Kenya's Equity Bank starts mobile pay service to challenge Safaricom

* Service to use network of Kenya’s second largest telecoms firm

* Safaricom’s M-Pesa service has about 23 mln customers

NAIROBI, July 20 (Reuters) - Kenya’s Equity Bank said it would press ahead with offering mobile phone transfer services, stepping up competition to telecoms firm Safaricom’s money transfer product.

Equity Bank, the biggest in the east African country by depositors, will run its service through its telecoms unit Equitel and use the network infrastructure of Kenyan telecoms firm Airtel, the local arm of Bharti Airtel.

The service has already attracted one million subscribers during a trial run since October, said Equity, which has banks in Uganda, Tanzania, Rwanda and South Sudan.

“We will be leveraging on the bank’s presence across the region to roll out Equitel and this is the basis of optimism of attaining a subscriber base of over five million SIM cards by end of 2015,” James Mwangi, Equity Bank’s chief executive officer said in a statement.

The money transfer service will enable customers to take loans, carry out cross border money transfers, receive insurance and investment services and send and receive money from other commercial banks and other mobile money transfer services.

Safaricom, Kenya’s largest telecoms company, launched its M-Pesa phone-based financial services product in 2007 and now has about 23 million customers who use M-Pesa to pay for goods, pay bills, make deposits and withdraw cash from authorised agents.

Several commercial banks also run mobile banking services through Safaricom’s network.

Safaricom, whose revenue from the M-Pesa service alone rose 23 percent to 32.6 billion shillings ($318 million) in the last financial year to end-March, said it welcomed the new product.

“We welcome competition; it is a true indicator of the free and robust operating environment we have in Kenya,” Bob Collymore, Safaricom’s chief executive, said in a statement.

Although Kenya has seen an increase in the population’s access to financial services in recent years, about a third of the population still lacks access, the central bank says.

Analysts said Equity’s mobile pay service could have offered even more benefits to rival Safaricom’s lead in the sector.

“I think what would make it a much more compelling product is if you are able to integrate that with a lot more payment platforms ... let’s say I can pay for water, electricity,” Daniel Kuyoh, research analyst at Kingdom Securities.

$1 = 102.4500 Kenyan shillings Editing by James Macharia and Keith Weir