Kenya’s state-owned Postbank has opened its network of more than 600 branches and agent outlets to customers from other banks through PesaLink, the country’s interbank payments network.
The deal means customers of participating banks can walk into a Postbank outlet, deposit cash, and have it credited directly to an account held elsewhere, without opening a Postbank account.
Until now, banks largely had to negotiate individual agreements to access another institution’s agent network. Gituku Kirika, chief executive of Integrated Payment Services Limited (IPSL), the company behind PesaLink, said banks and SACCOs now have an opportunity to “open their existing agent networks to other institutions, allowing customers to access cash services through agents beyond those operated by their own financial institution.”
Postbank’s addition takes PesaLink’s network to 80 financial institutions, including commercial banks, microfinance firms and savings and credit co-operatives (SACCOs). The network added 12 members over the past year, bringing all 38 licenced commercial banks in Kenya onto the same payments system. It now processes an average of KES 4 billion ($30.8 million) daily, up 24% from a year earlier, and KES 110 billion ($846.5 million) monthly, up 41%. According to PesaLink, about 98% of transactions are successful.
The Kenya Bankers Association incorporated Integrated Payment Services Limited (IPSL) in 2015 under the National Payment System Act. Banks had a problem; Safaricom’s M-PESA had grown from a service for sending money between people into the payment system that much of Kenya’s economy ran on. Banks were watching customers move money through a network they did not own.
IPSL was meant to provide an alternative. Its job was to build a shared, round-the-clock system that let customers move money directly between bank accounts, without relying on telecom operators or waiting for traditional clearing processes. The goal was to make bank transfers cheaper and reduce reliance on cash while giving banks a bigger role in Kenya’s digital payments market.
Can the goal ever be achieved?
PesaLink competed with a service Kenyans already used to pay for almost everything. M-PESA had spent years building a network of more than 260,000 agents, while shops, supermarkets, small traders, and utility companies had made it a routine way to collect payments. Customers could send money, withdraw cash and pay bills from the same wallet. Banks had no comparable reach beyond their branches and ATM networks.
Banks also made life difficult for their own platforms. For years, some charged hefty fees for transfers between bank accounts and mobile wallets, while PesaLink remained buried in mobile banking apps. Customers had little reason to seek out a service they barely knew existed, especially when M-PESA was already on their phones. Banks also couldn’t sell PesaLink as a shared consumer brand with the same recognition as M-PESA.
PesaLink’s future also depends on a project being developed by the Central Bank of Kenya (CBK). The regulator is working on a national Fast Payment System (FPS), which could provide banks, mobile money operators and other financial institutions with a common network for moving money. The project could expand PesaLink’s role, but it could also create a rival.
If the CBK builds a separate system, banks could find themselves competing with infrastructure they had hoped to control.
So far, PesaLink has made more headway with businesses than with ordinary consumers. Companies use it to pay suppliers, process payroll and send money in bulk. Getting someone to use it for a KES 500 ($4) shopping bill or to send money home is a different matter. M-PESA already handles those transactions, and banks will need a good reason to change.
Pricing fractures among partner banks
One of PesaLink’s biggest problems has been its price. For years, banks set their own transfer charges, with some fees reaching KES 250 ($1.92) for larger transactions, which made it difficult to sell PesaLink as a cheaper alternative to mobile money.
A group of 19 banks and microfinance institutions, including KCB, Absa, Diamond Trust Bank, and Stanbic, have since adopted the discounted pricing model. Transfers below KES 1,000 ($7.69) are free, while those between KES 1,001 ($7.70) and KES 999,999 ($7,692.30) incur a flat fee of KES 20 ($0.15).
Not everyone has signed up. Equity Bank, Co-operative Bank, Standard Chartered and NCBA still set their own transfer fees, which can be much higher than the flat KES 20 ($0.15) charge. Smaller transfers can cost up to KES 35 ($0.27), while customers moving larger sums may pay up to KES 250 ($1.92). As a result, the cost of sending money depends on which bank you use, even though the money moves through the same network.
M-PESA also uses tiered pricing, with small transfers costing little or nothing and larger ones attracting higher fees. Transfers below KES 100 ($0.77) are free. Sending a few hundred shillings costs up to KES 13 ($0.10), while larger transfers cost up to KES 108 ($0.83). This is the maximum charge, even when sending the service’s full transaction limit of KES 250,000 ($1,923.08).
Airtel Money takes a different approach to transfers within its own network, which remain free. Sending money to other mobile wallets attracts tiered charges like M-PESA’s, ranging from KES 7 ($0.05) to KES 13 ($0.10) for transfers below KES 1,000 ($7.69), and KES 100 ($0.77) to KES 108 ($0.83) for larger amounts, up to its KES 250,000 ($1,923.08) transaction limit.
The mobile money contest: PesaLink vs M-PESA and Airtel
On price, PesaLink has a clear advantage when customers move larger sums. Sending KES 200,000 ($1,538.46) through M-PESA costs KES 108 ($0.83). A customer using a bank on the discounted PesaLink tariff pays KES 20 ($0.15). PesaLink also allows transfers of up to KES 999,999 ($7,692.30) in one transaction, compared with KES 250,000 ($1,923.08) on M-PESA and Airtel Money. Both mobile money services have a daily transaction limit of KES 500,000 ($3,846.15).
Price is only part of the decision, though, considering mobile money has the advantage of being ready to spend. Airtel Money makes transfers within its network free, while M-PESA charges according to the amount sent. Both services also let customers send and receive money without worrying about which bank holds the account or which payment network processes the transaction.
PesaLink has a less convenient last mile because funds received through the service are deposited into a bank account. Spending it may require a debit card, an ATM withdrawal, or another transfer to a mobile wallet. Money received on M-PESA or Airtel Money is already in a wallet that customers can use to pay a kiosk, buy airtime, or settle household bills.
Postbank and the other partner banks give PesaLink wider reach, but it does not solve the banks’ bigger problem. Customers need a reason to use bank accounts for everyday payments, not just a cheaper way to move money between them. Until banks fix their pricing and make PesaLink easier to use, M-PESA will remain the first stop for most Kenyans paying for goods and services.