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M-Pesa: A Case Study of the Critical Early Adopters' Role in the Rapid Adoption
of Mobile Money Banking in Kenya

Article  in  Electronic Journal of Information Systems in Developing Countries · September 2010

DOI: 10.1002/j.1681-4835.2010.tb00307.x

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EJISDC (2010), 43, 3, 1-16 1

M-PESA: A CASE STUDY OF THE CRITICAL EARLY ADOPTERS’ ROLE IN THE

RAPID ADOPTION OF MOBILE MONEY BANKING IN KENYA

Benjamin Ngugi Matthew Pelowski

Information Systems & Operations Graduate School of Information Science
Management Nagoya University
Suffolk University Nagoya, Japan
Boston, USA mattpelowski@yahoo.com
bngugi@suffolk.edu

Javier Gordon Ogembo

Harvard Medical School/Beth Israel Deaconess Medical Center
Division of Infectious Diseases-Research
Boston, USA
jogembo@bimdc.harvard.edu

ABSTRACT
This study reviews key factors that led to the phenomenal growth of mobile money banking
services in Kenya using M-PESA, “mobile cash money”, the leading mobile money service
provider as a case study. The study considers the outstanding challenges experienced by
users, possible solutions and future trends. These aspects are covered through a critical
review of existing literature, secondary data and a survey targeting mobile phone users living
in the major urban centers, considered to be the early adopters of new technologies in Kenya.
Several lessons learnt from the mobile money rollout in this Kenyan experience are identified
for future researchers and practitioners.
Keywords: Mobile phone, Mobile money banking, M-PESA, Technology, Nokia.

1. INTRODUCTION
Kenya, and to a large extent Eastern Africa as a whole, has recently witnessed a phenomenal
growth in the use of mobile phones. Although only beginning a few years ago, and often
expanding in impoverished areas with no other precedent for technology adoption, mobile
phone usage has exploded beyond the predictions of most experts in the field. It is now
estimated that one in ten Africans have access to mobile phones, with some countries such as
Nigeria, South Africa, Kenya, Egypt and Gambia having an even higher ratio (Djiofack-
Zabaze & Keck, 2009; ITU, 2009).
The major driving element of the adoption of this technology, however, comes from a
second phenomenon, the introduction of “mobile money banking services”, comprised of
services such as transfer of money from person to person, paying bills and salaries, and
purchasing of goods, bypassing the traditional banking system (GSMA, 2010). The growth of
the mobile money service, via the mobile phone, is revolutionizing how consumers gain
access to financial services, especially in the developing world where large sectors of society
have often gone without any formal banking services whatsoever. It is estimated that about
364 million low-income, unbanked Africans will use mobile money by 2012, generating over
US$ 7.8 billion in revenues for the mobile phone industry via transaction fees (GSMA,
2010). This is especially true in Kenya, where M-PESA, a mobile money banking services
provider launched in 2007, is “by far the most successful example of mobile money banking in
Africa’’ (Economist, 2009).
“M-PESA”, derived from a combination of two words, “M”, an abbreviation for
“Mobile”, and “PESA”, a Swahili word for cash money—hence “mobile cash money”—is a
Safaricom Company Ltd. (the leading mobile network operator in Kenya) service allowing

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one to transfer money using a mobile phone. Kenya is the first country in the world to use
this service, which Safaricom is offering in partnership with Vodafone (Pty). M-PESA offers
several financial services to all Safaricom subscribers both prepaid and postpaid, even if one
does not own a bank account, including: transfer of cash from one individual to another
without need of traditional bank accounts; purchasing of airtime credits; paying of wages,
salaries, bills; and purchasing of goods and services (Safaricom, 2009b). Within the first two
years of introducing M-PESA services in Kenya, the company has grown its customer base
for mobile money banking services to over 8.6 million customers with a transaction volume
of over US$ 328, million per month (Safaricom, 2009c).
This phenomenon, and its underlying technology, however, raises two key,
interconnected questions that have an important correlation to both the specific case of Africa
and to the process of technology adoption in general. First, why have some sectors of Africa,
notably Kenya, quickly adopted this technology while others have not? M-PESA in Kenya
has been an extraordinary success, however efforts by Vodacom (Pty) Limited to duplicate
this success in neighboring Tanzania have been much less successful. Whereas the Kenyan
M-PESA had 2.7 million users by its 14th month following its launch, the Tanzanian M-PESA
only had 280,000 users by the same time (Rasmussen, 2009). What combination of factors
involving the technology, the business plan employed by the parent company and the specific
socio-cultural context conspired to create either success or failure in the adoption of this
technology?
Second, why have Kenyans quickly adopted this particular technology, and therefore
the cellular phone, with little initial effort by Safaricom Company Ltd to promote mobile
money, while in general Kenya itself has long been a primary example of low adoption of
new technology in many sectors of economic advancement—including new techniques in
farming, banking, transport, manufacturing and, recently, information communication
technology (ICT); especially regarding the practical and social use of computers? Even after
concerted government efforts and numerous attempts by local and foreign NGOs to bring
these various technologies to local Kenyans, the country is still far from embracing advanced
technology (Oyelaran-Oyeyinka & Adeya, 2004; Suri, 2006). Might there be certain social
structures that pre-dated mobile money and cellular phones that readily fit the Kenyan
society, whereas other technologies have remained largely foreign?
This paper considers these questions through a case study of both the historical and
social implementation of this M-PESA program in Kenya, offering a theoretical review and
consideration of the factors that allowed it to flourish where other technologies and other
countries’ social structures did not. Second, We then turn to the future application of mobile
banking itself, exploring results from a survey targeting early adopters of mobile phone users
living in the major urban centers of Kenya.

