In Kenya almost every adult you meet on the streets has some virtual money on their mobile phone. It is not because they are rich or like loose change in the pocket, but because the ease in using mobile money has made it as widely acceptable as cash in that part of the world.

Any Kenyan knows what mobile money does and how useful it can be especially in emergency cases, but ask them about credit cards and more than half of the people will stare at you like you are from another planet.

According to the 2013 FSDKenya Financial Access (FinAccess) report, Kenya’s financial inclusion level stand at 67 percent- the second best on the continent after South Africa at 73 percent.

The east African nation is one of  the friendliest in the world to mobile money platforms. The service has moved from merely being a cash transfer service to an alternative form of banking where subscribers can save and lend small amounts of money.

But it is not so friendly to consumer credit firms.

Success in mobile money growth has been a curse to the credit card firms and even banks, with the growth of plastic money uptake hitting a snag. The two mediums seem to be inversely correlated.

“Credit was until recently uninhibitedly expensive but with the rising middle class and these mobile phone platforms I can see this space certainly growing. I don’t believe that there is a cultural resistance to credit cards, but I think there has historically been a lack of access to them for the majority,” said Nonnie Wanjihia, chief executive East Africa Venture Capital Association.

Mobile Credit

After a tremendous success for a product that was just meant to be a add-on, Kenya’s largest mobile services firm Safaricom — a subsidiary of Vodafone Plc — in partnership with Commercial Bank of Africa (CBA), up graded the M-pesa mobile money transfer platform to include a saving and credit service, M-shwari.

Equity Bank, the largest bank by customers in the country, also has a mobile phone saving mechanism, M-Kesho.

M-shari picked the same high growth trajectory set by its predecessor, M-pesa, and in the first few month of it launch it had over 5 million subscribers using it regularly and had saved more than 10 billion shillings ($115 million), according to CBA.

In just six month, M-Shwari helped nearly doubled the number of borrowers in Kenya by 1.7 million to 3.8 million, the Central Bank of Kenya’s (CBK) half year report showed.

“Now, I can sit here with the phone and save – it doesn’t matter whether it’s 100 shillings a day or 50. Those savings accounts, M-Kesho and M-Shwari, also attract positive interest rates,” Central bank governor Njuguna Ngung’u told financial times.

“You can receive credit on the same platform and phone; you don’t have to visit a bank or service point, you are doing this in the comfort of your home transferring money – five seconds and it is there. What we have done is to create maybe the best, cost-effective access.” he added.

Other banks across east Africa have also moved to partner with telecom operators to offer the same services, with the most recent being Kenya Commercial Bank’s — east Africa’s largest bank by assets — M-Benki, through which it targeted three million new accounts by the end of 2013.

The Trend

Mid-tier lender, Family Bank, also launched its own mobile banking platform, PesaMob, in December and is targeting five million new accounts in the next nine months.

“We are glad new players are coming up with new and more creative facilities that are friendlier to the people who cannot afford the expensive credit card requirement by the commercial banks,” said Benjamin Lang’at–Chairman Finance Committee, Kenya National Assembly.

Mobile products such as M-Shwari  and M-benki have also allowed subscribers to open a bank accounts through their mobile phones, save money and borrow based purely on mobile money transaction records.

They also allows users to deposit, transfer and borrow money between automated teller machines and their phones without visiting the bank.

The CBK report indicated that the number of deposit accounts in Kenya had also crossed the 20 million mark, boosted by such products.

Another banking report showed the value of debit card transactions had also sank to $1.15 billion per month by the fourth quarter of last year, from a high of $1.6 billion in February. This is despite debit card holders rising to 9.7 million by October from 9.2 million in January.

Analysts quoted by The Standard said consumers in possession of the cards are increasingly opting for mobile payment models, a situation that could jeopardize the future of the payment card industry.

Kenyans transacted business worth $2.1 billion through mobile money platforms in October, almost double the $1.3 billion paid through cards.