Is Kenya Becoming A Virtual Money Economy?

Mobile Money Transfer and Mobile Banking have become very popular products in the Kenyan market. In fact, approximately over 12 million mobile phone subscribers make mobile payments and as mobile phone penetration continues to grow, these products are becoming more relevant to the market. Once a mobile subscriber registers for either of the products, a virtual wallet enabled for them on their phone. The subscriber can then use the mobile phone for various transactions. Person-to-person money transfer has boosted incomes of rural recipients through the ease, security, and affordability that allow their relatives or friends in urban centers to send money home more frequently. Another important consideration is that Kenya is one of several countries in sub-Saharan Africa where remittances from members of the diaspora living in Europe, the Middle East and the US form a crucial source of foreign currency. Mobile phone-based money transfer and banking solutions have been recognised as the avenue to take banking services to people outside the formal financial industry. The services are cheaper than conventional banking, which comes with expenses the poor could not afford. The informal sector of the economy thus has the potential to save money formally and to do so in a safe and productive way, earning interest, and not sitting idle and vulnerable under mattresses or at the bottom of dustbins.

In essence, “Mobile Money” is cash converted to electronic form, stored in a virtual account in the SIM card. Mobile Money solutions such as M-PESA, ZAP, YU Cash and Orange Money run on a SIM Application Toolkit, commonly referred to as STK. STK is a standard of the GSM system which enables the Subscriber Identity Module (SIM) to initiate actions which can be used for various value-added services. The SIM Application Toolkit consists of a set of commands programmed into the SIM which define how the SIM should interact directly with the outside world and initiates commands independently of the handset and the network. This enables the SIM to build up an interactive exchange between a network application and the end user and access, or control access to, the network. The SIM also gives commands to the handset such as displaying menus and/or asking for user input. Designed as a single application environment, the STK can be started during the initial power up of the SIM card and is especially suited to low level applications with simple user interfaces. Mobile money transfer systems are already being used to allow bulk disbursement of payments from organizations to employees, and have been used to allow the disbursement and repayment of micro loans.

On the other hand, Mobile Banking such as KCB Connect, Hello Money and Easy24, utilizes a unique platform known as Unstructured Supplementary Service Data (USSD). USSD is a protocol used by GSM cellular telephones to communicate with the service provider's computers. USSD can be used for WAP browsing, prepaid callback service, location-based content services, menu-based information services, and as part of configuring the phone on the network. USSD messages are up to 182 alphanumeric characters in length. Unlike Short Message Service (SMS) messages, USSD messages create a real-time connection during a USSD session. The connection remains open, allowing a two-way exchange of a sequence of data. This makes USSD more responsive than services that use SMS. It is highly user-friendly, and provides an extremely convenient system for customers to access virtual account in real time. Services available with mobile banking include: Check their bank balance; View a mini bank statement; Change PIN; Request Bank Statements; Transfer of Funds in-between personal accounts and nominated accounts; Pay utility bills – Pay your Power/ Water /Satellite TV; Enquire on FX rates; Top-up their mobile phone balance; and Request a cheque book. Mobile banking services have various benefits to the population, including increased productivity and capital flows, helping to manage cashflow as well as enhancing management of erratic incomes.

Another growing trend in the Kenyan market is development of e-commerce and Internet banking solutions such as Rupu, Jambopay, PesaPal, Straight 2 Bank and Barclays Integrator. These solutions increase efficiency since the merchant is a technology solution rather than a physical person or premises, allowing exchange of goods or services in a virtual environment. Services available through the Internet Banking solution include: Inter Account transfers; EFT payments; Local EFT payments to other banks; Cross Currency payments; Direct Debit Payments; Recurring Payments; Urgent Payments (RTGS); and Electronic Cheque Payments. Commercial banks that have already deployed Internet banking are; Barclays Bank, Kenya Commercial Bank, African Banking Corporation, Bank of India, Chase Bank, Commercial Bank of Africa, Consolidated Bank, Cooperative Bank of Kenya, Diamond Trust Bank, Oriental Commercial Bank, Paramount Universal Bank, Prime Bank, Standard Chartered, Trans National Bank, CFC Stanbic Bank, Ecobank Kenya Ltd, Equatorial Commercial Bank Ltd, Equity Bank Ltd, Family Bank, Fidelity Bank, I & M Bank, Middle East Bank (K) Ltd, National Bank of Kenya and NIC Bank. Judging by the enthusiasm in the market, Kenya may be heading to an economy where less tangible money is in circulation.