2. LITERATURE REVIEW: FACTORS AFFECTING ADOPTION OF NEW TECHNOLOGIES IN

AFRICA
The mobile money banking service is an evolving technology that proposes to modify the
ways in which users transmit and exchange money. As a new technology in most parts of the
world, it can either be accepted or rejected by users depending on several factors.
Unfortunately, statistics shows that about fifty percent of information technologies are
considered failures as they fall short of meeting these user’s expectations and are hence
rejected (Lippert & Davis, 2006). Therefore, it is imperative that the managers of such
technology, which often itself requires heavy investments in terms of money, research and
infrastructure development, be able to predict the drivers and inhibitors of technology
adoption. Thus understanding and anticipating issues that would lead to adoption or rejection

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of such a technology early in the development process is very critical. M-PESA And mobile
money are no exception.
While there are several models explaining this question of adoption of new
technologies, in this case we will focus on the Technology Acceptance Model (TAM). TAM
originally suggested that the behavioral intention to use a new technology depends on its
perceived usefulness and its perceived ease of use (Venkatesh, 2000). This was later extended
into the Unified Theory of Acceptance and Use of Technology (UTAUT), which proposes
that the use and rate of adoption of a new technology depends on four major theoretical
constructs: performance expectancy, effort expectancy, social influence and facilitating
conditions (Venkatesh et al., 2003). The rate of adoption itself refers to the number of
individuals who adopt a given innovation over a given period of time. This rate depends on
the perceived attributes of an innovation including relative advantage, compatibility,
complexity, trial-ability, observability, type of innovation decision, nature of communication
channel used, nature of social system and promotional effort (Rogers, 1995). Putting M-
PESA into perspective with the above theory, one would want to also ask how this
technology itself is used in Kenya. Does it represent a true innovation, introducing a
significant departure from the current ways of doing things?
Second, it is important to consider what the relationship of these first stakeholders to
this new technology is? Here too, there is much theory that might give us a means of
considering this question. Rogers (1995) suggests that new discontinuous innovations might
be seen as a progression through strata of society. Technologies first attract “innovators”,
technology enthusiasts who are eager to explore and evaluate the technological superiority
that new innovations promise to provide over existing technologies. These innovators, being
lovers of technology, will go to any extent to troubleshoot the new product and will serve as
beta testers for the early product versions. Their adoption of a new product becomes proof to
the other market players that the product really works. These users are then followed by
“visionaries”, also early adopters. The visionaries, as the name suggests, are people with a
particular vision for the new discontinuous innovation. These individuals hold an idea for
how it can be leveraged to provide a significant competitive advantage over competitors.
They are willing to risk the cost of a new technology if there is compelling evidence that the
new technology can help achieve business or personal goals. They are gifted opinion makers
with a purchasing power high enough to give a vendor his or her first visible returns. These
two groups, according to Moore & McKenna (1999), typically form a total of 16% of the
total population.
When a technology has successfully won over these first groups, it moves on to an
“early majority”. These are pragmatists who are averse to risk and want to retain the status
quo by avoiding disruptions. They do not want to be the first to purchase or venture into a
new innovation, but would rather wait and learn from others mistakes. To complicate matters,
they are only willing to take new innovations if they can get reliable references of individuals
or organizations that have experimented with the innovations successfully. They prefer
references that share their risk aversion and pragmatism, and hence do not consider the
technological enthusiast or the visionaries as reliable references. This creates a catch–22
situation and the end result is that there is an indeterminate “chasm” (Wiefel, 2002) in the
diffusion of the innovation, which can be fatal unless properly managed.
Successful strategy for crossing the chasm requires working the technology adoption
through these groups while building momentum high enough to overcome the chasm. Failure
to keep momentum building runs the risk of stagnating in the chasm and being overtaken by
the next emerging technology (Moore & McKenna, 1999). Momentum is built by identifying
pragmatists who are willing to overcome their risk aversion in return for customized solutions
to some of their existing, previously unresolved problems. These early pragmatist are then

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used as a “bowling alley”, providing respected references to other pragmatists—typically

consisting of about 34% of the total population—showing that the innovation is viable as a
solution to immediate challenges (Wiefel, 2002). If successful, these pragmatist’s adoption of
a technology leads to a jump in its profit margins and substantial growth of market share.
This combined with the visionaries and the technology enthusiasts who had adopted earlier
produces a “tornado” growth effect with the customer base shooting to 50% of the total
customer population. The innovation then attains mainstream status by being adopted by
more conservative members, partly because of resulting lowered prices and risks, but also
because of fear of being left behind by the technology bandwagon. The late majority follows
the pragmatists when the technology is well established. They are also about 34% of the total
population, hence getting this market share leads to maximization of profits as most of the
research and development costs have already been covered. The last to adopt are the laggards
who will go to any length to avoid dealing with new technology unless it is hidden so deeply
that they don’t even realize that it is there.
Returning to the discussion of Kenya, it this last group, existing on the far side of the
technology chasm, that had traditionally rejected technology. And it is this process of
reaching this group, which M-PESA represents.

