Is your company simple, transparent and honest

On an early evening last week, I wearily drove home after a long day and found a neighboring boy riding his bicycle in the car park. As I reversed into my parking, I saw him to the left of my car, sitting on his bicycle and waiting for me to move my car so that he could get back to his solo cycle game. As soon as I parked my car, he rode ahead and flipped me a birdie. That 10 year old baby faced scallywag flipped me a birdie! In case you don’t know what that is, you need to google it. They don’t call us Black Mothers for nothing. I turned on my handbrake and burst out of my car seething with rage. Today was not the day for being disrespected. Tomorrow was not looking good either. I strode up to the boy and asked him why he flipped me the birdie. He didn’t miss a beat, “I didn’t show you that finger, I showed you this finger,” as he lifted up his index finger. “So you don’t deny that you communicated a finger to me, eh?” Was my furious response. The kid needs a lawyer to advise him about self-incrimination. Let’s just say that he won’t be doing that again soon to me or any adult in that compound. At least that’s what I hope.

Safaricom’s recent launch of the Simple, Honest and Transparent brand promise was a huge relief to many customers, myself included. I can’t remember how many times I have bought data bundles only to have them expire simply because I didn’t note the successful purchase message I received which stated the expiry date. Worse still, I don’t recall getting a reminder that the bundle was about to expire anyway. So a virtual product, with no biological attributes that could make it degradable, inedible or unusable was set to expire poof! Just like that. Buying voice and data bundles was also a nightmare as there were choices of minutes, tariffs, gigabytes and all manner of icecream flavors for what is really a vanilla product. But it’s all been simplified and expiry dates removed. The bigger question that the new brand promise evokes is: was the company not simple, honest and transparent before?

Not being simple or transparent I totally understand. It’s almost par for the course for many businesses. Many company products are anything but simple: ask banks and insurance companies. Many organizational services are anything but transparent: ask hospitals running up bills for surgical patients or patients at   Intensive Care Units. Not being honest? Well, that tends to raise more than just eyebrows. It means we used to promise you one thing, but actually delivered something else. We broke our customer promise.

Are there other companies out there that are not simple, honest and transparent? Hundreds, probably thousands. Which is why consumer protection activists find a space to play in the judicial system. As does a regulator like the Competition Authority of Kenya which has the legal consumer protection mandate to investigate complaints related to false or misleading representations, unconscionable conduct as well as supply of unsafe, defective and unsuitable goods. As should the boards of the companies that provide these products and services. What Safaricom has essentially done is to get us to turn the spotlight onto our own organizations with three little words about everything we do. Are we simple in the way we give pricing information to clients and deliver our products to the market? Are we honest about all the promise we are making to customers and not leaving them to pay massive excess charges when they claim insurance after a risk has crystallized? And are we transparent about all the charges we are billing without leaving surprises at the end when the client gets the actual bill? The young scallywag of a neighbor flipped me a birdie and changed his mind about which finger salute he was giving me when he encountered the incensed, livid recipient. His dishonesty was borne of self-preservation. Is self-preservation the motivation for companies that promise one thing to the customer but deliver something else? Food for thought at your next board meeting.

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Twitter: @carolmusyoka

 

Data Makes For Big Innovation

Earlier this month, this newspaper led with a headline that Safaricom’s Fuliza product lent Kshs 6.2 billion in its first month after launch. In case you’re one of those laggards that hasn’t entered the mpesa universe yet, Fuliza was launched by Safaricom in January 2019. Its objective is to help the mpesa user avoid that embarrassing “oh-no” moment when goods or services that she wishes to purchase are literally in hand but the funds to pay are not. I signed up for the product following an SMS blitz by Safaricom as soon as it was launched for no other reason than to just stop the confounded messages coming through. Two weeks later I stood at the supermarket till purchasing items via Mpesa. Lord help me because I came up short, Kshs 434.74 to be precise. Usually I would give a sheepish grin to both the cashier and to the visibly irritated customers behind me and mumble something about “please let me withdraw from my bank” and have to wait several nail biting, interminable minutes as my bank’s mobile app chooses to be slow on that day at that moment. But the Mpesa app immediately prompted me to Fuliza – which, by the way, means “continue” in Swahili. In seconds I had been allowed to overdraw my Mpesa by that amount, the transaction was completed, I got an update that I was charged the princely amount of Kshs 4.35 for the overdraft facility and I now owed Kshs 439.09 due in 30 days. Most importantly, the fellows standing in line behind me never knew that I had run out of funds. At all. The next day I withdrew funds from my bank into Mpesa. Again I got a message in a split second, the outstanding amount had been automatically deducted from my funds. And my available limit was back to the Kshs 12,000 that I had automatically been awarded when I signed up.

