Kenyan lenders have launched an interbank money payment switch dubbed Pesa Link as they seek to regain dominance in the money transfer business through competitive transaction fees across networks.

The latest innovation, viewed as a game-changer in the money transfer business, has no charges on transactions of up to Ksh500 ($5), while setting transaction fees on values above Ksh500 at a flat rate of Ksh11 ($0.11) per transaction.

The system can handle  person to person money transfers from as low as Ksh10 ($0.1) to a high of Ksh999,999 ($10,000).

The money will be transferred through mobile phones, agents, branches, ATMs and the Internet, on a real-time basis, inevitably leading to a major reduction in the use of bank cheques.

Payments from Ksh1 million ($10,000) and above are effected through the electronic real-time bank transfer system.

Competitive pricing

The Kenya Bankers Association (KBA) last week said the benefits would be passed on to consumers.

“The pricing will be more competitive and lower than what we have seen in the market,” said Habil Olaka, the chief executive of KBA.

Mobile operator Safaricom’s person-to-person money transfers on the M-Pesa platform were worth Ksh389.09 billion ($3.89 billion) during the three-month period up to  September 2016, according to data from the Communications Authority of Kenya.

Equity Bank’s Equitel mobile transactions were at Ksh80.78 billion ($807.8 million), and Airtel Money at (Ksh4.57 billion ($45.7 million).

“Safaricom welcomes new players in the market. We believe the market is big enough for everyone. Our focus has been to deepen financial inclusion and help in transitioning Kenya into a cash-lite economy,” said  Stephen Chege, the corporate affairs director at Safaricom.

“There are still significant growth opportunities in this area for all players, given that over 90 per cent of payments are still made in cash. With M-Pesa not requiring a customer to be a bank account holder, we believe we will retain relevance with customers and continue to grow value,” he added.

Saccos included

According to Mr Olaka, savings and credit co-operative societies (Saccos) may be considered for the money transfer business during the second phase of the implementation.

“We know that the Sacco regulator, Sacco Societies Regulatory Authority, is working on ways of allowing Saccos into the clearing house. Once this process is successful, then we shall explore how we can bring these institutions on board.

“One of the conditions is that you must have a settlement system, you must have a current account with CBK,” said Mr Olaka.

The initial phase of this project involves person-to-person money transfers, while the second phase would include businesses  and establish partnerships with government agencies, mobile virtual network operators (MVNO) and other players in the mobile money transfer subsector.

Pesa Link is an initiative of KBA; the idea was conceived in 2012 when banks realised that they were losing about Ksh2.3 billion ($23 million) to telcos through mobile money transfer services.

READ: Banks vs telcos: Battle for control of money transfer

The Switch is offered by Integrated Payment Services Ltd (IPSL), a fully-owned subsidiary of KBA that was launched last June.

KBA is expected to manage the Switch and facilitate direct transfers of money between persons without going through intermediaries such as M-Pesa, Airtel Money and Orange Money.

The Switch creates an interbank device that allows interoperability across all lenders for retail payment streams.

Banks are required to integrate with the Switch.

“As the first set of banks roll out the product to their customers, the rest of the banks are in various stages of testing the system,” said Mr Olaka.

The phased implementation of the system will start with 12 banks that  have already completed the pilot exercise and have received product approvals.

They are Standard Chartered Bank, Co-operative Bank, Barclays Bank, Commercial Bank of Africa, I&M Bank, Diamond Trust Bank, Gulf African Bank, Guardian Bank, Victoria Commercial Bank, Credit Bank, Prime Bank and Middle East Bank.

All banks are expected to have received regulatory approvals for the product and completed the piloting exercise within the next 30 days. Currently, the only instant money transfer transactions through a bank are those that happen between two accounts in the same bank.