3. M-PESA REVIEW: A CASE STUDY IN MOBILE MONEY BANKING ADOPTION

Even before the introduction of M-PESA, Kenya was in a ripe position for a new approach to
traditional banking. Beginning in the 1990s, the traditional banking sector had left much of
rural Kenya due to the effects of structural adjustment programs (SAPs) introduced by the
World Bank and International Monetary Fund ( Ndirangu, 2005; Rono, 2002). This left the
rural people with no access to financial services, particularly credit facilities and savings
(Manica & Vescovi, 2009). This also meant that they could not meet several critical financial
services needs.
The working members of the society, usually located in the urban areas, needed an
inexpensive but reliable method of sending money to their unemployed relatives back in the
villages (Manica & Vescovi, 2009). A large percentage of seniors, the poor, the unemployed
and young adults depended on the employed sector of society for financial support. Just
before the launch of M-PESA, 14.3 % of the Kenyan population depended on money transfer
from relatives and friends as their main source of income (FSD Kenya, 2009). In addition,
business people who did have bank accounts with traditional banking institutions were also in
need of extra services. They too needed a safe, quick and cheap method of sending money to
clients, paying bills, salaries and services, as well as saving, as banks were charging high fees
for the services that they did offer. Businesses with traveling salesmen and service personnel,
and families living apart, often needed to send money from remote locations, combining to
create a collection of needs that were not being addressed by the financial market.
Furthermore, the services offered by the traditional banking sector were expensive and took a
long period of time to deliver in a more timely fashion in comparison to M-PESA.
The origin of mobile money in Kenya, as a means of addressing these needs, can be
traced from 2002, when the Department for International Development (DFID), United
Kingdom, introduced a pilot study of mobile banking involving around 20 small villages
(Equity Building Society, 2002; Johnson et al., 2006). This service utilized four-wheel-drive
vehicles acting as “mobile banks”, visiting each village once or twice per week and offering
banking services to small business and small farming households. These “banks” offered
saving and essential borrowing services to encourage new and existing business, based on the
“Bottom of the Pyramid” approach which encouraged increased economic activity in poor
areas with the aim of improving their living standard and opportunities (Karnani, 2007;
Pragalad, 2004). It is this innovation, however tentative, that might be considered the first

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wave of mobile banking, essentially representing an “analog” version of the latter digital
mobile money phenomenon. And several other banks followed suit by copying this model.
This left a mobile money mental model, and a group of early adopters who had
witnessed the tangible benefits of mobile banking, which would later connect nicely with the
new M-PESA service. The initiation of digital mobile banking, then, again took the form of a
pilot study carried out by DFID, using, rather than a mobile banker, a mobile phone platform
which allowed customers to receive and repay loans - usually less than US$100 - from
FAULU Kenya, a microfinance institution (Hughes & Susie, 2007). This pilot study was very
successful, eliminating the need for FAULU customers to travel from the slum and semi-
urban areas to the city center, or the bank to come to them, to deposit their weekly loan
payments. This, however, also had the unintended consequence of reducing attendance to
FAULU meetings which was against the business interests of FAULU itself. This original
idea was thus “unsuccessful”, in relation to the business interests of FAULU Kenya; however
market watchers had observed several patterns during the pilot study that turned out to be
beneficial to consumers and came to set the stage for the introduction of M-PESA. These
included individuals making payments for others in return for different trading services,
consumers using the system as an overnight “safebox” and consumers sending airtime,
bought through Safaricom agents, to their friends and relatives living in different parts of the
country increasing mobile phone penetration and utilization of the services.
Thus, the working members of the society and the business people initiated their remote
location employees, parents and relatives—who would normally represent the latter, highly
reluctant, stages of technology usage—into early usage because of the simple fact that every
money transfer, itself with a tangible value to the user, required the receiver to go to a M-
PESA agent and preferably to open an M-PESA account. This partially ignited the rapid
adoption.
Since its introduction, there has been a rapid growth of M-PESA in terms of technology
adoption with reference to number of users and volume of money transferred. The number of
customers increased from 52,000 to about 8.6 million between April 2007 and November
2009, while person-to-person money transfers per month grew from 1 to 328 million US
dollars in the same period (Safaricom, 2009c). This is as a very substantial growth especially
when one considers that Kenya itself has a population of about 38 million people and a per
capital annual income of about US$486 (Central Bank of Kenya, 2010).

