Technology giants want to control mobile money billions

The recent tech news that Google is partnering with Citigroup and the Stanford University Credit Union to launch Cache, a mobile payments service could be a game-changer for the financial technology sector.

The payment service will offer smart checking accounts via Google Pay.

Cache is expected to be launched as early as next year. It is the latest deal from Silicon Valley in recent months as tech giants venture further into personal payment services.

Before Google’s pronouncement, Facebook had announced the rollout of Facebook Pay in the US market.

The social media giant said the service will provide users with convenient, secure and consistent payment experience across Facebook, Messenger, Instagram and WhatsApp.

“People already use payments across our apps to shop, donate to cause and send money to each other,” said the company in a statement. “Facebook Pay will make these transactions easier while continuing to ensure your payment information is secure and protected.” For the past decade, tech giants including Facebook, Google, Apple and Amazon have made billions of dollars from consolidating the data of users on their platforms. The companies are now venturing into finance.

While it is unclear when these services will be launched in the African markets, the continent’s demographics of youthful mobile-first population means it is just a matter of time.

Kenya has one of the highest smartphone adoption rates in Africa and its multi-billion mobile money economy makes it a prime candidate for disruption. This comes at a time when commercial banks and the region’s most profitable company, Safaricom continue to reap billions of shillings in revenue from mobile payments.

For banks, according to Equity Group’s financial report for the third quarter of 2019, the company recorded Sh9.1 billion in transactions on its EazzyPay mobile service in the first nine months of the year.

The bank said 93 per cent of transactions are conducted on mobile with Group CEO James Mwangi stating the lender is focusing more keenly in digital payments.

“Our non-funded income now stands at 41 per cent of the company’s gross income and we expect it to cross the 50 per cent mark soon and we see a lot o this coming from digital payments,” said Mwangi.

“For example in diaspora remittances alone Equity accounted for Sh101 billion of the Sh200 billion transacted last year,” he said. Similarly, KCB Group’s six per cent growth in after-tax profits was in large part on the back of increased lending and non-funded income from mobile money.

“Total income was up 10 per cent from Sh54.2 billion to Sh59.7 billion, with non-funded income increasing 16.9 per cent attributable to the digital proposition, largely KCB M-Pesa,” said the bank in a statement accompanying the financial results released last week.

Safaricom enjoys a comfortable lead in the country’s mobile payments market under its large subscriber base, now at more than 22 million.

Safaricom’s large consumer base means the company can easily draw from trends and analysis on consumer data to develop products such as Fuliza, the overdraft facility on M-Pesa that lent out Sh140 billion in the first nine months of this year.

Sterling Capital report earlier this year projected that M-Pesa customers will have borrowed Sh200 billion from Fuliza by the end of next month, generating Sh21 billion in revenues and roping in two million new M-Pesa subscribers for Safaricom.

This is however just a fraction of the profits to be earned from developing mobile payments and banking solutions from future consumer data. According to a report by Mordor Intelligence, the global digital payments market was valued at Sh340 trillion last year and is expected to grow at 13.7 per cent on average each year to hit Sh764 trillion by 2024.

This explains the recent timing by Google, Amazon, Facebook, Alibaba and Apple to beef up their payment platforms. These platforms already enjoy more intimate engagement with users compared to mobile money apps, hold more personalized data and have much larger budgets to develop more innovative products and services.

Last month Apple Pay surpassed Starbucks in the US as the most popular payments app. The app allows iPhone users to pay via near field communications (NFC), a tap-and-go function that allows a more frictionless user experience.

Facebook Pay will allow users to pay from their preferred account without having to re-enter their payment information each time.

In contrast, mobile money services have largely retained their user interface over the past decade.

Safaricom has introduced new functionalities on M-Pesa including the ability to confirm the details of the recipient before completing a transaction and allowing users to search for intended recipients from their phone books.

Aside from this, however, the overall platform has remained largely unchanged, requiring at least half a dozen steps before users can complete a transaction, for example.

In addition to this, many believe transaction costs can still be brought lower than the level they are currently, a factor Safaricom’s Michael Joseph recently conceded.

Solutions like Apple Pay and Facebook Pay could leverage the economies of scale in both costs of finance and technology, to offer users with much lower transaction costs and gain market share.

This will not be the first time telcos will be having the rug swept under their feet by platform giants.

The introduction of messaging apps such as WhatsApp and Messenger took a big chunk of the telecommunication providers revenue earned through SMS and MMS services, the latter of which has fallen from common use. Similarly, the introduction of streaming services such as YouTube, Netflix, and Showmax has seen falling subscriptions in digital TV services such as DSTV and Star-Times.

The recently launched streaming services from Apple and Disney mean more disruption for traditional broadcasters.

To their credit, local firms are making efforts to develop new products and services, signing partnerships with global service providers such as Union Pay and Pay Pal to keep a pulse on evolving trends.

According to CBK data, banks submitted over 60 applications last year for approval to introduce new products and related charges. The disruption of fintechs and mobile network operators by tech firms venturing into mobile payments could also be slowed down by regulatory oversight.

Regulators in the European Union are investigating Apple Pay for possible abuse of competition regulations. Germany parliament last week also passed a law that compels Apple to open up its app to rivals.