M - TRANSACTIONS FOR ENHANCING MDGs AT BOTTOM OF THE PYRAMID A Case Study for m-Banking in Kenya

1. M - TRANSACTIONS FOR ENHANCING MDGs AT BOTTOM OF THE PYRAMIDA Case Study for m-Banking in Kenya Francis Wambalaba – School of B usiness Akosa Wambalaba – School of Arts/Sciences Philip Machoka - IST

2. Purpose of the Study • To investigate potential for using m-banking and m-transactions at the bottom of the pyramid in Kenya as an MDG e-money strategy. • Research Questions: • What is the nature of m-banking/transaction practices in the developing world? • What are the prospects for m-banking in Kenya? • How can m-banking transform the economic experience of the poor in Kenya to enhance MDGs?

3. Research Design & Sampling • Desk top research • Field work research • Use a combination of descriptive and exploratory research designs. • Descriptive design develop historical patterns of m-banking and providing prescriptive guidelines for an effective m-banking for the poor. • Exploratory design to engage in a snowball approach to identify further subjects to be included in the interview process.

4. Data Collection • Case study interviews including: • Two service providers (Safaricom’s M-PESA and Zain’s Zap) • Three banks (Commercial Bank of Africa, Cooperative Bank and Equity Bank) • Two regulators (Central Bank of Kenya and Communications Commission of Kenya) • Three ministries (Ministry of Finance, Ministry of Communication and Ministry of Trade and Industry) and 6) • Two customers/microfinance organizations (Faulu Kenya and Jamii Bora)

5. Completed Interviews • 5 Done/7 Not Done • 2 Service Providers – Safaricom done • Zain not done • 3 Banks – Cooperative and Equity done • CBA not done • 2 Regulators – Central Bank of Kenya done • Communication Commission of Kenya not done • 3 Ministries – Min of Info & Communication done • Min of Finance and Min of Trade & Industry not done • 2 Customers/Microfinance – None done • Faulu Kenya and Jamii Bora

6. Partnerships .

7. Typical Areas for Partnership

8. What is the History of Partnerships? • Regulatory partnerships • Safaricom and Zain regulated by the Communications Commission of Kenya • Operations of M-Pesa and Zap are overseen by the Central Bank of Kenya. • Agent Networks • Super agent - Commercial Bank of Africa. • Retail agents • Micro-lending institutions. • Faulu Kenya and Jamii Bora • Others • Government /Parastatals • International and National Financial Institutions

9. Safaricom’s M-Pesa Partnerships • In February 2007 M-Pesa was launched as a mobile payment solution • A sample of partnerships include • East African Airways • Air Kenya • Aircraft Leasing Services • The Rift Valley Railways • Akamba Bus Services • Crown Bus Services • Busways Company • Western Union (UK)

11. Source: DFID Report 2006

12. Zain’s Zap Operations • Zain launched Zap m-transfer service in February, 2009 • much lower cost of 10 shillings per transaction. • Formed partnerships with 3,000 dealers. • Within 3 months, it had transferred Ksh. 700 million. • Within first 6 months it had over 300,000 registered customers • Zap’s advantage was operation in 3 countries in East Africa • Their partnerships include funding Millennium Villages communications in rural areas.

13. Motivation for Partnerships? • Distribution of retailer reduces security risk of carrying large sums of money. • Providing efficiency in money transaction services. • Providing cost savings through established distributors. • Providing regulatory framework and institutional capacity which are inadequate. • To complement each other and leverage on the MTO’s outreach. • Opportunity to bring the poor into the financial transactional environment. • Empower and liberate bottom of the pyramid, through real time low cost communication/transfers.

14. Why Partnerships? • Telcos must enter into partnerships with other banks to carry out m-transactions as payment and transfers. • Mobile transactions do not offer savings as banks would. • Regulatory framework as provided for under the Banking Act, they cannot infringe upon banking services. • Can not accept money deposits from public that are repayable with interest. • Can not use money for lending or investment. • Partnerships assure regulators concerned about vulnerability to fraudulent activities.

15. Future Prospects for Partnerships? • Regulatory framework put together to make possible e-commerce. • Working to include ticketing and purchase of international flights. • Provision of better informal financial education through individual use of mobile technology. • Provision of 2nd round mobile led knowledge • Development of culture of professional interconnectedness.

16. Economic Implications .

19. Mobile Phone Take Up in Different Regions

22. .

26. Technology .

27. Development in New Technology • Since 2008 banks in Kenya have continued to embrace new technology by upgrading and replacing their core banking systems. • there is an increased uptake in the use of mobile phone technology as a service delivery channel. • a number of new products are being introduced by financial institutions that leverage on ICT particularly mobile phone technology.

31. M-banking using SMS technology Mobile banking and SMS banking are synonymous. SMS banking uses text messaging -- the iconic activity of cell phone use. SMS works in either a push mode or a pull mode. In pull mode, the bank sends a one-way text message to alert a mobile subscriber of a certain account situation or to promote a new bank service. In push mode, the mobile subscriber sends a text message with a predefined request code to specific number. The bank then responds with a reply SMS containing the specific information. SMS banking has several advantages: It works on virtually every cell phone, regardless of manufacturer, model or carrier. It’s a familiar, ubiquitous technology. Sending text messages is relatively cost-effective. It accommodates two-way communication, allowing messages to be initiated by banks or by customers. The disadvantages of SMS limitations of text messaging. For example, messages can only be 160 characters in length. Plus, there are no guarantees that a message will actually be delivered to its recipient. Most troubling for banks is the inability of SMS to deliver a custom interface. More advanced mobile banking solutions, overcome these challenges with WA P enabled phones.

32. M-banking using USSD technology With USSD technology don’t have to send an SMS or remember a long list of complicated codes. More convenient banking can be done from anywhere at any time through an interactive browsing experience on the r phone. It can work on all mobile phone handsets. Safer It is safer than SMS-based banking services as it has an in-built USSD encryption and ‘no store just forward’ facility for performing secure transactions. This means that unlike an SMS-based service, there is no storage of data on your handset. Also, the transactions are limited to a single registered mobile number and, when you sign up you create a unique PIN which ensures that you and only you can access you accounts. Simple This new technology means that you need not remember any transaction message formats. Sources://www.standardchartered.com/bw/personal-banking/services/mobile-banking/en

33. Mobile banking services. • Push transactions are not as complex as their pull counterparts. • Mobile banking solutions also vary in their degree of complexity, and some only offer a fraction of the services you would find in a bricks-and-mortar branch. • Mobile banking is not always full-service banking. • The factors that affect this are the type of phone being used, and the technology framework of the bank.

42. Zain network coverage. Source: www.zain.com

43. 35% coverage in the country of terrestrial fiber Optic Cable 85% of the population can access broadband

44. Concluding Observation • At proposal, situation was gloomy • Today, high prospects • Work to be done • Complete interviews • Complete analysis • Complete report • Disseminate findings • Work with and advice stakeholders.

45. M - TRANSACTIONS FOR ENHANCING MDGs AT BOTTOM OF THE PYRAMIDA Case Study for m-Banking in Kenya Asanteni sana Thank you very much Merci boucoup Arigato gozaimasu