M-Pesa: Transforming Millions of Lives – I

The economic impact of mobile phones is a well talked about fact but the role of mobile phones in remittances and money circulation can be far  greater. Despite the great potential for use in foreign exchange or Forex trading, there are very few examples of successful mobile money transfer due to regulatory hurdles and evolving business models. By far the most successful example of mobile money is M-Pesa. M-Pesa is a joint venture between Vodafone and Safaricom (the local mobile operator ) with the backing of Citibank and Commercial Bank of Africa. This two part case study would attempt to explain the reasons behind M-Pesa’s success (part I) and how it is transforming the lives of Kenyans (part II).

The name M-Pesa is derived from the Swahili word pesa, meaning cash. M-PESA allows users to make four basic types of transaction:

  • transfers from person to person
  • transfers from individuals to businesses
  • cash withdrawals at designated outlets
  • loan receipt or repayment

How does the service work?

The M-Pesa service platform, developed in-house by Vodafone and the consulting company Sagentia, integrates a mobile wallet with Safaricom’s rating, billing and provisioning systems.

Subscribers of Safaricom can register for the M-Pesa service by filling up a simple form and providing any identification proof. Once registered, Safaricom replaces their SIM with the M-Pesa enabled SIM (if required, all new mobile subscribers now get the M-Pesa enabled SIM). To load the money on the the wallet, the user needs to visit the nearest agent and deposit cash there in exchange for “e-Float”. This e-Float is like currency that can be used to make payments or transfer to any other person. The e-Float is can be transferred to any person or merchant via encrypted SMS. The receiver of the virtual currency can either use it for further transactions or can cash-out from M-Pesa designated outlets. The figure along side depicts the M-Pesa transaction flow.

How has the service performed so far?

M-Pesa’s financials are very impressive by any standard:

  1. As on Mar, 2012, M-Pesa had 14.7 million users which is ~35% of Kenya’s population and by some estimates, total mobile money users in Kenya by end 2012 were 21.1 million
  2. Close to 28K agents. Kenya has 3000 ATMs and 840 bank branches which pale in comparison
  3. Monthly person to person transactions worth over $1.4 billion with average of $66 per user per month

The service is not only scoring high on financials but also on the consumer confidence. Kenya’s independent Financial Sector Deepening Trust (FSD), which aims to support the development of inclusive financial markets in Kenya, carried out a survey of M-PESA use in 2008. The survey of 3,000 randomly selected households across Kenya, 300 randomly selected M-PESA agents and 50 M-PESA head offices found almost 40% of households use M-PESA, with 63% sending regular financial support. Of those surveyed:

  • 90% believe their money is safe with M-PESA
  • 81% find M-PESA very easy to use and a further 15% say it is quite easy to use
  • 84% say losing M-PESA would have a large negative effect.

The success of the service can be gauged from the fact that it has expanded beyond the borders of Kenya to markets like India, Tanzania, South Africa and Afganistan

Factors behind M-Pesa’s succes

  • Large Market Share – Market share of Safaricom in Kenya was in excess of 80% at the time of launch of the service. This large base could ring in the network effect which is reflected in the high consumer adoption.
  • Trust – Safaricom selected the agents with a lot of care to ensure agents with high integrity are there on its network. Since the service involves money, it is important gain user trust. Safaricom communicated a lot with the users; if the server is slow, it would communicate that to the users so that there is no anxiety amongst the users. The survey conducted by FSD confirms the faith reposed by users in the M-Pesa service.
  • Relationship with the Regulator and other Banks – Safaricom never had any confrontation with the regulators. It involved the central bank right from the very beginning. It always tries to accommodate concerns of the regulator and the banking industry. The Kenyan Government had voiced concerns over the possibility of criminals using the service to launder money, and on May 4th 2009 had ordered the Central Bank to audit Safaricom’s M-Pesa service. Safaricom welcomed the Government’s decision and passed the audit due to complete transparent operations and proactive sharing of data with the regulator. The Central Bank declared the service safe and in line with Government’s objectives of financial inclusion
  • Quick response to consumer needs- Safaricom quickly changed its focus from repayment of microloans to helping people make person-to-person (P2P) remittance payments to their friends and family after it found the consumer preference for P2P transfers in a survey at the beginning of the service. Safaricom has been able to keep a tab on the pulse of the consumers and has been nimble enough to adjust its value proposition to the needs of the consumers.
  • Simple Communication – At the start of the service, the communication was simple, “Send Money Home” targeting the migrant workers. The communication’s focus on what the single largest service (rather than all that M-Pesa) could do was a well articulated value proposition. The video below is the commercial on “Send Money Home”

  • Pricing– Safaricom kept the pricing of the product very transparent and lower than other alternatives. Free registration and no monthly fee helped the agents in persuading the potential user to subscribe to the service. This helped in building up the customer base initially that was important for agent and merchant recruitment.
  • Store Management – Safaricom ensured consistent branding, training and constant supervision of the stores to deliver the right user experience. It worked tirelessly for proper liquidity management at the stores.
  • Limited KYC – M-Pesa was not positioned as a bank alternative and hence the “Know Your Customer” requirements were quite relaxed. The users were required to submit only the identity proof to get the service started. This limited KYC helped many Kenyans especially in the rural areas where the address proofs and other documents required by the banks are not available with most of the Kenyans. People who were not able to fulfill the documentation requirements of the bank saw M-Pesa a good alternative.
  • Dedicated Customer Care Line – In Kenya, not everyone can read, so sometimes people make mistakes and send money to the wrong person, so Safaricom established back office support to assist people get the money back where possible. M-PESA has its own dedicated call centre with its own number. Safaricom ensures that a very high quality of customer care is maintained. The strong back office support has helped the company in not only building trust but also attracted the users who are afraid of technology.

Criticism of the service

Despite being touted as a financial inclusion service, M-Pesa user households  are twice more likely to have a bank account than non-user households. It is young, male, urban migrants who are driving the uptake of services – customer adoption. Hence, the adoption is not uniform across social strata.

Both agents and customers complain of  cash float problems, especially in the rural areas. Because the majority of transactions in the village are withdrawals, agents must maintain their cash float. They do this by making frequent trips to the bank. This can be problematic if the agent is not close to an urban centre, where most banks in Kenya are located. This situation is frequent despite great efforts by Safaricom on the store liquidity management.

The service availability is not uniform across the country. The service availability is defendant on the network availability which is strong in the south-west corner of the country (as seen in the picture alongside). There are only 2000 towers of Safaricom which are not sufficient to cover the entire country.

All in all, M-Pesa is a great service which is brining in big benefits to the company and the users. In my next post, I am going to talk about the economic benefits that this services has brought to the people of Kenya.

In the meantime, please leave a comment on your take on M-Pesa service and what you think are the reasons for its success?


1. Three keys to M-PESA’s success: Branding, channel management and pricing (by Ignacio Mas and Amolo Ng’weno, Bill & Melinda Gates Foundation)

2. Safaricom website (http://www.safaricom.co.ke)

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