In 2021, Gem MP Elisha Odhiambo proposed the Kenya Information and Communications(Amendment) Bill to address concerns that Safaricom had become too big. This is through its dominant market share in voice, mobile data, and mobile money.
However, only two of the 349 members showed interest in debating the bill’s contents.
If the bill were to pass, mobile phone companies would be required to separate entities to manage any business they engage in outside telecommunication services. They will be licensed only to offer voice, data, and SMS services, while mobile money services will be licensed as banks.
Mpesa Expected to Split From Safaricom
The split will likely happen after Kenya Kwanza Coalition won the elections and now forms the government.
And as Victor Hugo famously wrote, “There is nothing as powerful as an idea whose time has come.”
In their manifesto, Kenya Kwanza had already made plans to split Mpesa from Safaricom effective as soon as they got into power. Their manifesto said,
Effective immediately after forming the government, the administration will seek the break up of Safaricom Limited into two distinct and separate entities with a mobile telecommunications institution under the direct jurisdiction of the Communication Authority and the financial institution under the jurisdiction of the Central Bank of Kenya.
This will create clarity of purpose and regulation, which at the current moment is missing, and the ambiguity over which government institution has oversight capability over Safaricom Limited has allowed the particular organization to grow too large. It is unfair for Safaricom to be making billions out of the misery of cash-stripped hustlers.”
Kenya Kwanza Manifesto
The Mpesa Split Explained
In an interview with KTN in April this year, when asked about the proposed plans to split Mpesa from its parent company Safaricom, the outgoing chairman, and the man who considers himself the mother of Mpesa said,
“The intention is not to separate it as people have speculated. To separate Mpesa, put it into a separate company, and then sell shares in Mpesa. Of course, that would be fantastic, but that’s not the intended purpose.
First, it’s an idea that we are looking at what to do. Of course, Mpesa is so big. It’s 45% of our revenue, and it could be better to separate it from a regulator’s point of view so that the Central bank can regulate Mpesa, not Safaricom. That makes sense from that point of view.
What Mpesa Would Become If Regulated By CBK
Digital Bank
As reported by the Standard Newspaper last week, “according to analysts, Safaricom would, in a split environment, be able to form a mega digibank (digital bank) that would take the war for banking services from traditional brick-and-mortar banking halls to customers’ phones.”
This would put Safaricom up against other leading commercial banks in the country in the fight over the significant share of the rapidly growing online transactions, which account for 96% of all transactions in the country.
More Financial Services
Michael Joseph understood that if Mpesa was split from Safaricom, it would enable Mpesa to offer more services to its users.
In the interview with KTN, he said,
“It also makes sense if you say we wanted to do more with Mpesa. It is limited when you are within the Safaricom family, but when the Central bank regulates you, you can apply to do more things with Mpesa.
If you took Mpesa from Safaricom and CBK regulated it, you could apply to CBK to have Mpesa offer more services to its customers, which are not necessarily telco services.
We could lend you money to buy a car, we can’t do it today. So there is a range of services to choose from.”
New Services For Mpesa Under CBK
Fuliza For Business
For example, Safaricom could tap into the over 492,000Lipa na Mpesa Merchants to offer an overdraft facility for working capital needs such as boosting stock.
Clear Money Transfer Limits
If CBK regulates Mpesa, this would potentially clear hurdles such as caps on the maximum money users can send in a day or hold in their digital wallets. That amount is currently capped at Sh 300,000.
They could also increase the Fuliza limit, currently capped at Sh 300,000. This means they would now be able to lend more money to users with high-value transactions and good credit scores.
A Savings Product
A few years ago, Safaricom announced they were testing a new savings service that would allow users to save and earn a 10 per cent annual interest. If launched, the product MALI would compete with the Money Market Funds that are fast gaining popularity with retail investors.
Other Services
Regulation by CBK would put Safaricom in a position where it could also offer other services offered by banks, such as foreign payments, foreign currency exchange, credit cards and ATM services.
Mpesa Vs Other Banks
Once Mpesa is regulated by CBK, Safaricom will no longer have to partner with other banks to offer financial services. Safaricom already partners with NCBA and KCB, and their major partnership, FULIZA, has been a significant source of revenue for the two banks.
For example, In FY 21, Fuliza became the major moneymaker for NCBA, representing 85.54% of the bank’s digital disbursements when it was lending Sh 1.6B daily.
If Mpesa were to operate as a bank, this would now create a new war over the banking industry. Mpesa, which was already a significant threat to the banking sector under the jurisdiction of the Communications Authority of Kenya, would now be a free lion.
This means it can also acquire struggling commercial banks and go toe to toe with other commercial banks in the fight over the Kenyan market.
What Would Mpesa Lose?
On paper, splitting seems a good idea if you ask anyone who does not make up the Safaricom board of directors.
I have struggled to think why Safaricom never pushed for the split themselves. And that’s where the big question comes in.
Why has Safaricom themselves never pushed for the split and even not wanting the split driven by CBK to happen?
The End Of High Transaction Costs?
The only thing that would make Safaricom not want to be regulated by CBK is probably the fear that they may have to lower their transaction costs which is one of their major sources of revenue.
This is also among the things that the Kenya Kwanza coalition wanted to stop Safaricom from doing by changing the regulator of Mpesa.
Having already lowered Fuliza’s interest rates by 50% just the other day, this is probably their next move.
As they said in their manifesto,
“The market monopoly created noticeably by Safaricom Limited through its domination of the telecommunication and money transfer sector through the use of Mpesa has resulted in near slavery of the hustler nation. Through mandatory transfer charges, high interest on M-shwari loans and predatory lending through the Fuliza mobile loan service, which places millions of Kenyans in unending debt cycles through a machine designed to keep the loan borrower under the heel of the telecommunication giant.”
Final Thoughts
As a Safaricom shareholder, the biggest risks Safaricom faces are regulation risks.
And with the new government that promised to stop them from making money at the expense of hustlers, there may be worse days.
However, splitting Mpesa from Safaricom may come with more good than bad, even though it would require Safaricom to restructure its business to make more money from its new operations under a CBK-regulated Mpesa.
For now, it’s not over till the fat lady sings!