3.1 Critical Success Factors for M-PESA: Structural Components

This, however, is only a partial explanation, leading to the first question of this paper; what
factors led to the successful adoption of M-PESA itself in Kenya? As mentioned above, the
first group of factors for its success point to failure by the existing financial institutions to
meet the needs of the unbanked population. Only 19% of the Kenyan population had access
to banking services by the time M-PESA was launched in 2007 (FSD Kenya, 2009). To this
above discussion, we can also add numerous barriers that had prevented this sector of the
population from even having the basic ability of getting a bank account (Manica & Vescovi,
2009). These factors then become both the reasons why this large population had long existed
on the far side of the technology chasm, and, through M-PESA’s unique solutions, the reason
why this chasm was bridged.
The first barrier was illiteracy. Most of the unbanked populations were illiterate,
hence unable to complete the requisite paperwork needed to open a traditional bank account.
This was coupled with the existence of documentation and bureaucratic procedures instituted
by individual banks, or central bank regulations, under the concept of “Know Your
Customer”, required for establishing a traditional bank account. These included the need for
introduction letters from individuals operating current accounts with the bank of interest,

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identification documents, passport photographs, and high minimum amounts of money

required to open and maintain an account. With the introduction of M-PESA, these
bureaucratic procedures proved to be unnecessary, as Safaricom, while still applying the
“Know Your Customer” initiative, does so by only requiring national identity cards and
phone numbers. This in turn is made possible by the micro-transaction and pay-as-you-go
structure of mobile money.
Third, existing financial institutions required a certain minimum amount of money to
remain in the account at all times, and also charged exorbitantly high monthly fees for going
below the minimum requirement. Closure of the accounts for non-performance was also a
common feature among Kenyan banks. These issues simply made the idea of operating and
maintaining banking accounts unattractive and expensive for most people. A survey done in
March 2007 just before the launch of M-PESA indicated that the average amount required to
open a current bank account was US$ 105 while the average cost for operating the same was
US$ 19 per month, suggesting that by the end of the year, if one were to maintain only the
minimum required amount, they would owe the bank at least US$123 in fee charges alone
(Central Bank of Kenya, 2007). To open and operate M-PESA accounts, on the other hand,
one needs no cash; nor is any fee charged for deposits or withdrawals or monthly ledger fees.
The only time one needs to pay fees is when sending money. Even then, the amount of fees
paid per transaction is far less compared to what traditional banks charge.
The fourth barrier was the distribution of banking services themselves. As noted
above, most of the banking services were found in the big town centers or economically
viable areas. However, close to 70% of the Kenyan population lives in the rural areas. Thus
most people were either excluded from these services or had to travel long distances to the
nearest town centers to access banking facilities; travel which itself was expensive and time
consuming increasing the cost of accessing banking services. The above barriers facing the
unbanked poor of the society left a gaping need for financial service with this group. What
they needed was a solution and some change agent to introduce them to the solution. The
solution came via Safaricom who turned the above needs into a business opportunity, having
already implemented wide network coverage with their mobile phone technology and agents
selling airtime all over the country. This enabled the company to widely spread M-PESA
services in a short time. The change agent came in the name of the working and business
people who become the early adopters to satisfy their own unmet need.
The unmet need of the working and the businesses people, earlier described in the
beginning of Section 3.0, came down to finding a simple and reliable method of sending
money to rural/remote individuals. This need could not be met by the existing methods of
sending money, which had several shortcomings, contributing to the immediate success of M-
PESA. There were five popular methods of sending money to friends, relatives or businesses
by 2007, just before the launch of M-PESA (FSD Kenya, 2007). The most popular (58%) was
sending money via family/friends going to the same place where one intended to send money.
The problem with this approach was that it was random, unpredictable and the possibility that
someone would be going in the same desired direction was quite remote, especially for urgent
cases. Further such friends and relatives were not always trustworthy, and many times, the
money never reached its destination. The second most popular method (27%) was the use of
public bus companies for passengers or goods. These companies offered delivery of letters,
parcels and money as a side business. However, cases of theft, either from bus employees,
passengers or roadside robbers, were common, making this method very unreliable. The third
most popular method (24%) involved sending money through postal services via money order
and telegram. However the commission charges were expensive and coupled with poor
service delivery (FSD Kenya, 2007). The fifth most popular (11%) method was to put money
directly into relatives’ or friends’ bank account. This assumed that the other person had a

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bank account, which, again, was often not the case. The sixth most popular method (9%) was
to use the official money transfers companies like Western Union. However, the existing
money transfer companies charged high commissions and were not always available in most
regions, particularly in rural areas. By reducing the cost of sending money, eliminating
middlemen and utilizing technology to make sending money faster, convenient, reliable and
safe, M-PESA solved these problems associated with other preexisting methods of sending
money, hence its rapid growth and popularity.
The creation of the right government regulatory environment for the providers of
mobile banking was also critical (Mwangi & Njuguna, 2009). This happened at two points in
time. The first milestone was in the liberalization of the telecom sector in 1998, which ended
the Telkom Kenya monopoly and brought in two new mobile phone providers (Safaricom
and KenCell, later Celtel then Zain and now Bharti). This led to the phenomenal growth of
mobile phones. The second instance was when Safaricom applied to start M-PESA money
transfer service. There was no existing law regulating the operation of mobile money. Too
much regulation would have stifled innovation while there were fears that no or too little
regulation might have endangered the country’s financial system. Thus the government had
to walk a tight rope in creating the right environment for innovation while at the same time
ensuring the stability of the financial system (Mwangi & Njuguna, 2009).
In a nutshell, we have highlighted several factors contributing to the rapid adoption of
mobile money in Kenya. However, these factors are not only unique to Kenya but are often
similar across Africa and many other developing countries, whereas mobile money banking
services themselves have not thrived in all of these areas, and this raises the underlying
question regarding the unique factors within Kenya that coupled with these structural needs/
parameters to create the phenomenon growth in mobile money business.

