[From NextBillion blog, 10 December 2012 (with Tonny Omwansa)]
Finally it’s here, a banking product on Safaricom’s terms. Following last week’s announcement, foreign M-PESA watchers get to add another word to their stock of essential Swahili words: shwari, meaning ‘calm’ or ‘cool.’
Kenyan mobile operator Safaricom and its partner bank, the Commercial Bank of Africa (CBA), are recreating the basic banking triad of an unremunerated current account (M-PESA, issued by Safaricom), a separate interest-earning non-transactional savings account (M-Shwari, issued by CBA), and an overdraft facility with a punitive interest rate for emergencies. All this is highly integrated: you can check balances on either account, transfer money electronically between them, and request a month-long loan right from the M-PESA menu on your mobile phone – all using the same PIN.
The elements are similar to those that came with M-Kesho, the ill-fated joint product offering of Safaricom and Equity Bank launched with much fanfare in May 2010. After an initial burst of activity, M-Kesho languished as the hyper-brand-conscious sponsors pulled back promotion of their joint service, in favor of their own exclusive services. Like M-Kesho, M-Shwari features no account opening or monthly fees, and no minimum account balances.
But from Safaricom’s perspective, this one doesn’t come with the uncomfortable bank co-branding. Try to spot CBA on Safaricom’s M-Shwari product webpage (you’ll only find their name in the terms and conditions which, incidentally, run to ten pages). That’s because this time Safaricom has picked a corporate bank with no branding ambitions in the low-end retail market. The few CBA branches that are out there won’t service your M-Shwari account. CBA gets to benefit from the pool of mobilized savings, with none of the operational hassles and reputational risks.
From the customer’s perspective, this carries some good news and some bad news. The good news is that the lack of rivalry between the partners results in a more rational business model. Transfers between M-PESA and M-Shwari accounts are free. In the case of M-Kesho, converting M-Kesho balance into cash incurred a double withdrawal free: an Equity Bank charge to move the money into M-PESA, plus M-PESA’s normal cash out fee. There was a ratcheting up of customer fees as M-Kesho sponsors kept more of an eye on how much the other was making than on what the customer was paying.
The bad news is that CBA, unlike Equity Bank, has no retail presence to speak of in Kenya, and hence cannot promote or service the new accounts. To open M-Shwari accounts, CBA will ride on the client identity data already held by Safaricom. But this means that M-Shwari accounts are not full-fledged bank accounts: They have the same transactional and balance limitations as M-PESA itself, since both entail customer ID verification delegated to M-PESA agents. Also, customers will not be able to withdraw larger sums at CBA branches, so they will need to fragment such withdrawals into a number of smaller agent or ATM transactions, incurring much higher transaction costs.
Customers might appreciate the fact that they can open an M-Shwari account instantly from their phone, but the result is simply doubling the store-of-value capacity of M-PESA. You could have opened two M-PESA accounts instead. M-Kesho, in contrast, was a full bank account and it helped customers, and especially businesses, with higher transactionality to create headroom in their M-PESA account by letting them pull and push money from the capped M-PESA account to the unlimited M-Kesho account.
Thus, from a savings point of view, M-Shwari has three benefits for customers, relative to a bare M-PESA account. First, customers can use M-Shwari to effectively store twice the amount through M-PESA without having to access other bank accounts. Second, they can use M-Shwari as a discipline-building separate pocket to save against particular objectives they might have. Third, they can earn some interest (2-5 percent annual rate, based on average daily balances, paid quarterly) on electronic balances they push onto M-Shwari, which is more than what other banks offer.
Turning to the credit element, individual loans are for one month, carry a steep fee of 7.5 percent of loan amount per monthly cycle, and can range in size between KES 100 ($1.25) and KES 20,000 ($235) -- at least for now. Each customer is instantly authorized for up to a particular loan amount, based on his or her history of Safaricom line usage, M-PESA usage, M-Shwari saved balances and M-Shwari loan repayments. If you don’t repay on time, the loan is automatically rolled-over for another month, and any balance you have on your M-Shwari (but, interestingly, not M-PESA) will be frozen for up to the loan amount due. After 60 days, you risk having your account closed and a credit report sent to the credit bureau.
Thus, M-Shwari savings act to some extent as collateral for the loan. One can expect, though, that the real opportunity for Safaricom is to create a credible warning in customers’ minds that their phone connection will be in jeopardy if loans are not repaid. Given the degree of market dominance of Safaricom in Kenya, many will not want to risk exclusion from on-net calling deals and M-PESA. The phone line is probably the real collateral for the loans.
Putting all this together, M-Shwari appears to be a more limited, though cheaper, version of M-Kesho, with savings balance caps that will be limiting for more active users, and without an obvious bank branding to attract those who are hooked on the convenience of M-PESA but like the feeling of their money sitting in a big-league bank. And the instant credit facility may be a hook for some, though the high charge makes it punitive. Is there more to come?
Even if there isn’t, M-Shwari will no doubt be taken up by millions of M-PESA customers; such is the power of the Safaricom brand and the curiosity that is bound to arise around any innovation on M-PESA in this mobile money-crazy country. But as with all things mobile, we will see whether usage, as measured by growing saved balances, will follow for the bulk of M-Shwari customers.
The financial inclusion community has keenly been looking for more instances of mobile money platforms connecting with bank offerings. Before you rejoice at this announcement, consider what it means for other banks in Kenya. Safaricom seems to be taking the route of establishing preferential treatment with one bank, rather than positioning itself as an equal partner for all banks – otherwise, it wouldn’t have downplayed the bank partner’s brand.
If that’s Safaricom’s long-term strategy, it would be a pity for customers.