M-PESA in Kenya is widely regarded, and rightly so, as an outstanding success in mobile money. The service has around 17m active customers and in 2016 generated about $400m in revenue for Safaricom, its parent company. It is therefore interesting to reflect on how this success has impacted the banks in Kenya which have largely ceded the basic money transfer market to mobile operators.

The Central Bank of Kenya reports on the structure and performance of the banking industry. There are 42 commercial banks, although 2 are in administration. The latest report is for 2015 and some observations are:

  • Asset and revenue growth for 2010-15 was 16% and 17% per annum respectively. Growth in profits was slightly lower at 13% per annum. In comparison, inflation has been 9% per annum (as measured by the GDP deflator).
  • Nominal GDP growth was 14% per annum over this period, so banking assets to GDP increased only marginally, from 53% in 2010 to 56% in 2015. This is still quite low – for example in Morocco the ratio of banking assets to GDP is 117%.
  • The number of branches increased just 7% per annum to 1,523, which is therefore only 33 per million population but the number of bank agents has grown strongly and increased to 40,592 in 2015. The number of bank employees increased by 5% per annum from 2010-15.
  • Post-tax return on average shareholder equity was a very healthy 18% for the banking system in 2015.

There are other mobile money providers but M-PESA is by far the largest. M-PESA revenues of KS42bn in 2015-16 (year end March 2016) were about 10% of the total revenues of the commercial banks but M-PESA has been growing faster than the banks, at 29% per annum for 2011-16. New products have been introduced, notably M-SHWARI which is providing savings and loans to mobile money customers, and this is driving more growth in revenue. However, M-SHWARI is offered in partnership with a bank, Commercial Bank of Africa, so to some extent is helping the banking industry attract business from underserved segments of the population. In comparison, the two largest commercial banks, Kenya Commercial Bank and Equity Bank, each had revenues in Kenya of approximately KS45bn in 2015 and therefore M-PESA is already more or less the same size as these banks in revenue terms.

Selected Figures for M-PESA

Our conclusion is that the impact on banking sector growth and profitability from M-PESA in its first 10 years of operation has not yet been disruptive. When markets are growing, the impact of new competitors is less dramatic and M-PESA has increased the size of the financial services revenue pool rather than taking share of an existing revenue pool.

Nevertheless, in the next 10 years M-PESA and other mobile money operators in Kenya may be more of a competitive threat. The growth in basic mobile money services will gradually slow and they will probably seek to expand into areas that may be more impactful on banks. Of the 40 plus commercial banks there are many who are sub-scale, and these will be the most affected if competition intensifies. Furthermore, the banks will probably not be able to grow cards and payments revenues to the extent that banks in more developed countries have done and so this will affect longer term growth and profitability, all other things being equal.

Michael Pearson, 3rd March 2017