The Mobile Payments Trailblazer in Kenya: M-PESA
Nudged by C.K. Prahalad’s — The Fortune at the Bottom of the Pyramid, this is the first piece in a series called: ‘The Social Profit’ wherein I will be breaking down businesses that are attempting to solve complex-multilayered problems faced by the base of the pyramid.
In 2008 — way before, the world woke up to the concept of mobile banking and fintech startups across were mushrooming — In a small country in Africa, a million people were using their feature phones to pay for all their financial needs through M-PESA (M for mobile, Pesa meaning ‘money’ in Swahili).
The MultiBillion Dollar Idea: Michael Joseph, CEO of Safaricom in partnership with the Central Bank of Kenya — started M-PESA a mobile transfer product to deepen penetration in the unbanked communities in Africa. Simply put, if you had a Safaricom number, you had access to M-PESA — money was linked to the mobile number and could be remitted to any mobile connection owner with M-PESA. (One did not need a smartphone thus or data connection, unlike the mobile banking applications on our phone — Google Pay, BharatPe etc.).
Identification of opportunities: A pilot for M-PESA was conducted in Thika, in 2006 and following its success — M-PESA was launched in Kenya, a year after. Within a year of operations, M-PESA had reached a million Kenyans. Below are some opportunities that proved to be conducive to the company:
- High Penetration of Mobile Users: 29.3% of the adult population in Kenya was using mobile phones by 2007, riding the tide of the cellphone revolution.
- Enabling Regulatory Frameworks: The Central Bank of Kenya enabled the launch and growth of M-PESA by stimulating a supportive policy environment, collaborating with other policymakers, creating sound supervisory frameworks, updating the regulatory environment and creating a stable macroeconomic environment.
- Limited financial inclusion: When M-Pesa was launched in 2007, financial inclusion, describing the percentage of the populations’ access to formal financial services, was much lower compared to a developed country. Only 26.7% of the population had access to formal financial services in 2006.
Focus on Product Development:
- M-PESA started as a P2P mobile money payments system and has now evolved into a platform for a wide range of financial services such as virtual savings accounts in commercial banks. Harnessing the power of big data, M-Pesa now also operates as a channel of credit supply by commercial banks, microfinance institutions and cooperatives (SACCOs). In addition to domestic financial services, M-Pesa allows users to send and receive cross-border remittances using their mobile phones (its the largest player in the cross border payments market in Kenya).
- Launched in 2012, M-Shwari was a revolutionary service provided in partnership with the Commercial Bank of Africa (CBA) in Kenya, which enables M-PESA customers to instantly access loans and contribute to savings directly from their phone. For many customers using M-Shwari, this was the first time they accessed formal credit or benefitted from interest-earning deposits.
- Current products from Safaricom include M-PESA (P2P Payments), M-TIBA(Health Financing Platform), Digi Farm (Farming Solutions), M-Salama(Disaster Management), Fuliza(Credit), MSOKO(Shopping platform), Shupavu(Education).
Enablers of scale:
- Capital Infusion: Safaricom invested 10 million dollars in the first year of the project in building a hassle-free product that was easy to use as well as on the marketing of the concept of mobile money.
- Combating Fraud: M-PESA focused on reducing the potential risks of street robbery, burglary and petty corruption within cash-based economies where only a small proportion of the population benefits from access to conventional financial service.
- Strong Distribution Network: The company focused on placing M-PESA agents in the most interior parts of the country to provide last-mile services to the unbanked. These banking agents embedded within their local communities helped create strong goodwill as well as very easily accessible to customers. As of 2021, the company has 5,50,000 Agents providing mobile money accounts to 30.5 million active Kenyans, processing 4.8 million transactions valued at KShs 13.1 billion per day.
Impact: Touted as one of the game-changers within the financial inclusion space, M-PESA influenced the economic trajectory of a developing country like Kenya. Find some trends below:
- Market Monopoly: The company holds 64.4% of the market share as of 2021.
- Stakeholder in the Economy: Transactions amounting to 50% of the GDP are moved through M-PESA
- Financial Inclusion: M-PESA financially includes 86% of Kenya’s adult population
As per its Annual Report 2021, M-PESA currently serves 39.9 million customers and enabled transactions worth 4.38 trillion KShs.
New Challenges Faced: Given the unparallel reach of M-PESA and its revolutionary contribution to the Kenyan economy, policymakers must now contend with new challenges: competition, technology-based barriers to entry, interoperability, data protection, data privacy, cybersecurity, disintermediation, and financial technology.
M-PESA continues to be a reckoning force in Kenya and 7 countries as of now, solving a plethora of problems in Kenya using market solutions.
Coming up next is the account of SEWA Bank — a one-of-a-kind bank owned by informal sector women, that financially includes around 6 lakh women poor women in Gujarat.