3.2 Critical Factors Unique to the Success of Mobile Money in Kenya

While there are many reasons which we will discuss below, each in turn connects back to
fundamental concepts that we argue drove the growth of mobile phone and mobile money in
Kenya—homogeneity, ubiquity, the use of early adopters to target the poor through a bottom
of pyramid approach and preexisting ownership structures. First, one of the most basic and
critical factors for the success of M-PESA was large market share of Safaricom in Kenya.
This is starkly demonstrated by the slower uptake of Tanzanian M-PESA when compared to
the Kenyan M-PESA. One of the reasons of the slower intake is the fact that Safaricom’s
market share in Kenya is 79%, while Vodacom has a market share of only 39% in Tanzania
(Rasmussen, 2009). The size of the market share of Safaricom in Kenya allowed the company
flexibility to try several new services with its already large customer base, without fear of
causing the migration of already existing subscribers to other networks.
This however fits into the next aspect driving this phenomenon, the use of early
adopters to connect to the poor of the society through a “Bottom of the Pyramid” approach to
pitch the sale of M-PESA technology itself (Prahalad, 2004). In marketing other mobile
phone services such as calling, texting and data, which are their core business, Safaricom
targeted the majority of the population, who are generally poor and usually ignored by the
mainstream banking sector using the early adopters. Initially, Safaricom pioneered this
strategy, through the sale of airtime credits, marketed via the slogan “Sambaza”, a Swahili
word for sharing, and allowing the early adopters (working and business people living in
urban areas) to buy airtime credits in large denominations/volumes and then to “sambaza”, or
share them, in very small units, to poorer friends or relatives or even to other people mainly
in inaccessible rural areas or slums as a business. This allowed people who were unable to
buy credits to get assistance from those who were able, and to make specific important calls.
This meant everyone who had a phone, or could get access to a phone, could spend as low as

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20 cents to make a call, through sharing of credits, increasing the volume of the total airtime
credits sales. This system enabled the company to reach the most poor sectors of the
society—again also the most populous sector—and, transversely, allowed the poor to access
mobile phone services, improving their livelihood, and cementing the phone itself as an
important element in their social relations. In global terms, this meant that due to this simple
structure for sharing minutes, 2.5 billion people who lives on less than $2.50 per day, at the
bottom of the pyramid, and who has not been tapped by most industries, are suddenly eligible
for both calling and mobile banking services (Prahalad, 2004).
This sudden social ubiquity of phones—again whether one’s own or access through
another source—even whether one could afford to pay themselves or one was being parceled
airtime credit by another—connects to the third unique factor contributing to the fast rate
acceptance and adoption of M-PSESA in Kenya, the widespread use of one type of phone. As
will be seen from the consumer survey in the next section, most of the respondents of the
survey indicate the universality of the Nokia phone in Kenyan market, controlling about 88%
of the total market share. While this brand of phone receives high marks in several technical
aspects, as we will see in the following survey, its ubiquity and contribution to the growth of
mobile money banking services largely relied on its easy to use features. Usage became a
matter of learning from the trusted early adopters—i.e., push the green button—to achieve a
specific task—to call me or pay a bill—rather than mastering a new technology with no
connection to one’s life. It is this social structure, and this sharing of techniques, which
themselves became both ubiquitous among Kenyans. At the same time, even as the number of
M-PESA subscribers grew from about 52 thousand to about 8.6 million between April 2007
and November 2009, in Kenya, the social connections were also maintained by Safaricom as
well, which increased the number of agents from 335 to 14, 754 (Safaricom, 2009c). The end
result was that they were able to maintain a reasonable customer to agent ratio of about 600,
and to preserve the communal structure.
This in turn leads to the final issue driving the adoption of this technology, community
ownership of the technology itself. The M-PESA program itself was a homegrown solution
with lingering mental models based on the previous four-wheeled vehicle analogue version,
through the pilot project by FAULU Kenya. This reinforced a sense of community ownership
of the technology. On the other side, the M-PESA was not as successful in Tanzania because
they did not feel ownership but rather saw it as a foreign technology smuggled in through
Kenya.

4. CONSUMER SURVEY
While the above discussion attempted to give a theoretical explanation for the phenomenon
of mobile phones and mobile money in Kenya, based on the review of existing literature, the
latter half of this paper will consider a survey designed to test this discussion and to address
the further question posed in the introduction regarding design of mobile money itself. As
noted above, while M-PESA has been a success, it is not the only design for mobile money
banking services that has been implemented in Africa. Further, even the M-PESA design has
not been successful in all countries. There is no consensus on what particular combinations of
elements is best for the implementation of mobile money. Because this is a growing industry,
it is this discussion, built on the theoretical discussion of Kenya above that this paper might
provide.
In order to further understand the reasons why M-PESA adoption was successfully
implemented in Kenya, we conducted a survey targeting specific mobile phone users,
considered to be early adopters, in order to understand the relationship between the service
provider, users, services provided, type of mobile phones used and also the perceptions of the
users about the technology.

