From East Africa all the way down to the Cape Town, banks are scrambling to get a share of telecommunication business. In mid-2013, First National Bank of South Africa acquired a telecommunications license while in East Africa, Equity Bank, the largest bank in the region recently acquired a mobile virtual network operator (MVNO) license from the Communications Authority of Kenya (CAK).
In Kenya, the motivation that drove Equity to acquire a telecoms license was to cut costs. M-Pesa, the revolutionary mobile payment platform was first launched in Kenya by Safaricom, a Vodafone company. The service grew to be the leading payments platform in Kenya much to the envy of local banks. At some point, there was even talk of petitioning the Central Bank of Kenya to prevent telcos from encroaching on what banks saw as their turf.
The telcos, naturally, resisted any attempts at Central Bank regulation and won that battle. The banks response has so far been aimed at creating mobile banking solutions built around the M-Pesa application. This has worked well for both banks and telcos to-date despite serious wrangling over revenue sharing. Equity Bank, through its M-Kesho partnership with Safaricom has been charging customers 14 shillings per transaction. With the new MVNO license, Equity hopes to reduce this cost by half to 7 shillings per transaction. Once the network is up and running, they will no longer have to run their mobile money service on Safaricom SIM cards but will issue customers with Equity SIMs. Equity Bank has a customer base of over 8 million customers which would make a formidable competitor to mobile network operators in Kenya. In fact, if all of the bank's customers signed up for the new service, Equity would become the nation's second largest mobile operator.
In South Africa, the foray by banks into the telecommunications industry was motivated by a slightly different set of factors. Having observed what Vodafone's Safaricom had done in Kenya and Tanzania with M-Pesa, South African banks sat up and took notice when Vodacom (the South Africa Vodafone subsidiary), in partnership with Nedbank, announced it was launching M-Pesa in South Africa in 2010. Other banks were uneasy and concerned that they would end up being locked out of the market once the two firms had gained a dominant market share. The result was a stampede by banks to get in on the action.
FNB is currently dominating the mobile banking sector with a market share of about 40%. Other banks such as Standard Bank took a different approach and introduced a variation of mobile banking where a customer calls a service number and follows the prompts in order to carry out a transaction.
Is this Competition Good?
Absolutely, at the end of the day, competition between banks and telecoms in Africa is good for the consumer. Equity bank customers in Kenya who make the switch to the bank's SIM cards for mobile money will make a savings of 50% on money transfer fees. In South Africa, what the banks are doing to telcos is far more disruptive than what telcos are doing to the banking industry and the greatest beneficiary is the consumer.