Saturday, March 13, 2010

Tech Terror Quakes Lethargic Banks

Mobile Money Transfer is Mere Usurpation and Exposure of Banks' Lethargy

The idea of a telecommunications company transfering money is much like a salon that offers a snack to its clientele.  The meal is only an enticement; and the salonist has no obligation to improve the quality of her morsels.  Infact, it becomes a health hazard to eat in such a place, though it provides the proprietor with vital experience, were she to diversify her interests into food. At the salon, whereas you certainly get your hunger satiated, the meal can never be as good or as safe as at a dedicated eatery. 

I concur with Crown Paints' Peter Marangi and join him in chanting his chorused exhortation to us: ask the experts!  Safaricom's M-Pesa and the whole litter of cash-zapping rival chefs are mere usurpers; they will never feed us on a first-class full course meal served with five-star grace.  The reason is simple, a barbershop that stocks beer can never beat a real pub.

Every business has a core competency; its raison d'etre, its sine qua non. And the basis of banking is money.  If anyone has the natural instinct for creating and transfering money, it is the bank.  We only happen to live in an age of timorous bankers and stagnancy of innovation.  Although the idea of mobile money transfer is great; its conduct by mobile phone service providers (MSPs) is not. One just wonders when banks will awaken from their slumber to leverage their licences and reclaim their forte.

Thousands of jobs

That the mobile money transfer phenomenon has transformed lives and transfigured townships cannot be gainsaid. Millions of households are being rescued from excruciating poverty and literally saved from sleeping on empty tummies. But at what cost to the economy?  Unfortunately, humans are only impressed by sensual perceptions, and in this instance, by what they see happening. In most pursuits, however, what we do not see is more significant. For instance, what is the real cost of this industry? Respectfully, may I posit that MSP money transfer is not unlike a boil, a sort of sore abscess; principally, an inefficient outpouring of pent energy and waste, resulting from clogs in the natural systems. It is not only uncomfortable and difficult to hide, but also very painful. Let me expound.

The Kenyan banking system is too slow to react to new ideas and technological advances.  Ever since Western Union and Moneygram came up with the secure Transactional Reference Code for money transfer, it was obvious that someone would use the idea for mass money movements across local wallets.

Why banks have never invested in technology that allows them to adopt this concept defeats logic.  Fair lady Idea met MSP Technology along Money Avenue, and while staid Lord Banks hesitated, his lumpen servant, MSP quickly set up a candy store and stole her languorous attention. Can Mr Banks reclaim his street and woo back his pledged lady?  

In responding to this query, we have to consider the efficiency and merit of the MSP offering against the natural competence of the banking industry. 

To transfer money in the MSP model, the sender has to get cash - from some trade transaction, bank counter or cash machine and 'deposit it' into her mobile phone account at an agent of the MSP. Only then can she send it over the phone system to the recipient, who may send it onwards to a further recipient (or visit her local MSP agent) for 'withdrawal' and expenditure. This process involves at least four person to person exchanges, the first: when a sender trades commodities or visits the bank for cash; the second, when she visits the Send Agent for deposit; the third, when the recipient goes to the Receive agent for withdrawal; and the fourth, as the recipient exchanges cash for commodities. 

This model is seriously vulnerable to insecurity and criminal intervention, as would be the case were thugs to accost the 'sender' and confiscate the cash while on her usually distant way between the source of cash and the Send Agent's premises; or even the recipient after withdrawal. Further inefficiency is encountered because these cash exchanges can only occur during the working hours of each Agency, which, again for security reasons, are limited to an average ten-hour day.

And does the economy work well with all these informal money agencies? Everyone cannot be a good doctor; certainly not many can make good bankers.  Why do we need all these MSP agents? Systemic banking inefficiences are directing precious entrepreneurial capital into this MSP industry, away from greater social pursuits and achievements. 

We do not need any informal bankers in an economy of over twenty thousand formal bankers working in forty-five commercial banks and serving only nine million bankable individuals. (Considering that Kenya's population of forty million is comprised, upto fifty-five per cent, of children below the age of majority, whose accounts, if at all anywhere held for them, are funded and operated by their guardians; and taking as granted that of the remaining forty-five percent, only about a half, still many of whom are enjoined as spouses, have the financial weal and muscle to hold a bank account), the banking system is adequately manned.  The few account holders have even fewer monthly transactional counts. 

Yet these few are the people transfering money within this economy.  Any more agents are just rent-seekers. What can be more inefficient than that?  We just end up with more people 'getting to know who has received how much,' exposing the recipients' privacy and as a consequence inflating consumer prices - because we must pay the excess baggage of informal bankers, and we must charge a premium on commodities sold to 'the newly rich villager, who has received money from Uppity.'  Can an economy grow on internal transfer payments without matching productivity increases? Mobile Money Transfers are a form of intra-economy transfer payments, and their impact can only be inflationary, on the microeconomic scale.
That is the underlying social cost.  Next time you want to complain of deteriorating standards of living and persistently higher costs of goods, perhaps we should consider blaming the twin C*K regulators - the Communications Commission of Kenya and the Central Bank of Kenya.

Now, in the bank-provider model; the bank runs a money transfer platform, employing the MSPs only for data exchanges. Any bank account holder can register to the premium service at her bank and access her account anywhere, anytime.  The transaction process involves a data message to the Bank's software modules, and a virtual transfer of funds from own account to any individual mobile number in the republic.  Every transaction only yields a reference and report of new virtual balances to each party concerned.  And the bank system keeps a complete, safe and secure record of transactions per each account and associated mobile number.

This way, a registered user can access money on call from the comfort of her bed, any time of the day or night, and pay rent, school fees, water bill, purchase airtime, send pocket money to her old folk or young boarding school child, send money to the shamba boy, pay Mama Mboga, the doctor, the supermarket bill, and so forth; and the money can flow within twenty or thirty trades, without anyone touching any cash.  Then we will not need to carry cash to Namanga because our bank has no ATM out there.

Your phone only transfers data.  The money stays at the bank, and anyone needing hard cash should walk to their nearest bank or sacco branch for 'download'.

This way, banks deal with money, and the telcos with data.  Fair trade! Neat division of labour and exercise of comparative advantage.  The economy enjoys complementarity, not undue competitive pressure.  But the banks must first wake up to this!


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