For several years since mobile money was invented in Kenya, it was a just about transfer of money between person to person. But according to the Central Bank of Kenya, this has since changed. Mobile money is today a growing preference for business transactions.
Last year, Kenyans transacted Sh4.35 trillion through their mobile phones, shows data from the Central Bank of Kenya. For context, Kenya’s total budget for the year 2020/2021 presented on Thursday was Sh2.7 trillion.
What this means is that on average, Sh11.91 billion was transacted on mobile phones daily in 2019. This is bound to be much higher in 2020.
But as Robert Kamaru once discovered, the growing amount of transactions is a magnet to fraudsters.
“One day, I was conned out of Sh40,000 while trying to purchase an iPhone online,” says Kamaru, the CEO and Founder of Escrow Kenya, www.escrowkenya.com, the company that secures mobile money transactions to ensure neither the buyer nor the seller is conned money.
The company, now widely recognised as one of Kenya’s financial technology – fintech – innovations was born out of his decision to handle the loss in a positive way.
“I refused to be just another statistic and vowed to develop a solution that would solve this menace finally,” he told Financial Day.
So, he mobilised a team that came up with Escrow Kenya whose core business is to make the Kenyan e-commerce space safer for buyers.
Here is Kamaru’s story;
“My biggest challenge in the initial stages was coming up with a competent and reliable team to bring the idea to life. I was fortunate enough to have made the right choice by merely taking a chance on the people I brought on board.
“The one challenge that has persisted to date is, quite surprisingly, the problem of trust. In as much as we come in to solve the problem of trust between buyers and sellers, we are equally faced with the same problem, in that both buyer and seller must know and trust us in order to use our service.
“Thankfully, this challenge is gradually going away as more individuals and businesses take up our solution.”
Apart from trust, what other challenges do you think faces the e-commerce industry in Kenya?
I would say the lack of a proper addressing system. Unless one lives in the leafy suburbs of Nairobi, it is almost impossible to order online and have faith that the delivery will find its way to your doorstep.
Another possible challenge is low confidence in online shopping. Buyers are not only worried about being scammed but also concerned about the accuracy of the information provided in advertisements.
There is always a good chance that an item, when delivered, will be significantly not as described. This makes most Kenyan shoppers prefer buying in person at the store or paying on delivery.
How does fintech affect e–commerce?
One of the greatest contributions of fintech to e-commerce is the improvement of online payment systems. For so long, cards were the only way through which one would pay for anything online. With the disruptive technology that comes with fintech, online shoppers now have access to multiple payment options, including an array of mobile money wallets and e-wallets that can spend directly from one’s bank account in real-time.
This has made it so much easier to conduct cross-border e-commerce. For instance, shopping on Aliexpress and paying with Mpesa was once a pipe dream, but now it is a reality, thanks to fintech.
Another noteworthy contribution of fintech to e-commerce is access to credit facilities for both small businesses and their customers. Previously ignored small businesses find it so much easier to access unsecured credit facilities from fintech lending companies.
Shoppers are equally able to access loans during checkout, thanks to fintech loan products that allow flexible repayment plans after purchase.
Additionally, the marrying of fintech with e-commerce has enabled businesses to make data-driven decisions. With the right tools, businesses can accurately determine or predict the buying patterns of a particular user or user type and use this and similar data to come up with highly targeted marketing strategies.
This way, businesses enjoy efficient spending on their marketing budgets, consumers receive more relevant advertisements and, consequently, more sales are completed online.
What’s your business model?
Escrow Kenya offers payment protection services for e-commerce transactions. The company holds a buyer’s payment in trust, pending the fulfilment of an order by the seller. Payment is only released to the seller when the buyer confirms receipt. Otherwise, the buyer has the option to raise a dispute in case something goes wrong.
Our services can be accessed via two channels: a peer-to-peer model where individuals can set up escrow transactions manually on our website; and a business-to-business model whereby e-commerce websites and digital classifieds can integrate our escrow payments system as an alternative checkout option for their customers.
Who are your customers?
Our customer-base mostly comprises buyers and sellers selling informally on digital marketplaces and social media platforms. The remaining share comprises owners of e-commerce websites and digital classifieds, who offer our escrow payment solution to their customers.
What are some of the e–commerce platforms that Escrow Kenya has partnered with?
Majority of the transactions secured by Escrow Kenya are peer-to-peer, involving individuals selling informally on buy-and-sell groups on social media platforms.
