Ignacio Mas

Financial Services for All Kenyans: Equity Bank and M-PESA Go Head to Head

Editor’s note: The following piece was contributed by Guest Blogger Ignacio Mas in collaboration with Graham A.N. Wright, founder and Director of MicroSave. Graham has had a career of two decades of development experience across Asia and Africa and pioneered much of the core of market-led approach used by MicroSave. He has authored over 50 papers, as well as 20 of MicroSave’s acclaimed, practical “how-to” toolkits that are used across the globe. Graham is a Research Associate at the Institute of Development Policy and Management, University of Manchester, UK and a reformed Chartered Accountant.

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Kenya is home to two extraordinary, but very different, financial service providers that have reached massive scale with unprecedented speed: Equity Bank and Safaricom’s M-PESA.

Equity Bank emerged from a functionally bankrupt building society in the 1990s, and has seen its customer base grow from 109,000 at end-2001 to 5 million by June 2010. Meanwhile, M-PESA, a mobile money service operated by mobile operator Safaricom, was launched in April 2007, and by June 2010 had 10 million subscribers. By June 2010, Equity Bank had 56 percent of Kenya’s total bank accounts, but M-PESA had almost as many accounts as the entire banking system. In a country with 22 million adults in which only 19% of the population had access to formal financial services in 2006, this represents huge progress in the fight for financial inclusion.

What’s interesting is how different the Equity Bank and M-PESA growth models have been. Equity Bank has earned its market position the hard way: investing in an aggressive branch roll-out, offering good service, identifying with the common man, being highly responsive to customers, designing a range of products meeting a broad range of needs and giving customers an opportunity to grow with them. It is a model based on building long-lasting relationships with their customers. Their success is in all the ’soft’ factors, the kind that are often so hard to bake into an organization. Much of the success is due to the visionary and charismatic leadership of its CEO, James Mwangi, who has imprinted a unique DNA throughout the business. Over time, they were able to balance the need to foster a caring organization with that to increasingly systematize processes as growth took off. Today, relying on technology, Equity Bank manages remarkable levels of efficiency while still largely preserving intact its image of building personal relationships with its customers.

M-PESA, which represents Safaricom’s incursion into an adjacent market of mobile transactions, took a diametrically opposed strategy. Its success relied on designing a simple product that nailed a big customer pain point (remote payments), and on delivering convenience by developing a distribution channel that was unparalleled by banks. By June 2010, M-PESA’s 17,500 retail outlets outnumber Equity Bank’s 165 branches by a factor of 100x. Building on its trusted brand and dominant position in the voice market, it developed a ’plain vanilla’ product offering (one type of account with a basic money transfer capability), simple marketing messages to drive take-up and usage (initially it was “Send Money Home”), an outsourced channel structure (that handles customer registration and cash in/out), and highly systematized processes running on a bespoke technology platform.

M-PESA was hammered out in beautiful simplicity, with the comfort that comes with being attached to the largest company in the land. Its scale would become its own competitive weapon. Equity Bank, on the other hand, had to cope with the operational complexities of building an organizational culture that achieved good customer rapport at low cost. Its key competitive weapon is within the organization. Equity Bank’s service is based on building relationships; M-PESA’s is based on capturing transactions. By being excellent at what they do, both have built up phenomenal brands in the marketplace.

While the two developed fairly independently, they can no longer ignore each other. The fact is, most Equity Bank customers are also M-PESA customers. They are now moving to a co-opetitive phase with a joint offering called M-KESHO – essentially an Equity Bank account that customers can access on their M-PESA phone menu and through any M-PESA outlet. The battle for customer ownership is on.

The story of Equity Bank and M-PESA shows how two companies starting from very different positions adopted different customer strategies and operating models to win in their own way. It also shows that there are different paths for achieving scale and customer impact. But, most mportantly, what both M-PESA and Equity Bank make clear is that moving the needle on financial inclusion will require substantial business model innovation and competition.

financial inclusion, microfinance