Tangazapesa :Carving a niche in mobile money transfer trade


January  7, 2013


After many years working in the construction industry in Dubai, Oscar Ikinu decided to return to Kenya with one goal in mind — to start a money transfer and transaction service. His idea would give birth to Tangaza Pesa in 2006.

“What I found out at the time was that the biggest challenge in Kenya for most people and what contributed to poverty was lack of access to financial services,” Mr Ikinu, who is also the chief executive officer of Tangaza Pesa, told Money.

Besides addressing financing challenges, the 45-year-old was also on a mission to create jobs by establishing a firm that now moves an average of Sh1.5 billion every month and employs 392 workers.

Two other investors joined the company when it started recording success.

The architect and urban planner faced some many challenges at the beginning, including getting a licence from the Central Bank of Kenya (CBK). It took three years to get the permit as the company had to undergo stringent due diligence by the banking industry regulator.

Another challenge was that his outfit was a new service in the market and there were no laws guiding the running of such a business.

However, when M-Pesa was licensed by the CBK in 2007, it paved the way for Tangaza Pesa’s licence in 2010, enabling it to start operations in January 2011.

Tangaza Pesa is the only operator that allows cross-network money transfer, giving it a competitive advantage.

“Currently, we are the second largest in the market because of the various advantages that we have. It is the only mobile operator that works across all networks. We also register people who don’t have IDs. That means anyone is able to send and receive money using our system,” Mr Ikinu said.

He claims that his firm has made huge investments in setting up a core banking system that is “better than that of many banks in Kenya”, besides other systems that expedite transactions.

The service runs on the MobilePay platform, which he says cost a substantial amount to set up. The IT system allows customers to transfer money in 32 banks through the Kenswitch network.

To be an independent operator able to transfer money across networks, one needs to get a licence from the Communications Commission of Kenya (CCK).

Mr Ikinu is unhappy with what he terms as the monopolistic tendencies of the market leader, which he claims deliberately creates barriers to entry due to its dominance behaviour.

“The main challenge has not been with the ones that we have overtaken but the one that we are chasing. That is the one that has monopolistic behaviour, using pricing and abuse of market dominance, but we have reported this to CCK and the matter is being addressed,” he says.

Safaricom has used its M-Pesa service as a customer-retention strategy as stiff price wars sparked by Airtel last year cut into the voice revenues of different operators.

Recently, Vodafone, which has a 40 per cent stake in Safaricom, rejected a bid by Essar Telecom (which owns yuMobile) to be allowed to use Safaricom’s M-Pesa platform on its network, a move Vodafone said did not offer any strategic advantage.

Vodafone, a UK mobile phone company that earns licence fees from Safaricom for use of the M-Pesa platform, noted that by rejecting Essar’s application, it wants to safeguard Safaricom’s agency network, which has made M-Pesa a success story that generated Sh10.4 billion of its Sh59 billion total revenue in the just ended financial year.

M-Pesa has 15.2 million users while its agents number 45,540 countrywide.

Airtel declined to disclose how much its money transfer service transacts every month or year, citing commercial reasons.

CBK data on mobile payments indicate that in the first nine months of this year, the money transacted through mobile phones was Sh1.1 trillion, averaging about Sh124 billion a month.

Analysts, however, say that the other providers (other than Safaricom) share about 9,000 agents out of which Airtel, with a subscriber base of 4.48 million customers as of March 2012, has over 6,000 agents.

Airtel is at currently promoting a strategy that allows customers to send money free of charge on its network. This is seen as a move an attempt to entice more customers to join its money transfer service and increase its market share.

Last month, Vodafone announced plans to link the M-Pesa service to HomeSend, an international remittance hub that would allow M-Pesa users to send and receive money on their mobile phones to at least 21 international money transfer providers in 35 countries.

Despite the increasing competition in the sector, Mr Ikinu told Money that reception for Tangaza Money has been positive, adding that big firms have expressed an interest to partner with it in payment for services, wages, and other related transactions.

The money transfer operator enables savings and credit, corporate automation, Saccolink, and utility payment solutions on its network.

“We are also reaching out to water service providers. We already have some customers paying for water services through our platform,” Mr Ikinu said.

The company is also targeting diaspora remittances, but its main focus is to consolidate its operations and maximise the potential in the local market.

The mobile money transfer company’s customer base has grown to 300,000 served by over 2,500 agents across the country in the slightly more than one-and-a-half years it has been in business. At the end of the first year, the service was moving about Sh1.3 billion a month.

Mr Ikinu says that by giving communities in remote areas access to markets and financial services, they are being economically empowered.

Coconut farmers in Mombasa are able to receive payments for their produce through Tangaza Pesa after the company partnered with the Kenya Coconut Development Authority.

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