The saying “When two elephants fight it is the grass that gets trampled” may soon be disproved in Kenya. With two of the biggest elephants in town, Equity Bank and Safaricom, vying for financial inclusion dominance, Kenyans everywhere stand to benefit.

Safaricom M-Pesa is a mind-blowing success. In less than four years, M-Pesa has built a network of over thirteen million subscribers (51% of the adult population) and over twenty thousand agents. M-Pesa moves roughly three billion Kenya Shillings every day, which, by some estimates, may equate to 20% of gross domestic product in 2010. All told, M-Pesa seems unstoppable.

And then there’s M-Kesho.

Safaricom launched M-Kesho in mid-2010 in order to link transactional M-Pesa accounts to bank accounts with Equity Bank. The idea was to encourage subscribers that were using M-Pesa as an informal savings mechanism to move their funds to an interest-bearing account with Equity (and earn Safaricom a transaction fee in the process). M-Kesho was hailed as a breakthrough in financial inclusion.

But then Equity and Orange Telecom launched Orange Money.

Marketed with the phrase *iko pesa* (Kiswahili for “there’s money”), Safaricom would be wise to read the launch of Orange Money as *iko hatari* – “there’s danger!”. Orange Money, a de facto front-end for Equity accounts, signals a significant shift in the market: it offers many of the same services as M-Kesho, but at dramatically reduced prices. Orange Money also signals a shift from mobile network operators to banks, where accounts earn interest, contribute to credit histories, and are covered by deposit insurance.

Equity Bank may be the only company in Kenya that has the will and wherewithal to challenge Safaricom. Equity recently partnered with Essar yuCash, a mobile money service powered by Obopay, and is likely waiting for Airtel Money to get the thumbs up from Central Bank of Kenya to make another big announcement. The author wonders: Is Equity Bank trying to become a mobile money clearinghouse?

Make no mistake, Safaricom has little incentive to play along and isn’t to be underestimated. So what should they do to regain the initiative? Register as a deposit-taking financial institution? Create / open an M-Pesa API to attract value-added services? Slash tariffs?

Regardless of what happens next, competition between Equity Bank and Safaricom is a net good for Kenyans. Competition leads to better services for less and encourages innovation. If anything’s certain, it’s that 2011 will be a fascinating year for mobile money.

Ben Lyon // 12DEC2010