Whenever there is talk of mobile money payments initiatives, the M-Pesa Kenya implementation is probably one of the most referenced success stories. And rightly so! The statistics are incredible, with 21.8 million registered M-Pesa users in Kenya making payments person to person (KSh 106 billion) , person to business (KSh 23.5 billion) and business to person (KSh 27.8 billion) per month (Ref: Safaricom). According to the Economist Intelligence Unit the transactions that flow through M-Pesa amount to 60% of the country’s GDP. In this post i will share some information about M-Pesa in Kenya that i picked as i was reading around.
1. M-Pesa, eh…?
Literally, Mobile Money!
The M is for Mobile, and Pesa means money in Swahili.
2. M-Pesa originates from Cambridge in England
Yeah. That was probably the biggest surprise for me. M-Pesa started out as an initiative by Vodafone and the UK Department for International Development to create a mobile solution that would enable the repayment of micro-finance loans. To help Vodafone develop the solution Sagentia, a Cambridge based technology consultancy firm, developed the software that eventually evolved into M-Pesa. During the project the team (Sagentia, Vodafone and Safricom) quickly realised that people were in fact using the solution to send money to family and friends instead. They reconfigured the software solution and we all know what happened next….!
3. The timing of M-Pesa was Perfect
According to BBVA Research the implementation (in 2007) and subsequent success of M-Pesa relied on the following factors:
- The physical M-Pesa cash needed to be held by a financial institution
- Regulators were on-board and cooperative
- A widespread network of agents was registered – many identify this as THE critical success factor
- Towers and servers were available to support the system
- The product and customer demand was heavily promoted
- At the launch Safaricom was THE dominant mobile network operator in Kenya, with 80% of the market
The World Bank recognise the contribution made by both the agent network and Safaricom in ensuring that the M-Pesa project remained people focused rather than technology focused.
4. What makes M-Pesa so popular in Kenya?
In a nutshell, because M-Pesa made it really easy to transfer money – particularly from urban to rural areas. Before M-Pesa (and other mobile money initiatives) people would personally travel to deliver money to family and friends. M-Pesa saves time, money and ensures their personal safety and the safe delivery of the money to the intended recipients. Rather than to or through middlemen who may not always pass the money to the intended people.
Importantly, M-Pesa is enabling financial inclusion by giving a previously unbanked population access to a safe and secure channel through which to send and receive payments.
5. How does M-Pesa Work?
Ken Banks of the National Geographic explains:
- The m-Pesa agent network consists of a multitude of kiosks, small shop owners and retailers
- A customer pays the agent cash and the agent loads the customer’s phone with a virtual credit – often referred to as “cash-in”
- The credit or e-float can be:
- Sent to another mobile phone, i.e. sending money to friends or family – this is a person to person transfer. Forbes reports there were 237 million M-Pesa P2P transfers in 2013!
- Used to pay for goods – by sending the necessary amount to the merchants mobile phone
- The process to send the payment is similar to sending a text or sms message
- The recipient can choose to store the virtual cash on their phone, or go to an agent who is passed the text message code in exchange for the physical cash (“cash-out”)
6. Agents versus Banks:
The agent network according to Paul Makin, a key founder of M-Pesa, is the agent network. Paul shared that “without agents, M-Pesa is nothing”.
According to the Economist and the Helix Institute there are more agents than banks in Kenya. The recent figures from the Helix Institute show that there are atleast 55,000 agents compared with 1000 bank branches in Kenya
Agents in Kenya were traditionally local shopkeepers, but now there are new and emerging banking agents. Banking agents are still behind the game though, and slower to register new customers and handle fewer transactions compared with the traditional agent.
7. Is M-Pesa too dominant for its own good?
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Well, who would have guessed that too much success would present some potential risks…? Given the astonishing figures that are being banded around, it has led many to ask questions about the near monopoly that Safaricom operates in Kenya. Also there are concerns about the sheer transaction volume and value being pumped through M-Pesa and Safaricom, does this pose a threat to the economic stability of Kenya? Read 10 Myths About M-PESA to find out the answers to these and other questions about M-Pesa in Kenya – it is a very insightful article about mobile money and some of the encountered challenges and myths about the mobile money scheme.
Well, what i took away from this CGAP article was that statistics can be used in whatever way you wish. For example, for all of the M-Pesa usage in Kenya the CGAP article highlights how cash is still king in Kenya…!
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