Can PesaLink disrupt fintech industry in Kenya?

After delaying for almost two years, the Kenyan Banks have finally unveiled the Kenya Real Time Interbank Switch (PesaLink), which will enable users to make real time money transfers via their mobile phones. In this note, we highlight why the product may be more successful than similar offerings in gaining traction within the mobile payments industry. Ultimately, we conclude that Safaricom’s M-PESA will remain the dominant mobile payments solution while growing entities like Eastpesa will also maintain their share.given some of the advantages it enjoys.
Firstly, here are some of the bottlenecks PesaLink has addressed:

• Critical mass. Safaricom has had a significant advantage over rival products due to its dominant subscribers’ market share. Competing products (with relatively smaller market shares) were not as successful as Safaricom because a) there was no way of transferring money across platforms (although that was later revised in 2015 due to new regulations introduced by the CAK); and b) cross-network transactions are more expensive and less user-friendly than inter-network transfers. We think this product partially addresses this bottleneck. Safaricom’s subscriber numbers dwarf the customer numbers of any single bank. However that is irrelevant in this case because it is an open switch and will be accessible to all bank account holders, which have increased exponentially in the last two years (thanks in large part to Safaricom’s JV with many banks).
• Accessibility. Safaricom’s vastly larger agency network made it significantly easier to deposit and withdraw money from the M-PESA system. Like the subscriber number, Safaricom’s network of agents remains far bigger than that of any individual bank. We understand, however, that users of PesaLink will be able to withdraw money from any bank agent or ATM across the country. Collectively, therefore, the banks should have a fairly well-connected national network, thus mitigating the advantage that Safaricom currently enjoys.

Nonetheless, we think Safaricom’s M-PESA product will remain the dominant mobile payments solution because:

• PesaLink is still a banking product. A bank account is required to send money using this service as customers need to visit their bank and sign up for the service. However, we also understand that customers without bank accounts can still benefit from the service. Customers can receive money without being a bank account holder but to send money you need a bank account. The main advantage of M-PESA is that you do not need to be a bank account holder as a sender or receiver of a P2P transaction. In this regard, we think Safaricom will continue to have the advantage as mobile phone penetration is much higher than bank account penetration.
• PesaLink is cheaper than M-PESA, but past experience shows the brand matters. We understand it could be cheaper to use PesaLink, with transfers below KES500 being potentially free. However, past experience in the telco sector has consistently shown that it’s not all about pricing, especially in Kenya where tariffs (including mobile money) are some of the lowest in Africa. Airtel learned the hard way that low pricing does not really work in Kenya and in Africa in general, hence the interbank payment system being cheaper than M-PESA.

Original source: Exotic Partners