M-Pesa: Transforming Millions of Lives | Telecom Circle

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,
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?

Safaricom has regularly been releasing the financials of M-Pesa service which have been impressive by any standard:

1. As on November, 2009, M-Pesa had 8.6 million users which is ~25% of Kenya’s population

2. Close to 15K agents (more than doubled in last one year). Kenya has 1500 ATMs and 840 bank branches which
pale in comparison

3. Monthly person to person transactions worth over $320 million with average of $37 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.

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?

References:

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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