In a move likely to upset the applecart in the telecom sector, Equity Bank has applied for a licence to operate a mobile telephone business.
Kenya's largest bank in customer base has submitted an application to the Communications Commission of Kenya (CCK) for a licence to become a Mobile Virtual Network Operator (MVNO).
This means the company will not operate its own network but will ride on the infrastructure of an existing Mobile Network Operator (MNO) to roll out mobile telephone services.
In a telephone interview, CCK director general Francis Wangusi admitted receiving Equity Bank's application, saying the regulator was assessing it.
"The Equity Bank licence application is not yet approved. It still has to go through several stages which are required by law," Mr Wangusi told Smart Company.
He added that the application has been forwarded to the National Intelligence Service (NIS) for security evaluation before it is remitted to a CCK committee that will decide whether to grant Equity an MVNO licence.
Four more firms have also applied for similar licences, although Mr Wangusi could not, at the time, reveal their identities.
By the time Smart Company went to press, Equity Bank Group had not responded to calls and emails for comment on this story.
However, yuMobile's managing director Madhur Taneja admitted that his company was in talks with the bank and hoped to clinch a deal to share infrastructure if Equity is granted a licence.
"We are in discussion with them as they are partners but I cannot comment on any developments in progress," said Mr Taneja in a text message.
In such a deal, yuMobile would benefit by renting Equity Bank's surplus or unused resources on its network.
On the other hand, Equity Bank would perhaps roll out branded SIM cards. In keeping with the Banking Act requirements, however, approval by the Central Bank of Kenya is needed before operations are rolled out.
At the moment, Equity Bank has more than 8 million customers. If they all join the bank's mobile services, this would push it to the second position in Kenya's mobile telephone business after Safaricom, which has about 21 million subscribers.
An industry expert who spoke to Smart Company on condition of anonymity said Equity Bank was likely to focus on providing its customers with mobile payment and banking services.
Although Equity is already doing this through partnership with telecom firms, independence would see the bank gain greater control of these services and the market.
"Equity feels that it needs the SIM cards in order to win the mobile banking and electronic payments battle," noted the industry expert.
Gaining MVNO status would actualise a long-held but rarely articulated goal of Equity's management.
Equity is the most affected bank by the advent of mobile money in Kenya.
Safaricom's M-Pesa, the first mobile money service in the local market, targeted the under-served and unbanked population that had been the key driver of Equity's exponential growth.
Efforts by the bank to partner with telcos to enter mobile banking and electronic payments have not met expectations and the bank has admitted to its frustrations.
In a book exploring the history of M-Pesa, Mr John Staley, Equity Bank's chief officer for Finance, Innovation and Technology, is quoted saying the success of such mobile banking services lies in controlling the SIM cards used by subscribers.
"If we are going to provide mobile services to customers, we need to access SIM cards…Whoever controls the SIM card controls the ecosystem," said Mr Staley as quoted in the book: Money, Real Quick: Kenya's Disruptive Mobile Money Innovation by Tonny Omwansa and Nicholas Sullivan.
In 2010, Equity Bank and Safaricom brought to the market what was arguably Kenya's first mobile banking application — M-Kesho. However, following wrangles over revenue sharing, and as each firm tried to protect its base of customers, the application was stillborn. Over the past four years, the local mobile money and mobile banking markets have grown increasingly sophisticated.
Safaricom has gone on to launch a merchant payment service Lipa na M-Pesa.
And in partnership with Commercial Bank of Africa (CBA), Safaricom has launched M-Shwari, a banking service that is similar to M-Kesho.
Equity has also deepened its presence in mobile banking by signing deals with both Airtel and Telkom Kenya. The bank also enabled M-Pesa withdrawals from its Automated Teller Machines (ATMs) countrywide.
Recently, Equity has been active in growing the market for electronic payments. Separate deals have been struck with Visa and MasterCard to increase use of payment card in Kenya. In January last year, MasterCard and Equity announced plans to roll out mobile points of sale (MPOS) to enable cashless transactions over handsets.
Equity was to start by issuing out five million MasterCard-branded cards to its customers, agents and merchants. The bank wanted to target kiosk operators, retailers and other merchants.
"The benefit to the bank is that people will not need to withdraw money to make transactions. They will do so by simply swiping their cards to settle transactions at points of sale," said Equity Bank's chief executive officer James Mwangi at the time.
In July, Equity Bank followed this with a partnership with MasterCard and Kenyatta University to issue prepaid cards to the KU alumni spread across the world. Most significantly, however, Equity has partnered with technology giant Google to bring electronic payments to Kenya's public transport sector.
BebaPay uses Near Field Communication (NFC) to enable payment of fares using prepaid cards. There are plans to expand the service beyond transport and into other sectors including hospitality.
Safaricom has also made its entry into this arena with its Lipa na M-Pesa service for fare payments, which poses a challenge to the Equity-Google venture. Safaricom currently has 75 per cent of the adult population on M-Pesa services, conducting transactions worth more than Sh2 billion daily.
CORE BANKING SYSTEM
Lipa na M-Pesa was initially targeted at the retail sector, competing head-to-head with electronic payment solutions offered by banks such as Equity. Central Bank of Kenya data shows that transactions valued at Sh1.9 trillion were made through mobile money in 2013. In December alone, 25 million people carried out a transaction using mobile money.
Two weeks ago, Equity Bank upgraded its core banking system to hold more than 150 million accounts and one million transactions per second, equaling Safaricom's M-Pesa's system.
During the launch of the new system, the management noted that the upgrade would allow the bank to "roll out its future technology-driven innovative products" and "explore new lines of business."
The market for cashless payments in Kenya is expected to expand significantly in the coming months. Last year, President Uhuru Kenyatta directed that cash payments be banned from the public sector beginning April 1, 2014.
By the end of July, all public transport vehicles are expected to be using electronic payments, according to regulations gazetted by the National Transport Safety Authority earlier this year.
Therefore, if Equity Bank can provide the market with an integrated ecosystem with which to handle all these payments seamlessly, then this could provide a fresh and robust revenue stream.
The management knows the benefits of going mobile. "To really bank the unbanked, we need to go cashless because the biggest cost of doing financial transactions is actually cash," Mr Staley added.