Banks in East Africa are growing jittery over the deepening uptake of mobile money services, which threatens to eclipse their traditional banking models.

Banks such as KCB, National Microfinance Bank, Stanbic Uganda and Bank of Kigali have opted for tie-ups with telcos to link customers’ bank accounts with mobile wallets; Equity Bank, on the other hand, plans to unveil its SIM card-based mobile banking service.

The panic among banks is fuelled by the fact that East Africa has the highest mobile money penetration rates in the world, with 58 per cent or six out of every 10 adults in Kenya having a mobile wallet, followed by Uganda at 35 per cent, Tanzania at 32 per cent and Rwanda at 18 per cent, according to the World Bank’s 2014 Global Findex.

The growing number of active users is backed by a vast agent network that has surpassed the number of bank branches, it notes.

READ: Agency banking everywhere but not enough cash

The lenders’ growing anxiety is further exacerbated by an increasing number of dormant bank accounts occasioned by the increased utility of mobile money.

According to the report, one in four bank accounts in East Africa is inactive as consumers opt for the convenience of mobile money services.

READ: One out of four accounts ‘dormant’ as mobile money takes over banking
“This innovation has given rise to a new generation of competitors to the traditional banking model,” KCB, East Africa’s largest bank in terms of assets, notes in its 2014 annual report.

Consequently, the bank teamed up with Safaricom to launch KCB-M-Pesa in March, a mobile banking savings account that allows users to borrow loans of up to Ksh1 million ($10,218) repayable in six months, at an interest rate of between two and four per cent per month.

READ: KCB Group to expand mobile banking services

The new product has already signed up 1.8 million users, with an average loan size of about Ksh3,000 ($30.6), underlining the thirst for accessible mobile-based microcredit.

Equity Bank’s thin-SIM technology (which can be overlaid on existing SIM cards) has registered about 800,000 customers so far.

Ranked the region’s largest lender by customer base with 9.6 million account holders, Equity is banking on its mobile virtual network operator (MVNO) licence to go head-to-head with Safaricom’s M-Pesa, which enjoys an unrivalled market share in Kenya.

“The Equity MVNO (Equitel) will enable us to offer banking products securely on a mobile platform and make the delivery of banking services more convenient, accessible and affordable,” said chief executive James Mwangi in the bank’s 2014 annual report.

READ: Equity-Airtel deal steals Safaricom’s thunder with money-transfer platform

Leora Klapper, a lead economist at the World Bank, however, argues that it is better for banks and telcos to work together rather than compete to develop products or see each other as rivals.

“The future of banking is digital. Mobile money accounts are not a threat to traditional banking, they are a complement to it,” said Dr Klapper, who co-authored the Findex report.

Dr Klapper cites the success of Kenya’s M-Shwari — a savings and loan account offered by the Commercial Bank of Africa, accessible only through Safaricom’s M-Pesa — which now boasts three million active users, a loan book of Ksh2.1 billion ($21.45 million) and deposits worth Ksh5.5 billion ($56.2 million) as at March.

READ: Safaricom, CBA launch mobile phone fixed deposit account

Stanbic Bank Uganda also has a product where its customers who are registered on the MTN Money platform can move cash between their mobile wallets and bank accounts. The bank, listed on the Uganda Securities Exchange, has 547,676 customers, of which174,239 were registered on the mobile banking platform as at the end of 2014, up from 65,375 a year earlier.

National Microfinance Bank — Tanzania’s largest lender by assets — has also signed a deal with Airtel Money, Tigo Pesa and Vodacom M-Pesa to link customers’ mobile wallets and bank accounts.

“Our mobile service enables retail customers to perform basic banking transactions through their mobile phone, making banking much more convenient for customers,” said NMB chairman Joseph Semboja in the bank’s 2014 report.

Bank of Kigali too, plans to launch a mobile phone-based savings and loan product akin to M-Shwari and KCB-M-Pesa.

“We plan to partner with the telcos to offer small savers and borrowers the intermediation interplay,” said James Gatera, managing director at BoK.

The lender last week chose to partner with MTN Rwanda to allow customers to move cash between their MTN Mobile Money wallets and BoK accounts. This integration will also allow BoK customers to make pay-TV subscription payments, airtime top-up and buy electricity tokens through their mobile phones.

ALSO READ: Rwanda mobile money payments pick up despite slow uptake

Mobile technology can easily close the huge gap between banking services and the financial needs of communities, especially small traders and the poor, analysts say.

“Banks did little to reach out to specific, and large market segments, particularly among the poor,” said Bill Maurer, director of the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine in the US.

Already, one-in-four bank accounts in East Africa remains inactive as consumers trade traditional banking for the convenience of mobile money services, according to findings in the Global Findex study.

Telcos in the EAC bloc such as Safaricom, MTN, Airtel, Vodacom, Tigo and Warid Telecom are rushing to cash in on the mobile money fre