 

Fuliza is a testimony to those two words you see being bandied about miscellaneously: “big data”. Big data are extremely large data sets that may be analysed to reveal patters, trends and associations relating to human behavior and interactions. CBA Bank, the creators of the first Mpesa based lending product Mshwari, used mpesa usage data to feed into their credit algorithm that calculated how credit worthy the loan applicants were. It soon became apparent that about 58% of mpesa transactions failed where the user was sending money to another beneficiary. But about 85% of the same transactions would be repeated within two days, that is, payment to the same beneficiary because funds were now available. It doesn’t take a rocket scientist to see that the data was speaking to a funding gap that would be eliminated within 48 hours as cash came in. In banking-speak this is what an overdraft does: provide a short term cash bridge pending arrival of funds. In the example above, my overdraft interest rate was 1% for a 30 day facility.

 

If you were to ask the over 400,000 customers that are using Fuliza daily as to what the annualized interest rate (12%) is, they’d tell you that they didn’t care. I certainly didn’t at the point where I was standing at the till with a basket of goods already packed and carefully perched on the counter ready for my hasty exit. Actually neither do the millions of Mshwari customers who are ready to pay a flat fee of 7.5% for a 30 day loan (again, if you annualized that you would get 90%). The Fuliza product currently endures a default rate of less than 1%. So for every 100 shillings that are lent out, less than 1 shilling is lost. The automatic limit that I received of Kshs 12,000 was done without my asking and without my knowledge. The bank just used my data to generate a very important product for me.

 

 

To the Kenyan legislature, the lesson here is this: a little bit of research would have led you to see how you could force banks to use the reams of data that they have about their customers to provide a better and differentiated pricing which would have achieved the goal of lowering the cost of loans. Instead, the largely uninformed interest cap route taken has ended up drying credit supply. What these mobile loan applications are telling parliamentarians is that at the end of the day, the retail client is indifferent to the price. He just wants to “fuliza” his life!

 

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Twitter: @carolmusyoka

 

 

Strategy is not business as usual

[vc_row][vc_column width=”2/3″][vc_column_text]I recently sat with a group of senior managers from multiple organizations talking about the difference between strategy and business-as-usual. It never ceases to amaze me how many managers believe that their strategic initiatives as defined by the organization are actually business as usual objectives dressed in ball gowns and glass slippers. An example was thrown into the discussion of one of the participant’s employer’s strategic pillars: customer centricity. How is that a strategic objective, I asked? Well, we know look at the customer as special and we focus on them to deliver a good service, was the earnest response. Wait, what? But isn’t the customer the very reason every single person in the organization comes to work, from the cleaner on the shop floor to the CEO? Yes, I was told, but by having customer centricity as a strategic objective we will now get the appropriate focus etcetera, etcetera. The reason for doing any kind of business is to get money from a customer and convert it as efficiently as possible into a profit from the shareholder. So claiming customer centricity as a strategic objective is as good as saying getting staff to come to work is a strategic objective: they are both matters in the ordinary course of doing business.

Targeting a hitherto untargeted customer segment using a differentiated delivery framework is a strategy. Serving existing clients is business as usual. Creating new service delivery mechanisms such as digital is a strategy; focusing on giving existing clients a wow experience is and should be business as usual. Looking out into the Kenyan business horizon, Safaricom makes an interesting case study on what strategy in motion looks like. Following its 2008 IPO, Safaricom entered the realm of publicly publishing its results. In the results for the financial year ending March 2009 which was the financial year during with the IPO took place, its revenue from voice was 83.4% while data which represented SMS, mpesa and other data revenue generated 12.9% to the bottom line.

By financial year 2013, Safaricom reported that voice now contributed 64% of service revenues.Five short years later the upward trajectory of non-voice data continued with voice contributing only 45% of service revenues by March 2017 compared with mpesa at 27% of service revenue and fixed and mobile data revenue at 16.8% of service revenue. Combined, mpesa and data revenue add up to 43.8%, which is slightly below what the voice data brings in. That’s a telling number right there.

