In my previous post, I introduced M-Pesa, Kenya’s innovative mobile payment system. Let’s go a little deeper.
While M-Pesa was introduced in Kenya in 2007 with the intention to serve as an automated way to “Send Money Home”, it was actually conceived with the notion that the mobile phone could play a central role in lowering the cost of delivering financial services to the poor. The story as to how this simple idea morphed into what is now M-Pesa is quite fascinating.
Kenya is a country where is a lot of job related migration taking place. Many of those who leave their homes for jobs regularly send money home to their families, for events, to their village through informal systems. In this case, these informal systems came mainly in the form of bus and taxi companies, hand deliveries or via the post-office. There were risks associated with each of these systems and on occasion hard-earned money never made it to its destination. So, this was the unmet need and there was latent demand for a safe and secure system.
And it so turned out that many of these migrant workers were also mobile phone owners with the predominant MNO in Kenya, Safaricom. In addition to a latent market, regulatory forces in the form of the government and the Central Bank of Kenya (CBK) allowed for innovation in this space. The CBK was a very active participant in the initial phases of the development of this service. The program was fortunate in its early stages to obtain support and funding from U.K’s Department for International Development (DfID). Much of the initial work was funded by the DfID.
Most importantly, as a pointed out in my previous post, many of the Safaricom subscribers were the ‘unbanked’.
The program was seeded in select areas as a pilot and it succeeded beyond Safaricom’s expectations. M-Pesa was then rolled out nationally, but targeted initially to those customers who were more affluent. The marketing of M-Pesa across all dimensions was brilliant and I am very sure that someone has already written a HBS case study on this very topic. While it’s tough to compress all the progress M-Pesa has made in 4 years into a blog post, it is relevant to look at the program via the 4P/4C marketing lenses.
Add to all of the above, there were additional reasons that attributed to the success of M-Pesa. Right from branding the service to the roll-out and subsequent adoption, execution and simplicity was the key. And along those vectors, Safaricom did a stupendous job. The M-Pesa application was simple to use and was very intuitive. First time users had some difficulty with the application, but with multiple uses, the application got progressively easier to use. Once the reseller vetted the users (ensured that the consumer is bonafide), they replaced the existing SIM card with the M-Pesa SIM that had the application pre-loaded into the special SIM. Key data in the SIM was encrypted to prevent misuse. Phone number remained the same. The reseller would also demonstrate the application to each customer that signed up.
To transfer money, all the user had to do was to ensure that they had the recipient’s correct phone number (which they ensured by calling them…). The M-Pesa application had 3 easy steps:
- Enter recipient phone number
- Enter amount to transfer
- Validate information – and then hit ‘ok’
The recipient received an SMS message with a special code. To cash-out, all the recipient has to do was to go to a M-Pesa location and present the code (on the phone) to be paid out.
In terms of execution, one of the aspects Safaricom focused was reseller training. Training is mandatory to be M-Pesa certified. To maintain certification, resellers need to take trainings and tests on a regular basis. This also ensured uniformity of service across all locations.
It must be noted the when a M-Pesa customer deposits money, it is held in a pooled account. Resellers need to carry some liquidity and are reimbursed at the back-end by Safaricom. The CBK, while granting Safaricom the freedom to design M-Pesa the way it saw fit, stipulated that the interest earned on customer deposits be used towards a not-for-profit trust or go back to the customers.
There were additional factors that helped M-Pesa and in addition, the M-Pesa scaled from just being a ‘Send Money Home’ sort of program. I’ll touch upon it in my next post. In the meantime, any comments/thoughts?