Safaricom links with UK’s Vodafone for cross border mobile remittances

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Kenyans will nowy be able to send and receive money to the UK through Safaricom’s M-pesa in the company’s first commercial cross-border transfer service whose details will be announced later this week.

The move opens up the service – which has contributed to the slow decline in usage of more traditional money transfer solutions – to the lucrative remittances market and sets the stage for a new battle on the international front between local mobile operators.

Safaricom’s competitor in the market, Zain, just under a month ago, unveiled a service that allows subscribers to send or receive money anywhere in the world using the Zap platform. Safaricom has been actively pursuing a link with its UK affiliate, Vodafone, to allow subscribers on its network to send virtual cash across borders since it launched the service over two years ago.

According to sources involved in trials for the service launched in 2008, the proposed rates for an M-pesa transaction between Kenya and Uganda are Sh480 (£4) for amounts between Sh0-18,000 and Sh720 (£6) for amounts between Sh18,120 and Sh30,000 (£151 – £250).

The rapid adoption and frequent use of M-pesa has translated to Safaricom emerging as the local market leader in mobile money transfers, mostly due to its low pricing model and the fact that it is available on the mobile phone. M-pesa now has more than 7 million users and boasts an agent network that exceeds the total number of bank branches in the country.

‘By allowing money to flow electronically rather than physically, M-pesa lessens, and in some cases eliminates, many of the spatial and temporal barriers to money transfer. This releases money flows in Kenya and allows such flows to penetrate rural areas where cash is difficult to access,’ said Olga Morawczynski, in a CGAP research note.

Another pillar in the product’s success has been the fact that users do not need a bank account to use the service, a fact that Safaricom chief executive, Michael Joseph, says has pushed the product to prominence. The market will be keen to see if the product will have the same success in the international market, where money transfers are typically expensive and out of the reach of the unbanked population.

Analysts say the fact that international transfers is a new and untapped market, the entry of mobile providers could set the stage for price battles in the industry.

‘Apart from the convenience factor, unless prices come down to comparable levels – or at least somewhat closer to the cost of sending money domestically – there is still a long way to go before the potential of international mobile money transfers can be realised,’ comments Sanket Mohapatra of the World Bank.