Zimbabwe’s banking market was traditionally not very open.
By Collins Rudzuna
At independence in 1980, only a handful of banks controlled by foreign banking groups or government, existed.
Deregulation in the 1990s resulted in the emergence of new participants and today the country has more than twenty banks with a diverse array of shareholders.
Yet in many respects banking remains an old boys’ club where one has to belong to succeed. Despite the emergence of many new participants, the traditional banks still dominate the market. The five biggest banks control about 62% of banking deposits and the traditional banks which existed at independence still find it easier to attract deposits than new banks.
The older banks have often been accused of being arrogant. Feedback from customers on the quality of service is usually negative.
Increased competition from the newer banks does not seem to have woken up the big boys from their slumber. Yet something newer, something outside what is traditionally considered a banking service, seems to have got the attention of bankers — EcoCash.
Econet launched a mobile money transfer service, EcoCash, and the banking industry immediately took notice. EcoCash allows people to send money to each other from their cellphones.
The money can be collected from a network of about 3,000 agents dotted across the country. Unconfirmed reports suggest that bankers have lobbied the central bank to force EcoCash to stop offering what they consider to be solely a banking product.
Executives from Econet have downplayed the apprehensiveness of the banking community, suggesting instead that EcoCash complements traditional banking services rather than supplants them.
But why would bankers be worried about EcoCash especially when the older banks have managed to maintain their dominance despite the emergence of more than fifteen new banks since independence? The reason is that EcoCash is a potentially disruptive innovation and could well signal the beginning of the end for traditional banks’ monopoly of services. Disruptive innovation is a widely used buzzword in today’s business world, especially in technology-based businesses. Loosely defined, disruptive innovation refers to a situation where existing technology is applied in a new way, creating a new product or market which disrupts or threatens the existence of a more established one.
EcoCash works by allowing agents to accept sms-based confirmations of money transfers. Reportedly at least 3 000 agents have already been registered. All the banks in the country combined do not have a branch network as wide as that, even if ATMs are included. EcoCash agents are existing businesses, shops that have partnered Econet in providing the service.
The network is so widely distributed that EcoCash has the potential to reach places that banks have long considered unviable for setting up branches. Not only is the network widely distributed but it includes shops that are open after banking business hours.
Customers are able to do their “banking” on EcoCash in more places and for longer hours than they can with their bank.
Another reason why Ecocash can potentially outdo banks at their own game is that Econet already has a massive captive audience. Latest results from the company suggest that there are now more than 8 million subscribers. That number far exceeds the number of bank customers for the whole banking industry. Bankers have long been scratching their heads over how to reach the unbanked population.
Estimates are that cash circulating in the informal sector is equivalent to the amount of deposits in the formal banking sector which stood at US$4,41 billion at end of December 2012. Bankers are keen to get their hands on this money to boost transaction fees and deposits.
Thus far most of their efforts have been futile as the informal sector participants are resistant to bank charges and inconvenient banking hours.
EcoCash could potentially beat the banks in the race to access this bounty. So are banks on their way into oblivion, to be replaced by mobile based money transfer services? Hardly. Experience from other markets where such services have been introduced suggest otherwise.
In Kenya, Safaricom runs a similar product called M-Pesa. Whilst the service is popular and now contributes 18% to Safaricom’s revenues it has not overshadowed traditional banks’ business. M-Pesa has been successful in providing bank type services to previously unbanked people through a network of 11,000 agents.
But some banks have responded by partnering M-Pesa or launching rival products with identical functionality. Banks in Zimbabwe have started to do the same.
Ten banks are already linked to the Ecocash platform and others have launched rival products.
Another reason that if unresolved could curtail Ecocash’s growth is their pricing. EcoCash charges especially to unregistered users are exorbitant and can go as high as 5% of the money being transferred. If this is not resolved it could affect the take up of the product.
When Econet released its results management indicated that a total of US$1.5 billion had been moved through the EcoCash platform since inception.
With traditional revenue streams such as sms on the decline and voice contribution slowing down, Ecocash could be Econet’s saving grace. Along the way it could also prove to be somewhat disruptive to traditional banking services.
With only a couple of years in operation the platform is still in its infancy. It remains to be seen whether it will prove a worthy competitor for established banks.