At the same time, quite a number of online and digital marketplaces have recently begun to adopt our escrow API. Some of the platforms that had integrated our escrow API as of May 2020 are Digitonia Systems, Bass N Treble Electronics Store, Convenience Store, Online Laptop Shop and Wowo Marketplace. We are also in the final stages of integration with one of the major online classifieds in Kenya to bring the escrow payment solution to their marketplace.
How do you make your money and how much has been transacted by Escrow Kenya so far?
Escrow Kenya charges a service fee that is pegged on the value of the items covered in any transaction. The service fee is 3% of the price for general goods and services, and 1.5% of the price for transactions involving the sale of motor vehicles. The service fee is capped at Sh15,000 and may be borne by the buyer, seller, or shared equally.
As of May 2020, Escrow Kenya had secured a cumulative total volume of more than Sh14 million in 1,250 transactions and on-boarded more than 4,400 users. The company has also partnered with several e-commerce websites and digital classifieds by integrating its escrow API to enhance trust and curb scams.
What is the future of fintech in e–commerce business?
There is no doubt that fintech will continue to improve the e-commerce market. With the continuous advancement in technology, businesses will be able to access more accurate data to enhance decision-making. Consumers equally will have more options, leading to an even smoother experience.
However, these positive changes comes an increasingly dire cybersecurity risk. Identity and data thefts and cyberattacks will remain a serious threat to e-commerce companies, given the amount of data that is generated by the marriage between fintech and e-commerce. Data protection, therefore, will continue to be key among mitigation strategies e-commerce companies must apply.
The consistent rise in the popularity of cryptocurrency and blockchain technology will play an important role in ensuring data security and freedom from transactions–through the removal of limits such as geographical location or amounts.
Regarding technology adoption, how would you regard Kenyans? Are they early adopters, doubters or late adopters?
I’d say Kenyans are generally early adopters, with a key focus on the typical urban, tech-savvy resident. They are quick to try out new tech solutions, especially if they come free of charge or offer a great bargain against existing options.
This can be seen in the rapid growth of Nairobi as a tech hub of choice in Africa, with a good number of local and international tech start-ups launching here every year.
If you were to start again, what would you do differently?
I would start sooner and while at it, do things formally right from the onset. There’s no such thing as a perfect business idea and never the perfect time to start a business. The greatest, most efficient products and businesses were built on continuous improvement and adjustment.
Additionally, avoiding formal processes limits the potential of a business. While such things as registering a business or company, engaging regulators for licensing, and observing the strict separation of business finance from personal finance can seem like a daunting task, all these formalities prove beneficial in the later stages of a business – such as when seeking financing or funding.
What are your plans for the Escrow Kenya business?
We are still in the early stages of a start-up, so my immediate plans are focused on revenue growth, product awareness and user education, and customer acquisition. We will be looking at funding and investment in the medium to long term, as we seek out new growth opportunities and explore new product lines.
Three main lessons you can highlight in your entrepreneurial journey with Escrow Kenya?
The most important step is getting started: Most aspiring entrepreneurs are waiting for the “perfect time” to launch their business or are trying to develop “the perfect product” before they can launch it.
It took me two years of sleeping on my business idea and another eight months of perfecting it before launch. When I look back now, I see too much time wasted on irrelevancies.
The product is now is completely different from the version that I launched in 2018. There is no perfect timing or perfect product. Near-perfection is only achieved through continuous improvement.
The market is the most important component: Most first-time entrepreneurs, like me, will often fall into the trap of attempting to come up with the perfect product and team, to the detriment of market research. They end up building an amazing team for a great product that nobody wants.
I’ve learned to focus on the market and listen to it before making important investment decisions. In the words of Andy Rachleff in the Rachleff’s Law of Startup Success, “The #1 company-killer is lack of market. When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.”
You must embrace frugality, especially if your means are limited: Yes, you could hire an agency to do your marketing for you, but you do not have to if the cost will see you close shop, should the marketing efforts fail to yield expected results.
Yes, you could have your office in the prestigious business locations, but you do not have to if you cannot afford the lease before break-even and beyond. And no, frugality does not translate to “cheap” in entrepreneurship.
In fact, sometimes you spend more in the short term in order to enjoy cost savings and maximize productivity, customer satisfaction, job fulfilment, and all available resources, including time, money, equipment, employees, and customers in the long term.