M-Pesa: Transforming Millions of Lives | Telecom Circle

The economic impact of mobile phones is a well talked about fact but the role of mobilephones 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 hurdlesand 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 mobileoperator ) with the backing of Citibank and Commercial Bank of Africa. This two part casestudy would attempt to explain the reasons behind M-Pesa’s success (part I) and how it istransforming 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 basictypes 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 amobile wallet with Safaricom’s rating, billing and provisioning systems.

Subscribers of Safaricom can register for the M-Pesa service byfilling up a simple form and providing any identification proof. Onceregistered, Safaricom replaces their SIM with the M-Pesa enabledSIM (if required, all new mobile subscribers now get the M-Pesaenabled SIM). To load the money on the the wallet, the user needs tovisit the nearest agent and deposit cash there in exchange for “e-Float”. This e-Float is like currency that can be used to makepayments or transfer to any other person. The e-Float is can betransferred to any person or merchant via encrypted SMS. Thereceiver of the virtual currency can either use it for furthertransactions or can cash-out from M-Pesa designated outlets. Thefigure 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:

As on November, 2009, M-Pesa had 8.6 million users which is ~25% of Kenya’s population1.

Close to 15K agents (more than doubled in last one year). Kenya has 1500 ATMs and 840 bank branches which2.pale in comparison

Monthly person to person transactions worth over $320 million with average of $37 per user per month3.

The service is not only scoring high on financials but also on the consumer confidence. Kenya’s independentFinancial Sector Deepening Trust (FSD), which aims to support the development of inclusive financial markets inKenya, 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 theservice. 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 itsnetwork. Since the service involves money, it is important gain user trust. Safaricom communicated a lot withthe users; if the server is slow, it would communicate that to the users so that there is no anxiety amongst theusers. 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 theregulators. It involved the central bank right from the very beginning. It always tries to accommodate concernsof the regulator and the banking industry. The Kenyan Government had voiced concerns over the possibility ofcriminals using the service to launder money, and on May 4th 2009 had ordered the Central Bank to auditSafaricom’s M-Pesa service. Safaricom welcomed the Government’s decision and passed the audit due tocomplete transparent operations and proactive sharing of data with the regulator. The Central Bank declared theservice 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 tohelping people make person-to-person (P2P) remittance payments to their friends and family after it found theconsumer preference for P2P transfers in a survey at the beginning of the service. Safaricom has been able tokeep a tab on the pulse of the consumers and has been nimble enough to adjust its value proposition to the needsof 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 thatM-Pesa) could do was a well articulated value proposition. The video below is the commercial on “Send MoneyHome”

Pricing- Safaricom kept the pricing of the product very transparent and lower than other alternatives. Freeregistration 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 todeliver 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 servicestarted. This limited KYC helped many Kenyans especially in the rural areas where the address proofs and otherdocuments required by the banks are not available with most of the Kenyans. People who were not able to fulfillthe 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 andsend money to the wrong person, so Safaricom established back office support to assist people get the moneyback where possible. M-PESA has its own dedicated call centre with its own number. Safaricom ensures that avery high quality of customer care is maintained. The strong back office support has helped the company in notonly 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 bankaccount than non-user households. It is young, male, urban migrants who are driving the uptake of services – customeradoption. 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 oftransactions in the village are withdrawals, agents must maintain their cash float. They do this by making frequent tripsto the bank. This can be problematic if the agent is not close to an urban centre, where most banks in Kenya arelocated. 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 availabilityis defendant on the network availability which is strong in the south-west corner of thecountry (as seen in the picture alongside). There are only 2000 towers of Safaricom whichare 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 amgoing 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 itssuccess?

References:

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

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

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