You may not have noticed it, but Safaricom has stealthily crept into your life at multiple touch points during the course of your daily routine. From the way 72% of Kenyan market share communicates by voice, to the way Kshs 6.9 trillion in value goes through the mpesa payment system in the form of money transfers, business to business payments as well as customer to business payments. Somewhere along that chain are the funds you sent to your family, farm workers, payment at the supermarket till, barber bill, bar bill, church or funeral harambee contribution or fuel payment. 83,000 Kenyans now use Safaricom’s fibre for their internet connections at home, with 1,500 buildings fully wired for Safaricom internet. Those fibre numbers are only projected to grow. This strategy to ensure multiple touch points in the dawn to dusk cycle of a consumer’s life is very similar to global giant Procter and Gamble’s strategy to be immersed in the lives of their customers throughout the day which is the bedrock of their innovation strategy. From Crest toothpaste and Oral B toothbrushes, to Gillette razors and Head and Shoulders shampoo will carry the consumer through their morning routines. Pampers diapers, Vicks vaporub, Olay lotions and Always feminine products feature through that brand base as well as various dishwashing liquids and household detergents such as Ariel and Tide.

Speaking about consumers on their website, they say: “We gain insights into their everyday lives so we can combine “what’s needed” with “what’s possible.” Our goal is to offer them product options at all pricing tiers to drive preference for our brands and provide meaningful value.” That mind set ends up deriving $65 billion of annual revenue by the end of financial year 2016.

The numbers never lie. It’s fairly evident that Safaricom is headed on the same trajectory of impacting its customers from dawn to dusk as it strategically morphs itself from being a mobile phone company to the primary financial and data services provider for the Kenyan individual.

[email protected]: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Open Data Open Innovation

[vc_row][vc_column width=”2/3″][vc_column_text]I had an interesting lunch with a Tweep the other day, an indefatigable mobile Wikipedia on technology trends both locally and globally. Our conversation turned to open data and how it can be applied in the banking industry. I have to admit I had heard of the term open data but never really paid any attention to its potentially game changing application in the financial industry. “If Kenyan banks converted their records into open data, it would lead to greater financial innovation and a better product experience for customers,” said the tech pundit. I put on my fairly ignorant and thoroughly obtuse nitpicking hat on. “Banks cannot share such sensitive data, there’s customer confidentiality to be maintained and quite frankly, such information is a key intangible asset that the bank has,” I retorted. He proved to be quite unflappable and converted my healthy skepticism into acquiescence with just one question: who said that the data provided should be given with the client name?
I was an immediate convert. If banks openly shared customer data to fintech providers, the third party would have a treasure trove of information on customer spending habits, borrowing tendencies, repayment history, saving culture and basically the whole kit and caboodle of a client’s behavior. According to the Central Bank of Kenya’s latest annual banking supervision report, for the year ending December 2015, there were about 34.6 million banking accounts in Kenya and these numbers include mobile banking accounts of the Mshwari and KCB M-pesa extraction. That is 34.6 million data sets that can clearly demonstrate spending, borrowing and savings behavior within a certain age, gender, regional demographicor business segment, which can lead to finer product targeting and pricing.
The United Kingdom (UK) is a trailblazer in this area and in January 2015, Her Majesty’s Treasury launched a “call to evidence” asking stakeholders in the financial industry on how best to deliver an open standard for application programming interfaces (APIs) in UK banking and to ask whether more open data in banking could benefit consumers.
Application programming interfaces, or APIs, allow two pieces of software to interact with each other. In banking, APIs can be used to enable financial technology (fintech) firms to make use of customers’ bank data on their behalf and with their permission in innovative and helpful ways. For instance mpesa payment platforms for businesses make use of APIs supported by Safaricom.
The aim was to produce an open API standard for UK banks to drive more competition in banking and help the UK remain at the forefront of financial technology. The report was published less than 3 short months later in March 2015.
In summary the responses from the forty respondents who included a number of banks, fintechs, the Law Society of Scotland, the Association of Accounting Technicians and the British Banking Association raised concerns around privacy of customer data and fraudulent use of that data. The need for appropriate security and vetting systems for third party providers was a key concern. The respondents did note that open data in banking would enable customers make more informed decisions on which banking products to purchase and who to bank with. An Open Banking Working Group, bringing together key stakeholders such as banks, fintechs, consumer bodies and government, was then created and an Open Banking Standard (OBS) was produced. The OBS is a guide for how banking data should be created, shared and used.The group recommended that an independent authority should be established to ensure standards and obligations between participants are upheld. The authority would govern how data is secured once shared and the security, usability, reliability and scalability of APIs. It would also vet third parties, accredit solutions and maintain a whitelist of approved firms. The UK is cautiously but steadily moving towards this standard, with the key premise being that customers will have to consent to their data being shared.
Back in the +254, we have already established ourselves as early adopters in the fintech space with the amazing innovations that have been generated by the mpesa phenomena. Moving towards open data may perhaps be the key that will unlock the risk based customer loan pricing that the interest rate capping has miserably failed to deliver. It would also provide much needed customer portability on banking services generated by product pricing sense rather than brand affinity.