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4.1 Methodology
A survey targeting early adopters was distributed via email. The first question sought to
ascertain the mobile provider used by the different respondents. Responses to this question
would allow us to test the issue of dominating service provider. The second question sought
to capture the type of mobile handset(s) preferred by users and the reasons for such
preference. The third question sought to capture the type of mobile phone handsets used by
the respondent friends and relatives. This would show the correlation between what the
respondent used and what their friends and relatives used. The fourth question sought to
capture the other types of services that the respondent was using. This would give us an idea
of the new trends by the early adopters. The fifth question sought to investigate the major
challenges being encountered while using mobile phone-enabled funds transfer service such
as M-PESA. The last question sought to capture respondents’ suggestions on alleviating the
above-identified challenges.
The questionnaire was made available via website and also administered through
email to known addresses in Kenya defining the objectives of the study, and requesting that
the recipient respond to the questions and, where possible, distribute the information about
the questionnaire to their friends or colleagues. The responses from the questionnaire were
automatically recorded online whenever one completed a survey question. A total of 102
people responded but only 67 people completed all of the questions outlined in the
questionnaire, hence only those who completed all questions, including their biographical
data, were incorporated in the analysis.

4.2 Subjects
The survey targeted technology savvy consumers living in the major urban centers with
access to electricity, computer and Internet. In the context of Kenya, it is these individuals
who are the earliest adopters for new technologies, and hence chart the path that is usually
followed by the rest of the population (Rogers, 1995). However, the questions were phrased
to capture the behavior of the respondent living in both urban towns as well as those in the
rural areas. Out of the sixty-seven individuals responding to the questionnaire, the majority
(94%) had ages ranging between 20 and 40 years old, reflecting the younger, internet
frequenting, generation. The majority of these respondents (76.1 %) were also males.

4.3 Preferred Phone Models

The survey found over 88% of respondents relied on Safaricom for mobile phone service
provision, while 9% got their services from Celtel, and the other companies shared the
remaining 3%. Interestingly a significant group (43.6%) also subscribed to at least two
mobile phone service providers, mainly Safaricom and Celtel, at a given time. This suggests
that there are certain services they preferred to get from either of the companies. When the
subscribers were asked which type of mobile phone handset they use or prefer, again a
majority of the people (88%) used Nokia as their preferred phone handset. When asked which
phone they would like to have given the opportunity to change their current mobile handset,
the overwhelming majority (96%) preferred to get another Nokia model series superior to the
type they currently possessed. In keeping with the above discussion, it should be noted that
the Nokia series itself uses the same button configuration for all models, only adding
additional features to offer other services such as camera, calculators, radio, etc which not
everyone intend to use and also defines the cost of the handset. The two main reasons for
Nokia’s popularity was its easy to use features and reasonable cost. Other advantages cited
for the popularity of Nokia phones were long life battery, sufficient memory space, variety of

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models compatible with consumers’ needs and durability. The main other handsets used in
Kenya were Motorola (8%), Samsung (2%), Siemens and others.
Ninety percent of the respondents also indicated that their friends or relatives own
Nokia series phones, suggesting that Nokia is the most popular phone in Kenya. This also
shows a direct correlation between what the respondents who are early adopters own and
what their friends and relatives within the urban and rural parts of the countries own. The
results of this survey are supported by data from external sources. For example a national
analysis of the types of phone models used in Kenya in may 2010 indicated that Nokia “ was
the handset of choice for most Kenyans with the brand accounting for 90% of the market
share” (Opera Software, 2010). Ownership of the same type of phone as argued before
makes the training of handsets usage much easier from the earlier adopters to the older folks
in the upcountry. This knowledge is then passed over from one person to the other. Further,
the fact that the same phone model is still dominating as shown by the May 2010 survey, has
enabled the creation and retention of this knowledge within the social system.

4.4 Outstanding Challenges and Possible Solutions

The next questions sought to investigate the outstanding challenges facing M-PESA and
possible solutions. 46.6% of the respondents indicated that they had no complaints with the
M-PESA service. This suggests that almost half of the respondents are satisfied by the service
as it is. The rest made various complaints and suggestions as shown in Figure 2

Figure 1: Frequency of User Complains of Safaricom M-Pesa Money Services

One of key challenges was the frequent system failure. The access to the M-PESA
services was at times intermittent. This was because of poor network reception, frequent
power outages and overload of Safaricom’s central servers. Further, the respondents
complained of slow service at peak times. A related complaint involved having too few
agents or no agents to handle problems in some parts of the country. The respondents
suggested that a possible solution would involve increasing the penetration of agents. The
hours of service were also an issue. Generally, the M-PESA service operated from early
morning to late afternoon but the respondent wanted these hours extended. The recent
partnership with PesaPoint, a third party ATM network connecting over 33 financial
institutions and with locations in over 46 towns in Kenya might address this problem
(Safaricom, 2009a). Further, recently M-PESA has partnered with Equity bank to start
offering loans and interest on the money saved in MPESA account and also giving M-PESA

