M-PESA in Kenya
Initially a microfinance-loan repayments system based off mobile phones, M-PESA morphed into a money transfer scheme. Now used by 30m Kenyans, almost 44% of Kenya’s GNP flows through it, M-PESA is the most successful mobile money transfer system in the world (Adegoke, 2017). The question this report will try to answer is why this model worked so well in Kenya and can it be replicated in another African country?
M-PESA was developed by Safaricom in 2007, based off a student software development project in Kenya, as a mobile phone-based payment and money transfer service (En.wikipedia.org, 2015). The development of the service was backed by research conducted by Gamos and Commonwealth Telecommunications Organisation that documented that users in Uganda, Botswana and Ghana were using airtime as a proxy for money transfer – transferring or reselling it (Batchelor, 2012). M-PESA had many things going for its success, not the least of it were its innovative nature. Some of these factors were –
Socio-Economic
• High costs of sending money thru other methods (Economist.com, 2015)
• High Literacy Levels (International Finance Corporation, World Bank, 2009)
• Mobile payments regulated as telecom not banking (lecture notes, Nature of the Corporation, Trinity Term 2017)
Infrastructural
• Safaricom was dominant mobile provider in Kenya (International Finance Corporation, World Bank, 2009)
• Kenya had 90% mobile phone penetration. (International Finance Corporation, World Bank, 2009)
• Ethnics dispute entangling banks at the time (Economist.com, 2015)
Regulatory/Political
• Regulatory concessions made to allow the company to test the technology on an experimental basis (Economist.com, 2015)
• Political unrest in the country post elections in 2008 (Economist.com, 2015)
• Government stake of 35%
Business
• Backed by an efficient system to move funds on the backend (Economist.com, 2015)
• Network efforts due to a large base of initial users (Economist.com, 2015)
• Extensive agent ecosystem (International Finance Corporation, World Bank, 2009)
• Lack of competition (International Finance Corporation, World Bank, 2009) and first movers advantage
An Extensive Ecosystem (International Finance Corporation, World Bank, 2009).
One of the most significant factors that led to the success of M-PESA was the regulatory support the company got. Regulations regarding mobile money transfer services were non-existent sometime before the launch of M- PESA. When the company approached the government with regarding this, sufficient interest was not aroused. It was only close to the product launch that the Bank of Kenya started to take interest in this technology and by then the M-PESA team had done their due diligence and was able to convince the bank to not object to the service launching (International Finance Corporation, World Bank, 2009).
“M-PESA is not regulated under a full banking license, so it is essentially operating outside of the traditional banking regulatory environment, but it has been audited by the Central Bank and has received their approval for operation.”
(International Finance Corporation, World Bank, 2009).
Kenya’s regulator had the local mobile competitors allow interoperability with M-PESA and each other (Dahir, 2017). With 70% of the market belonging to Safaricom, this helped the company get users on board its own platform, while only mildly affecting its own penetration in the market. With interoperability enabled this only helped make its own user base stick further adding to the value proposition of Safaricom, strengthening its dominance in the newly created mobile payments markets.
Another factor that bolstered its presence in the market was an introduction to a new market for the project through the Vodafone Group. Vodafone, transferred a 35% stake in Safaricom to its South African subsidiary Vodacom. This allowed Safaricom to position itself and therefore M-PESA as a pan-african solution, further increasing its attractiveness to consumers and investors (Adegoke, 2017). However, its foray into South Africa was not as successful as the one in Kenya.
