The Central bank of Kenya will have to pump in billions into investments on digital currency for it to actively compete with M-Pesa experts have said.
Investment bankers EFG Hermes pointed out to Business Hub that despite massive investments by Safaricom, transaction fees will play a key role in driving the uptake of other financial solutions like the Central Bank Digital Currency (CBDC).
In an Exclusive Interview EFG Hermes head of equity Mwathi Kilonzo said that Safaricom has gotten to where it is now, due to the ability to innovate adding that Competition is very much expected coming from the central bank, then the competitive aspect of it and how the natural impact of low transaction fees.
“So you have over 250,000 investor agents, and they ensuring that that service is accessible to a large proportion of the population. If you have to base on this, then you have to build a distribution platform equivalent to that in order to compete effectively,” said Kilonzo.
He adds that over time, the cost of transacting especially peer to peer transfers will come under a lot of pressure, whether it’s just to offer more value to customers or also as a result of new competition such as central bank digital currencies.
“It’s very early days, obviously mostly it’s been in the pilot stage, but so far it’s not been successful in most settings like China where it has not gained very significant traction over the one year it has been in operation,”
Central Bank of Kenya has maintained that is not in a hurry to roll out a digital currency, citing challenges coming with the CBDCs as the reason why the country is still consulting.
The financial sector regulator has been exploring digital currencies to increase financial inclusion among populations but the analysts maintain that Mpesa still have a competitive advantage in terms of the captive market and the distribution aspect of it as well.
“The limitations we see are good on two fronts. First, the CBDC is at best from our understanding, but where the market is now, despite having high mobile phone penetration, the penetration of smartphones and 4g and mobile handsets is still relatively low. And so your captive market relative to what Mpesa can do on both USSD and smartphones using their app,” he added.
The digital currency uptake in the African countries has remained low and EFG Hermes projects this to continue even in the Kenyan context due to a ‘fantastic ecosystem’ that Safaricom has built in the region.
“As we know Safaricom recently introduced a Super App on which they continue to continue to introduce new apps. So yes, you know, from a cost point of view, the CBDC might be cheaper, but I think a lot of users may still continue to use the Safaricom app or ecosystem simply because of the value added services it offers.”
The Kenyan Ecosystem has been a difficult one to navigate since safaricoms competitors have been offering cheaper money transfer products yet they haven’t been able to gain significant market share.
“That again, points to support from Superior ecosystem”
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