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users access to the bank ATM services and other traditional banking services at affordable
rates. The recipient also suggested that one way of making the service more convenient was
to scrap the need to go to an agent when a customer wants to send money. Thus a customer
should be able to send money from their house if they had enough existing “float” with the
company without going to a M-PESA agent.
There were also several security and fraud related challenges. The first was the
security of the M-PESA money remittance message, which was usually not password
protected. This meant that anybody who obtained possession of the phone could read the
message and see all of the financial transactions of the phone owner. This is a security and
privacy risk and should be changed such that it can only be accessed by using the owner’s
password. It was not unusual for family members, roommates and work colleagues to have
access to someone’s phone, hence the need for protecting the M-PESA money remittance
message.
The second security related challenge was sending money to the wrong recipient. The
system did not have feedback to confirm that the number that the user had entered indeed
belonged to the intended recipient (due to the fact that mobile phone numbers are typically
not registered with the owner’s name). It was often a common mistake for an individual to
send money to the wrong number by confusing one of the digits or sometimes names. This
becomes more important when one also considers the relatively high level of illiteracy.
Money sent to the wrong number was hard to recover unless the sender noticed immediately
and alerted the provider. The most common scenario, however, would be that the sender
discovers the mistake much later and by then it is too late, as the wrong recipient will have
already cashed the money. The solution to this problem may need to be addressed from
several fronts. First, the government and the mobile phone providers need to work together to
enforce the registration of all individual’s phone numbers. It should be noted, however, that
agencies should be careful not to duplicate the unintentional barriers to banking that were
created from a similar need to register bank account holders. Second, the providers needs to
update their system such that it gives feedback to users that the money was delivered to the
intended recipient and displays delivery details in terms of phone number, time and location.
Third, a fast action mechanism needs to be implemented in case one sends money to the
wrong number as well as remedial measures on money recovery. Uncollected funds should be
returned to a sender within a specified, however short, time to the send.
Another key challenge was lack of “electronic float money” among most agents,
limiting the amount one can receive at any one time. M-PESA transactions require the agent
to exchange cash for electronic float money and vice versa. In an ideal situation, the money
deposits and withdrawals should balance and there would be no problem. However the reality
is that agents will face different “float” issues depending on which part of the country they
are operating in. In the rural villages, the majority of the transactions are withdrawals by the
peasants of money sent by the working relatives from the big towns. So the agent will soon
run out of cash and will need to wait until Safaricom refunds their account and then go to the
nearest bank to get more cash. In the main towns, on the other hand, the majority of people
are sending money to the villages, and the agent will face the opposite problem. The agent
will need to go to the nearest bank to deposit the surplus cash and wait until Safaricom
verifies reception and sends the equivalent electronic float money.

4.5 New Fronts for Early Adopters

We also sought to investigate what other types of mobile phone services were used by the
majority of phone users, apart from calling and message texting. This aimed at identifying
new areas of potential growth by the early adopters which could be duplicated down the other
adopter categories. The vast majority of Kenyans clearly are tied into M-PESA, with about

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74% early adopters using the services already, as shown in Figure 1. This suggests that
Safaricom should now look at the other segments of the community. Another feature widely
used is the access to internet (44%), and there is the likelihood that with the recent enabling
of various internet social networks through mobile phones, the number of people accessing
internet through their mobile phones will increase tremendously. It also seems that the M-
PESA service has replaced plastic money as many people are now purchasing goods and
services through their phone.

Figure 2: Percentage Usage of Mobile Phones to Conduct Related Value added Data
Services Beyond M-PESA

There is a high potential of doing e-commerce or internet related services among the
young urban generation. Bills inquiry and bill payment, at 44% and 33% usage, respectively,
were also well used but can be extended to a wider segment of the society. Bill payment in
this survey referred to either electricity or water bills which are the two utility bills that most
of the homes in the urban areas are required to pay. However this might also be extended to
other bills such as bank balances and loan approval and payment, as recently introduced by
the Higher Loan Education Board for previously sponsored university students.
However other services like salary inquiry, interactive services and news briefs were
highly underutilized. Most of the population depends on snail mail notice to learn when their
paychecks have arrived in the bank, which takes days or weeks, and at times get lost during
the delivery process. Salary notification by text message would solve such problems at a very
low cost. The way forward for M-PESA would be to expand to such value added data
services because they already have an extensive coverage.
The next section discusses the consumer findings and then relates it to the earlier
findings from a review of the M-PESA literature.

5. DISCUSSION, IMPLICATIONS AND CONTRIBUTIONS

This study started by investigating the critical factors that led to the success of M-PESA.
Several factors were indentified. Among such factors was the large unbanked Kenyan
population hungry for financial services and the mobile revolution which gave access to
mobile phones for the majority of the population. M-PESA leveraged this opportunity by
using early adopters to reach the rest of the population with phenomenal success. M-PESA
has revolutionized the way financial services are accessed in Kenya and has a bright future
with several value-added services waiting to be tapped. About 47% of the respondents are
satisfied with the service as it is. However, the remainder suggested various solutions to
address several security and service provision challenges. The registration of all mobile
phone numbers and the particulars of owners will go a long way in enhancing security and in