[email protected]: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Lipa Na Mpesa As An SME Growth Engine

[vc_row][vc_column width=”2/3″][vc_column_text]A tweep (citizen of #KenyansOnTwitter county) recently drew my attention to a July 2nd 2017 Bloomberg article titled “MYbank deepens push for business banks won’t touch.” MYbank is an online lender that is 30% owned by Ant Financial, Alibaba’s financial affiliate.In case you missed it, Chinese billionaire Jack Ma’s Alibaba Group is the number one global retailer with its monolith ecommerce platform. The article quotes MYbank’s President Huang Hao, who is looking to win as many as possible of China’s 70 million to 80 million small businesses as customers, most of which have no access to bank loans as they lack collateral. “We are like capillaries reaching every part of the society. It could be a small restaurant, a breakfast stand, no other financial institution would have served them before.” By 2016 MYbank’s outstanding loan portfolio was US$ 4.9 billion with a non-performing loan ratio of about 1%. The article further quotes Huang as saying that the bank’s technology, which runs loan applications through more than 3,000 computerized risk control strategies, has kept delinquencies in check.

Huang’s description of MYbank as being like capillaries is eerily reflected by Safaricom’s Lipa Na Mpesa mobile payment platform. From large hotels to food kiosks, from barbershops to Uber taxis, from petrol stations to supermarkets, everywhere you turn, Lipa Na Mpesa (LNM) is now a viable option for payment of goods and services. The product has successfully straddled the small, medium and large business spectrum as a reliable cashless payment option with lower merchant transaction charges (in the range of 0.5% compared to 2% and above for debit/credit card services). According to Safaricom’s FY 2016 annual report, there were 43,603 LNM active 30 days+ merchants on its network. The FY2017 results announcement reflects that the number of merchants is now just over 50,000.

Cash flow is the lifeblood of a business, as any long suffering entrepreneur will tell you. LNM offers real time settlement of payments made on its platform working with 19 banks. What this means is that the business owner will receive the cash generated from revenues straight into its bank account on a real time basis which essentially makes it an attractive revenue collection tool for the entrepreneur weary of sticky fingers at the cashier’s till or even stickier encounters with gun toting customers. The game changer in the peculiar Kenyan economic space is the obvious intersection between the real time mobile payments being collected at the till and the potential to leverage on these cash flows for working capital expansion. 50,000 merchants are fairly low in a country with hundreds of thousands of businesses primarily using cash as the mode of payment. But this is where it gets interesting.

According to the FY2016 Safaricom annual report, the LNM payments in the month of March 2016 alone were Kshs 20.2 billion or an average of about Kshs 459,000 per one of the 43,603 merchants. Bear with me for a minute. Assuming these were SMEs, imagine the relief of being able to borrow from a financial institution, without any collateral, and using the real time unassailable revenue collection history from this payment platform. Imagine even further, that the repayments can simply be deducted at source and calculated as a percentage of historical daily takings.Then before the settlement of each day’s revenue collections, the financial institution collects a daily repayment, thereby reducing the loan amortization amounts into bite sized, easy to swallow chunks unlike the monthly hernia-inducing ubiquitous loan repayments.

Your generic bank will not be interested in this model. It’s simply “too much admin” to start configuring their systems to undertake daily as opposed to monthly loan amortizations and to try and guesstimate an SME’s potential risk of default on a loan without collateral using only mobile payment history as the risk variable. But a modern fintech can build the risk algorithms required to do this well. There is also the dual opportunity for Safaricom to grow its LNM merchant base into hitherto unchartered territory, using collateral free business loan products in addition to helping to formalize the large number of informal businesses operating in Kenya. The fintech space is where this innovation has already started happening here in Kenya, but it will only make economic sense if it is done on a large scale. Partnering with Safaricom will be key to this growth.