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
TOTALS
Year 2008
Agents (1000s)
1.8
2.8
3.8
4.8
5.8
6.8
7.8
8.8
9.8
10.8
11.8
12.8
13.812
Customer (Mil)
1.59
1.82
2.08
2.37
2.72
3.04
3.37
3.73
4.14
4.42
4.75
5.08
5.08
Transaction (Mil)
1.35
1.74
2.4
3.07
4.02
4.2
5.39
6.34
7.15
8.3
8.57
10.21
62.74
Value (Ksh. Bil)
4.06
5.22
6.75
8.39
10.9
10.92
14.02
16.76
19.27
21.6
21.7
26.99
166.57
Year 2015
Agents (1000s)
125.8
127.2
128.6
129.2
129.7
131.8
134.0
136.0
138.1
140.6
142.4
143.9
143.9
Customer (Mil)
25.4
25.5
25.7
26.1
26.5
26.5
26.7
27.0
27.3
27.5
28.1
28.6
28.6
Transactions (Mil)
81.7
80.7
90.4
84.9
89.9
90.7
94.0
94.1
96.3
102.8
101.3
107.4
1114.2
Value (Ksh. Bil)
210.5
208.1
231.8
213.7
230.2
227.9
238.9
248.2
247.5
255.8
236.4
267.1
2816.1
Growth of M-PESA over Time (lecture notes, Nature of the Corporation, Trinity Term 2017)
Effects on the Economy and Lifestyles of Kenyans
M-PESA as an innovative tool, not only helped Safaricom establish create a stronger brand image, it has greatly changed the lives of Kenyans. Some of the these are –
• The availability of a reliable mobile-payments platform has spawned a host of start-ups in Nairobi. Many of these use M-PESA as the base of their financial operations. (The Economist, 2012). Many of these startups also build products around the service, for example an electronic version of Kenya’s popular informal savings groups or streamlining fee payments through the service by helping institutions and parents keep track upcoming windfall.
• For rural households using M-PESA, incomes increased by 5-30% (CGAP, World Bank, 2009)
• Unbanked population is now brought in the financial system
• M-PESA empowers rural women by making it easier for them to receive and access funds from urban users (CGAP, World Bank, 2009), reducing poverty in woman headed households (USnews.com, 2017)
• M-PESA is evolving into more than just a money transfer medium, adding savings and loan service called M-Shwari (Safaricom.co.ke, 2017), this in turn has caused savings patterns to change across the country, for example saving in diverse vehicles to ensure risk mitigation against a wipeout (CGAP, World Bank, 2009).
What are some challenges for Pan-African Dominance?
M-PESA as though the brainchild of one of the largest mobile operators in Kenya, competes with numerous other mobile payments solutions from other equally well-heeled operators such as Airtel’s Airtel Money, Vodafone owned Orange Money, and others such as Equitel, Mobikash, and Tangaza.
Safaricom and Airtel particularly have been fighting numerous battles in court (Jillo, 2015). Some of these have been for trademark infringement, with Safaricom accusing Airtel of using M-PESA logos in promotional material. Airtel has also tried to convince regulators that Safaricom was eliminating the competition by not allowing M-PESA agents to service client for other services, misusing its position as a market leader. This led to Safaricom to concede with allowing 83,000 agents to service other products as well. Similarly, regulators also plan to introduce new rules that would dampen moves seen as anti-competitive (Mohammed, 2017). However, the government of Kenya owns a 35% stake in Safaricom (Telecomafrica.blogspot.co.uk, 2017), so regulations and laws that harshly hurt the company are unlikely to be forged, considering the company is one of its largest taxpayers (Business Daily, 2014).
Market Share of Mobile Operators in Kenya
Challenges in other countries
Mobile-money schemes in other countries, have largely seen limited growth – opposition from banks and regulators as well as major concerns over money-laundering, given the level of corruption in Africa (Transparency.org).
Safaricom’s own entrance into the South African market, through Vodacom was largely considered a failure. A few of the reasons for this are contrasts to its reasons for success in Kenya –
• Backend banking partners: Vodacom partnered with Netbank – one of the largest banks in SA catering to middle class and high-income earners. These customers already have access to banking platforms to conduct financial transactions (Mbele, 2016), a stark contrast from the situation in Kenya, where existing services where considered tedious and expensive (Adegoke, 2017). This point is further illustrated in the graph below where we see financial inclusion for many states in Africa, where 75% of the population uses banking products in South Africa, with only 4% using non-bank products and just 10% being excluded from financial services.
• Focus of Financial Technology: Banks in South Africa are focused on enhancing their existing portfolio of products and services, while mobile network operators are foused on providing higher levels of security to their platforms like linking services such as banks, hospitals, and insurers (Mbele, 2016).
Financial Inclusion in Africa (lecture notes, Nature of the Corporation, Trinity Term 2017)
While the success of M-PESA may seem easy to replicate not only by Safaricom but also other companies with the right set of resources, there are many other factors beyond a company own resources that need be just right – particularly regulation, social and financial habits.