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tracing and reversing wrong or fraudulent transactions. Safaricom will have to improve the
quality of the wireless connections and the M-PESA agents will have to improve their
services.
There are several lessons that can be learnt from the Kenyan experience. First and
foremost regards the power of early adopters in promoting the use of mobile technology in
the developing world. The M-PESA case shows that it is now possible to profitably extend
financial services to the poor unbanked sectors at the bottom of the society pyramid at
relatively low cost using early adopters to push technology for free. However, as has been
said before, and as is exemplified here, this requires that the technology itself be handled as
an extension to the existing social structure and targeted at a specific social/ practical need
and market segment. Ubiquity and homogeneity, as were explored here in numerous aspects,
would be important keywords to keep in mind when implementing a new technology.
A related second lesson is the power of technology innovation itself. The M-PESA
case shows that the use of non-traditional methods like cell phones has the potential of
revolutionizing the way business is done and profits made in Africa. The goal is now to
provide millions of low cost transactions which accumulate to give a good profit margin,
rather than specifically targeting the upper tier, and least populous sector, of society. In order
to achieve this, Safaricom had to innovate and reengineer the product at certain points. For
example, M-PESA was originally meant to be a microfinance solution which did not work
well but spawned an even more successful solution for the mass market. Related to this was
the innovativeness of the Kenyan people. A big section of the country does not have power
hence it was unimaginable that a service that requires the user to have a charged phone to
place transactions would succeed so well. Only 1.3 million people in Kenya are connected to
electricity, yet the country has over 17.6 million mobile phone users (Ombok, 2009). The
population improvised in different ways. They used solar and car battery chargers. Charging
vendors mushroomed in the village centers with generators. Some of the very poor have even
devised ways of using the M-PESA service without owning phones either by depending on
relatives and friends or by pooling together and buying a community phone. This again
reinforces the community first nature of technology adoption itself.
Third, developing countries should not to be deterred by lack of success of mobile
money banking in the developed countries. The value proposition for mobile banking is
different for users in the developing countries compared to the developed country. Financial
services can at times be taken for granted in the developed countries because of the wide
options available to the common citizen via online banking, credit and debit card, telephone
banking and banking facilities every few miles. Since most of these services are almost non-
existent, especially in the rural areas, in developing countries the value proposition is more
compelling hence there is a higher chance for success.
Fourth is a lesson to the conventional banks. Initially Kenyan conventional banks had
a great fear that M-PESA was going to run them out of business. This fear has proved to be
misplaced. The banks have discovered that they can even create useful alliances with M-
PESA. They can exploit the M-PESA network and the millions of customers to make more
profits. For example, Kenya Commercial Bank, one of the biggest banks in Kenya, has
entered into a partnership with Safaricom with the goal of alleviating the e-float problem
mentioned earlier in the challenges section. M-PESA agents will, for a small commission, be
able to get e-float money immediately after making cash deposits in the Kenya Commercial
bank. This is much faster than the current practice in which the agents have to submit the
bank deposit receipts to Safaricom and wait for several hours until the e-float is deposited
into the agents’ bank account. The agents can do more transactions this way and the bank can
make billions considering it has a big branch network across the county. Again, however,

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these technological or financial solutions only become meaningful when they have a social
structure in place to utilize them.
The fifth lesson concerns the challenges that face Safaricom now. New countries
rolling out mobile money banking services should insist on registering all phones from the
beginning so that there is security and accountability in mobile money transfers. However,
when thinking of poor and potentially illiterate communities, they should be careful to follow
the ubiquitous model of mobile money set by M-PESA, so as not to erect new barriers to
adoption. New mobile money providers should also learn from the way that Safaricom is
working with others to address the “lack of electronic float money” challenge mentioned
earlier.
The study also makes contributions to the technology adoption literature. A key
challenge in the adoption of high tech innovations is how to cross the “chasm” (Moore &
McKenna, 1999). The M-PESA study suggests several strategies that can be added to the
researchers and mobile money provider’s toolbox. For the communication technologies like
mobile money which require a sender and receiver, the trick is to find a set of customers in
the sending market who have leadership in the society; who understand and embrace new
technological issues and can serve as early adopters. These can then be used to penetrate the
majority in the receiving market and thus crossing the “chasm”. The second strategy
addresses the problem of penetrating illiterate to semi illiterate populations. The trick is to
stick to a simple but reliable technology. Push the same technology throughout the
population. This ensures that knowledge will be passed from one group to the other making it
easier to adopt and use. A third strategy is to look for preexisting structures that connect to a
new innovation the way mobile money was connected to the earlier use of four wheeled
mobile trucks. People fear change hence a technology that connects with existing structures
and social systems will have minimal resistance to change. The above lessons and
contributions can be used both by researchers and also by mobile money providers about to
launch new services. For example, Vodafone is already using the M-PESA template to launch
a mobile money service in Tanzania albeit with some challenges (Rasmussen, 2009).
There are several limitations to this study. The first concerns the sample chosen. This
sample followed the strategy used by Safaricom of targeting the young and technology savvy
to point out the challenges and the way forward for M-PESA. The shortcoming of this
strategy is that the population may not be ideally representative of the greater Kenyan
population. Questions were designed to capture behavior both in the urban and rural area. A
future study can expand the population sample to also get input from the rural respondents on
the applicable question items. It is also not obvious that the same strategy can be applied to
all newly introduced technologies, as some cultural norms might impede the use of early
adopters who tend to be young compared with the early majority in the African society where
knowledge is thought to be equivalent with the age.

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