[email protected]
Twitter:Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Kenyans are savers not gamblers

Last week, my General Manager Domestic Affairs(aka GMDA) decided to change her bank provider. GMDA came home that evening gushing praises about how the new Bank X had told her that she could set aside Kshs 1,000 every month to save for school fees and it would be automatically deducted from her salary account. No bank had ever taken an interest in her life, or in providing her with an automated way of saving for this critical aspect of her children’s security

As GMDA was talking, a news item appeared on the television about the uptake of the M-Akiba bond. I turned up the volume, as this could potentially be an option I could provide to my the-savings-scales-have-fallen-from-my-eyes GMDA.

The product is beautiful in its simplicity. Dial a number, register, place Kshs 3,000 for 3 years and earn tax -free interest twice a year. In my view, someone in Serikal is finally using data the way it’s supposed to be done: not to gather dust in shelves at the bureau of statistics but to drive behavior and economic growth. And nowhere is there more rich data than in the Financial Access Household Survey issued February 2016 by FSD Kenya working in collaboration with the Central Bank of Kenya and the Kenya National Bureau of Statistics.

The report finds that 75.3% of Kenyans are now formally included, with the giant leap being taken by women where formal inclusion leapt between 2009 and 2013 driven by the spread of mobile financial services.Formally inclusion is defined as use of banks, mobile financial services, SACCOs and microfinance institutions. Why would there be such a quantum leap in the growth of women users? I daresay that the convenience and the absolute privacy that mobile financial services provide make it a key attraction for the women. Not having to make a trip into a commercial centre to deposit or withdraw from a bank and not having a debit card or statement lying around that can generate heated arguments as to “hidden resources” is a major draw.

While the FSD report doesn’t go into the abominable aspects of betting, it does delve into it’s divine counterparty: savings. The FSD report finds that the number of Kenyans using at least one savings or deposit instrument continues to rise and at least 66.4% of the adults sampled have a savings instrument. Almost half of those adults use savings for meeting ordinary day-to-day needs, a third save for education and 40% also save for medical emergencies and burial expenses.

One more critical finding: 42.6% of business owners and 87.7% of farmers rely heavily on their savings to finance their livelihoods.

It is on the back of this data that we should critically look at the potential of M-Akiba to provide a viable savings platform. M-Akiba has the potential to pull funds sitting tied in a knot in the corner of a leso or under the cooking hearth into the formal economy especially since the FSD report finds that the top two most valued storage places for Kenyans are their mobile financial services accounts and saving in a secret place!

Meanwhile, I tried registering for M-Akiba, so that I could sell it to GMDA. After jumping through several hoops, I ended up feeling like a hamster on a wheel so I jumped off. I called the number provided online and a lovely lady called Brenda answered on the third ring, telling me the system was experience downtime. By the time of submitting this piece it wasn’t yet up. I trust that the developers of M-Akiba will make this an iterative product, tweaking it as they get more and more customer usage data to determine how and why Kenyans are using it. Just like how M-Pesa was launched as a money transfer system but ended up being a virtual repository of cash, M-Akiba might not be used for what its creators envisaged it for. Customers use your product to do a job. Time will tell what the true job of M-Akiba will be, but the ultimate winner will be the government with a new, and far less interest rate demanding investor in its securities.

Mpesa is a key economic engine

I have a little farm on the sweeping eastern Laikipia plains that has me visiting at least once a month. The singular cause of blinding migraines for the many telephone farmers is farm worker fraud. Those fellows will find a way to skim money, farm inputs or farm outputs at any given opportunity and trust me, as soon as you plug one leak they’re ten steps ahead of you preparing for the next scam. So one has to, as a telephone farmer, accept a certain level of pilferage as part of the business-as-usual operations, or opting to move and reside permanently in the farm. Irritated and exhausted by one certain input request, I set up a system that didn’t require the farm worker’s intervention. I got a trustworthy boda boda operator in Nanyuki (where trustworthy is a fairly fluid virtue) to be purchasing the input on my behalf. But I don’t send him the cash. He goes to the outlet, sends me the “Lipa Na Mpesa” till number where I pay and he takes the goods together with an electronic receipt to the farm. I specifically chose the outlet for those two reasons: they have an mpesa till number and they issue electronic receipts. I then pay him, using mpesa, for delivery of the goods and have peace of mind, knowing full well that another scheme is likely being hatched at the farm since I blocked what had been a lucrative cash cow for the workers before.

