PesaBit #002: Remittances In Kenya, Ripe Market Segments for Banks, MNOs & SACCos

Remittances into Kenya 8 year growth Pesa bit #002

Heated competition in East Africa for large scale customer acquisition has opened up the playing field to multiple players offering financial services, banking, mobile banking and a whole host of innovative financial products and services. In what is characteristically East African, the lines between Banks, SACCOs and MNOs are becoming blurrier. Equity bank and 3 other financial institutions are ready to get into the mobile money space through precedent MVNO regulation. Safaricom and CBA bank now jointly offer a micro lending mobile platform that set precedent as well. Competition is driving innovation.

The next frontier of heavy competition and outmaneuvering is in market segmentation. For this PesaBit edition, I particularly favour remittances as a lucrative market segment for financial services firms to desperately seek to entrench themselves in for new revenue streams. A diverse set of revenue streams is a logical step in the competitive East African banking & payments scene. Competition has led to thin margins albeit new market segments remain untapped. Remittances is a unique revenue source for example, in the wake of the financial crisis of 2008, while FDI inflows into Sub Saharan Africa significantly dropped, remittances exhibited resilience even displaying growth year on year. The market size is $ 1.29 billion in Kenya and $ 1 billion in Uganda. The figures are convincing and the above chart from the Central Bank of Kenya shows strong year on year growth from as far back as 2005.

Pesabit 0002 Safaricom products segment

This picture shows Safaricom’s market revenue streams from various products in 2013 illustrates a blatantly obvious strategy to build a plethora of products aimed at different niche markets – diversify revenue streams.

Remittance is the next competitive product segment. In Kenya, they are presently handled by multiple service players – Money Transfer Operators – Western Union, MoneyGram, Banks, SACCOs through IRNET system, Safaricom in partnership with MTOs & third party services, and banks in partnership with MTOs. There are new smaller entrants I might have left out. All these institutions, internally, are keen on on capturing this market segment. Equity bank, handles 12.5% of remittances into Kenya – about 10billion Kshs. SACCOs, through their own payment network handled a paltry 60 million KES in 2014 while Western Union in partnership with Postbank and M-Pesa averaged monthly 750 million KES in the  1st quarter 2014.

Diaspora remittances have become a new front for competition in the financial sector because it provides transactional commissions, foreign exchange earnings and cheap deposits for banks. New entrants are looking at spoiling the party for seasoned outlets

George Ngigi for the Daily Nation

75% of remittances into Kenya are from Europe and North America. I expect dramatic shifts in the remittance space. The battling financial institutions, telecom operators and new entrants will make for an interesting churn in market activity. Also in the mix is digital currency technology in the form of BitPesa, a FinServices startup which offers a great for value money remittances service on top of Bitcoin.

Watch this remittance space for more activity

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