans. Lending money is how Equity and other banks make their money. For quite a while now, Equity Bank has been the premier lender especially among low income earners. With the advent of MShwari more and more of Equity’s low income customers are looking to the mobile banking solution for loans.
After the failure of Safaricom and Equity’s MKesho – a product launched to much fanfare and promise- due to an apparent bust up between the two companies, Big Green decided to look beyond Equity. And they didn’t have to look far. Commercial Bank of Africa, CBA, had been Safaricom’s banker for quite a while. Money in your Mpesa account was already largely money in Safaricom’s bank account at CBA. All that was needed now was a way to funnel that money from Safaricom’s CBA bank account into your bank account. Between Safaricom’s 18 million plus Mpesa account holders and KES 220 or so billion in deposits, and CBA’s commercial banking license the two realised there was a great opportunity for a most profitable partnership. Enter MShwari.
The numbers have been impressive so far. On launch day, 75,000 new MShwari accounts were opened. By February this year Mshwari had over KES 24 billion(USD 266 million) in deposits. Total loans stood at KES 7.8 billion (USD 86.6 million). Daily deposits averaged KES 211.5 million (USD 2.35 million) with an average of 30,000 loans disbursed daily.
Mshwari enabled CBA to acquire over one million new accounts, becoming only the 6th Kenyan bank with over a million account holders. MShwari has also made micro-lending possible. The average loan amount on MShwari is around KES 1000 (USD 11) a loan that would be far too expensive for traditional banks to administer.
Earlier this week Safaricom and CBA announced “Lock” a fixed deposit account product that offers MShwari account holders the ability to save as little as KES 500 at a 6% interest per annum.
The mama mboga in Githurai who had to wait till she had a spare 50 bob to deposit it into her bank account at the local Equity bank branch – to become bankable so to speak – now need only spare 3 bob to transfer to her MShwari account.
The mama mboga also had to wait months, probably join a chamaa (a women’s group) that would co-guarantee her and amass substantial savings before she could take a KES 50.000 loan. Now with MShwari she can take a loan conveniently though interest rates , at 97% per annum are somewhat forbidding. In addition she can take a KES 250 loan “ndio aslilale njaa”,(so as not to sleep hungry), an amount she can not borrow from her bank.
For most salaried people today the first transaction you make when your salary hits the bank is a withdrawal so you can deposit money into MPesa for further transfer. Remember all those 10 bobs that are always left over in your MPesa account after you send mom money. MShwari has done a rather good job of mopping them all up lately, no?
Once your employer starts remitting your salary into your Mshwari account, how long do you think before you don’t need a bank account?
And therein lie Equity’s problems. Equity’s business model has long relied on it’s ability to raise cheap deposits en masse, and lend out these deposits en masse. Low income earners do not typically have much in savings. For a long time this made them unattractive to Kenyan banking boutiques. Until Equity came along. Equity’s genius was in converting these small amounts into highly profitable small loans. Noticed how you never actually have a zero balance in your bank account. In the hands of a bank like Equity, these relatively small amounts are worth a lot thanks to credit creation.
For the bank to survive this latest onslaught they need an MPesa equivalent. It would ensure Equity’s continued ability to raise cheap deposits, open an avenue for lending smaller amounts to a much wider market, and open a potentially lucrative new revenue stream.
Welcome to the future, a bold new mobile place where banks and telcos swap places, and the lines are blurred.