Thursday, May 29, 2008

Safaricom Bank

As one of the new owners of Safaricom (granted that I get at least some 100 shares after the massively oversubscribed IPO) I take a keen interest in its (Safaricom's) financial future. I'll try not to repeat what has probably been written, blogged, sms'ed, posted etc. a thousand times over in other fora and instead give my own two sumunis on what I believe lies in wait for this behemoth.

I'll warn you first that most of what I write here is speculative and should not form the basis of your investment decisions.

In my last post I mentioned I would talk about how Safaricom is transforming itself into a financial company. It seems that now everyone else is sitting up and taking notice. For anyone who followed the release of S'coms spectacular financial results released a couple of days ago you would have noted how their trumpted their M-PESA product yet at the same time tried to assuage banks that they were not in competition with them.

Give me a break!

Now that I will be attending AGMs (which might probably be online ;) since the estimated shareholders number 750K) I would really put to task the board if they did not convert themselves into a bank.

Picture the economic landscape and make your own conclusion:

1. M-PESA is fabulously successful, notching up over 2M users in a short period of 12 months, with another potential 8M in line to become users.
2. The margins for M-PESA are fantatistically high, e.g. when you are charged KSh. 30 for sending KSh. 100; Safaricom's only direct cost is the cost of the SMS which they send to the recepient and to you (about KSh. 1 cost). Since they have partnered with dealers to undertake the actual cash handling they need not worry about branch overheads.
3. Safaricom's Average Revenue Per User is dropping as they approach saturation in urban areas and extend their network to rural areas, and they will be looking to increase revenue through other products.
4. The GK has promised that calls will be KSh. 2/minute this time next year, which means that Safaricom will need another cash cow.
5. In March Business Daily reported that Safaricom was trying to extend M-PESA into UK but were restricted by a number of conditions, one of which was the need to have a banking licence.
6. Safaricom has set very high standards for itself both financially and innovatively, and the only direction its new shareholders will allow them to go is up.
7. Kenya is severely underbanked (about 10-15% of the population banks) and there exists a huge market for easy to access banking services (my house help already asks me to deposit her wages into her M-PESA account)
8. Competition from Telkom and Econet (and the resurgent Celtel) this year will mean need to create more revenue from elsewhere.

I'm sure that if I thought hard enough I can come up with plenty of other reasons why becoming a bank is a natural progression for this company.


michaelj said...

Just for your information, the margins on M-Pesa are extremely low. the average transaction is Ksh4000 and you can work out how many transactions per month. Each transaction earns Ksh30 and it is shared 3 ways - the dealer, the bank and Vodafone. The costs of running M-Pesa are quite high considering its housed in the UK and needs a direct dedicated link(s) and the below the line selling costs are also high as we grow the subscriber and dealer base

Harry Karanja said...


Why would MPESA run from the UK? Is this an Intellectual Property issue, because I'm certain the infrastructure and personnel exist to run it from Kenya. Tackling this overhead should result in higher margins.

As for below the line selling costs, these should be high initially but if the product becomes as ubiquitous as the scratch card I'd imagine these would significantly fall.

What is indisputable though is the fact that MPESA is a hot product. Someone on this blog already compared it to SA's Wizzit ( . I'd like if you would confirm, but I already believe that its only a matter of time before we have Safaricom Bank.

Unknown said...

Stumbled on your blog. Very creative this is. I must congratulate you. Just shows how creative Kenyans can be. Kudos my friend.