Kenyan banks have started testing a new electronic payment system that will enable their customers to make instant transfers of money they hold in different banks.

Currently, this service is only possible between two accounts in the same bank.

The unfolding development sets the stage for a fierce battle with telecommunications companies to control the lucrative money transfer business currently estimated at over Ksh429 billion ($4.12 billion).

Latest data from the Communications Authority of Kenya shows that the value of person-to-person (P2P) money transfers through mobile phones stands at an estimated Ksh429.45 billion ($4.12 billion).

Safaricom’s M-Pesa platform controls 85 per cent, valued at Ksh366 billion ($3.5 billion) of the business, followed by  Equity Bank’s Equitel at 15 per cent, valued at Ksh63.3 billion ($608.81 million).

Other players are Airtel Money and Mobikash, which control 1.4 per cent of the business valued at Ksh5.98 billion ($57.51 million) and 0.03 per cent valued at Ksh118.75 million ($1.14 million) respectively. Orange Money commands 0.001 per cent or Ksh4.29 million ($41,261) of the money transfer market.

But the entry of the banks into the business with promises to lower the cost of transactions is expected to transform the money transfer landscape, with the consumers being the ultimate beneficiaries.

“We have priced the cost of the transactions to be much cheaper than what is currently being charged in the market, because banks will be using a shared infrastructure and as a result the benefits will be passed to the consumers,” Habil Olaka, the chief executive of the Kenya Bankers Association (KBA) told The EastAfrican.

Huge volume transfer

In addition to lowering the cost of money transfers banks will also provide an opportunity for customers to transfer huge volumes of cash per transaction, ranging from Ksh50 ($0.48)  to Ksh500,000 ($4,808.99) compared with, say, Safaricom whose maximum  daily transaction value for its  M-Pesa platform is Ksh140,000 ($1,346.52), while the maximum per transaction is Ksh70,000 ($673.25).

Currently, Safaricom’s average cost  per transaction for money transfers between M-Pesa registered users  is Ksh70 ($0.67)  while  the cost for transfers to unregistered M-Pesa users is  Ksh108 ($1.03)  per transaction. These figures are based on the charges for each of the 19 categories of money transfers ranging from as low as Ksh10 ($0.1) to a maximum of Ksh70,000 ($673.25).

READ: Kenya to probe telcos over high cost of mobile money transactions

Under the Interbank switch, customers will only pay Ksh20 ($0.2) for sending Ksh2,700 ($26), compared with Ksh55 ($0.52) charged by M-Pesa.

Last year, Safaricom said plans by banks to enter into the money transfer business  would not shake its M-Pesa service, saying that local money transfer market is “nascent and still growing.”

“This is an expected development that is provided for in the National Payments Systems  Act and Regulations thereunder,” Safaricom’s corporate affairs director Stephen Chege was quoted by the Daily Nation as saying. “Safaricom believes that there is room for more innovative solutions in the payment space.”

The Real-Time Interbank Switch is an initiative of KBA, the industry’s umbrella body. The idea was mooted in 2012 when it was discovered that lenders were losing close to Ksh2.3 billion ($22.12 million) to  telcos through mobile money transfer services.

“The implementation of this system is at an advanced stage. Customers will be able to transfer money to each other in real time using existing delivery channels such as mobile phones, ATMs, POS (point of sale) and the Internet,” said Mr Olaka.

Integrated Payments Service

In June, KBA launched Integrated Payments Service Ltd (IPSL), a company that will manage the switch and facilitate direct transfer of money between banks without going through M-Pesa.

KBA has been registered as the owner of IPSL on behalf of all the 43 banks. The company is expected to handle 400 million transactions in its first year of operation before expanding to 1.6 billion transactions in five years.

Globally, banks in Switzerland, Brazil, Japan, UK and Denmark have a similar service. In the UK, it was started in 2008 and took over four years to reach critical mass, while in Denmark, it was launched in 2014. Japan has been running it for 40 years.

In the US, the Clearing House has launched an immediate payments service, while the Federal Reserve has initiated a number of taskforces to help all sectors of the industry define their requirements for immediate payments.

According to researchers at Ireland-based Accenture Plc, a global management consulting and outsourcing company, banks globally are moving to meet the demands of their personal and business customers by shifting to real-time payments.

“As the rollout of immediate payments schemes continues, banks that have yet to develop the capabilities required to participate in the real-time payments ecosystem have no time to lose,” Accenture says. “Leading banks in every market will decide to take a proactive and holistic approach to the transition to real-time payments.”