Two things that are critical to the urban telephone farmer: a local boda boda “guy” and mpesa. While I don’t have any data on the impact that boda bodas have had on the transport economy – which must be undeniably high – more data on mpesa is readily available. In the latest published Safaricom financials for the half year ended 30th September 2016, the company had 26.6 million registered customers out of which 24.8 million or 93% were mpesa customers. However, a more accurate number is yielded by looking at the 30-day active customers which registered as 23 million, with 17.6 million active mpesa customers or 76.5% of total active customers. Safaricom made more money from mpesa at Kshs 25.9 billion than it did from mobile data, which generated Kshs 13.4 billion. Mpesa revenue was equivalent to 43.3% of the voice revenue data of Kshs 45.7 billion. In simple words, mobile money is no bread and butter; it’s the cream with a cherry on top!

What were these mpesa customers doing, you ask? Well telephone farmers like me were a piddly fraction of the mpesa volumes. Three quarters of the total Kshs 25.9 billion in revenue that Safaricom received from mpesa was from what they call “bread and butter” business, which are the person-to-person transfers and withdrawals: John sends Mary a thousand shillings, who promptly goes to an agent to withdraw the same in cash and purchase food items for the house. Telephone farmers like me are to be found in what Safaricom calls “new business” which accounts for 24% of their mpesa revenue or about Kshs 6.2 billion.
New business includes customer to business (individuals paying for services using mpesa), business to customer (businesses sending money to individuals for example Kenya Tea Development Agency paying farmers their tea bonuses), Business to Business (Distributors paying a manufacturer for goods delivered) and the rapidly expanding Lipa Na Mpesa that has saved many urban dwellers the pain of having to send cash to purchase items via fundis, rogue relatives and even more rogue workers. But mpesa revenue aside, it is the sheer transaction volumes that are simply eye watering. By September 2016, mpesa had transacted Kshs 3.2 trillion. Kenya’s Gross Domestic Product or GDP, according to World Bank figures is US $ 63.4 billion or Kshs 6.34 trillion. The mpesa volumes are virtually 50% of Kenya’s GDP. However, hang on to your hat please as there is some double counting in the mpesa transaction volumes since they include deposits, withdrawals, person-to-person transfers and the business volumes. The bigger question is whether mpesa then poses a systemic risk in the event it is out of commission for whatever reason.

Firstly, mpesa is a methodology of transferring cash virtually. The actual cash sits in various mpesa trust accounts in Kenyan commercial banks. The bigger concern is not whether one’s funds are safe if mpesa goes down, it’s how to access a system that will release those funds which are sitting safely in a bank. Central Bank data from 2014 demonstrates that while mobile money volumes are extremely high at 66.5% or two thirds of the national payment system, they only account for 6.6% of the throughput value. It’s definitely a case of more bark than bite where systemic risk proponents are concerned.

But having said that, the attraction to track the mpesa movements from a tax collection perspective goes without saying. Even though the values may be low, mpesa provides an excellent opportunity for the taxman to bring in smaller businesses into the taxpayer net as each transaction has an electronic signature and trail. Designing and applying resources to create that tracking framework may perhaps be where the challenge lies.

That mpesa has changed lives goes without saying. We live in a country where one can literally take a trip from Mombasa to Malaba carrying zero cash, zero plastic card and with just her phone be able to eat, drink and seek lodging for that entire trip. The growth of the Lipa Na Mpesa payment points was 73% year on year in the half-year 2016 Safaricom financials. This means that there is rapid uptake by commercial establishments of the mpesa payment option, which quite honestly presents a better cash flow option than credit cards as there is no lag time between customer transactions and when the funds are deposited into the business account (typically 2-3 days in the case of credit cards).

Mpesa’s metamorphosis is not inclined to stop here and a banking licence may end up being required at the rate mpesa is transforming.

Banks are the new slaves of technology

[vc_row][vc_column width=”2/3″][vc_column_text]$300 billion. Let me translate that into Kenya Shillings. Roughly, Kshs 30 trillion. Now let me put that into perspective. The Kenyan Government budget for the current financial year 2015/2016 is Kshs 2.1 trillion. So about 15 times that number. What is this $300 billion I’m going on and on about? That is the size of penalties that had been levied since 2010 to global financial institutions by June 2015 as reported by the Financial Times. These included fines, settlements and provisions for various levels of misconduct some of which is related to the global financial crisis of 2008. The culprits read like a who’s who on the red carpet to punitive pain: Bank of America, JP Morgan Chase, Standard Chartered, Citigroup, Barclays, Deutsche Bank, HSBC, BNP Paribas and on and on.

And the natural reaction for all these institutions is to tighten controls, seal loopholes, grow the compliance function and generally create enough bottlenecks internally to ensure regulatory compliance. The winners: audit and compliance teams who rule the roost over every single non-compliant new customer onboarding and new product approval process. The losers: the concept of the big, global monstrosity bank that straddles continents like a financial ash cloud. Compliance is expensive. Non-compliance is astronomically expensive. So it was with great interest that I listened to a talk by a renowned futurist called Neil Jacobson last week.

Neil paints a bleak future for the traditional global bank citing six reasons why there is a perfect storm in the global financial industry. First off, there is trust crisis. Even with pedigree board members, highly experienced (and paid) executives in management as well as world class operating systems and processes, many banks clearly can’t get the back end right. The chase for profit trumped controls many times. Secondly he cites the security and regulatory firestorm. I don’t need to harp on it as the number is clear: $300 billion and counting. Regulators are licking their chomps at the highly lucrative knuckle rapping that they have been undertaking. If nothing else, it’s a back alley way to raising more taxes. Thirdly is a technology tsunami. You don’t have to throw a stone very far today before it lands on a code writer, developing one app or the other as there are so many financial technology companies (fintechs) willing to throw money to anyone who comes up with the best app to help provide access to credit or money transfer. The classic thing is this: with the Internet, it doesn’t matter if that developer is sitting in a bedsitter in Kayole or a one bedroom flat in Silicon Valley. The one with the best solution wins. Visit iHub on Ngong road and see what I’m talking about. Facebook, as a matter of fact, is already running app competitions in Kenya. The demonetization of transactions such as matatu fare, paying for food at a restaurant, receiving payment for supplying milk or vegetables is very quickly democratizing the role of money movement beyond the traditional banking space. And banks are too clunky and too heavily regulated to make the quick changes that fintechs are able to exploit. Which brings me to the fourth reason for the perfect storm: an explosion of new, different and rude competitors who are not members of the “old boys club” (which requires academic and professional pedigree) and are alternative thinkers. At this point Neil introduced the audience to the acronym GAFA -which acronym derisively originates from French media – that stands for Google, Apple, Facebook and Amazon. None of which, with the exception of Apple, existed twenty five years ago and together virtually own the technology space. Three of these powerhouses got together in November 2015 under the auspices of “Financial Innovation Now”. Together with Intuit and PayPal, the other three giants Amazon, Apple and Google put together the coalition to act as a lobby that would help policy makers in Washington D.C. to understand the role of financial innovation in creating a modern financial system that is more secure, accessible and affordable. This is where it gets interesting as they twist the knife into the back of traditional banks, “Financial Innovation Now wants policymakers to understand how new technologies can help solve today’s policy challenges.” In other words, we need lawmakers not to be bottlenecks as we help sort out critical voter issues like access to financial tools and services as well as helping voters to save money and lower costs. Win-win for everyone, except the banks.

Once lawmakers start to understand the benefits of low cost, secure financial solutions that do not require deposit taking mechanisms, it is likely that they will apply a much lower prism of regulatory restrictions that are currently straitjacketing the financial industry. You don’t have to go far: look at the Mpesa functionality and the strict segregation of Mpesa funds from Safaricom deposits which was the regulatory compromise for accepting the service in the first place. Neil’s fifth reason for the financial perfect storm is that pressure from customers, staff, regulators and all stakeholders is growing. And his final reason was the ultimate challenge for all businesses beyond the financial industry: Customers are changing. A study presented at Europe’s Finovate 2015 showed that 30% of today’s workforce is made up of millenials, 85% of who want banking to be disrupted. Have you seen those young people whose eyes are constantly glued to their devices and would rather starve than not have data bundles? The solution is hand held and your solution had better dovetail into their solution.

Closer home, the impact may be less harsh. For now. But our homegrown financial institutions are morphing into regional powerhouses and it won’t be long before a few float to the top of the pan-African heap. The successful ones will be the ones that grow their customer base on the back of technological innovation rather than bricks and mortar. To quote Larry Page, one of the founders of Google: Companies fail because they miss the future.

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Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]