Mobile Technology and the “Unbanked” (M-Pesa) – Part 3

In a short time, M-Pesa has achieved remarkable success. And, it has evolved from just being a tool used to ‘Send Money Home’ to something that has become integral to people’s lives in Kenya. (Part 1, Part 2)

It is being used to do the following (among other things)…

  1.  Top-off subscribers accounts
  2. As a banking tool –
    1.  Customers can make deposits to their account. And withdraw money at any Safaricom store, effectively making this a mobile ATM. There are charges though. While deposits are free, withdrawals are charged $0.30 onwards depending on amount withdrawn.
    2. Funding their account is as simple as walking into any Safaricom outlet and depositing cash with the agent. Account is funded almost immediately.
    3. Once account is funded, it can be used for various activities – P2P transfers, retail purchases, mobile account top-off etc.
    4. Bill pay was launched in March 2009. More than 75 Kenyan companies use M-Pesa to collect payments from their customers. The biggest user is the electric utility company which has around 20% of its 1 million customers paying via M-Pesa.
    5. Just like any online account, customer can make balance inquiries. However, there is a fee associated with this feature.
    6. Retail purchases – Safaricom has enabled a large merchant ecosystem that accepts M-Pesa payments. A customer can walk into any of these stores, purchase the goods they want and walk out of the store after making a payment via M-Pesa. In many cases, it has replaced cash – the basic unit of financial transactions in any economy.

Here are some of M-Pesa’s accomplishments…

  1. M-Pesa now serves more than 14 million customers, a majority of whom are active. These customers represent more than 80% of Safaricom’s subscriber base and around 68% of Kenya’s adult population.
  2. Customers can access more than 28,000 retail stores for transactions (cash-in/cash-out) with at least 50% of these stores located in non-urban areas.
  3. Each customer averages around ‘two’ P2P transactions per month. While that number is low, as an aggregate this represents around $450 million P2P transactions per month. On an annualized basis, this is equal to around 17% of the Kenyan GDP. This is nothing short of – AMAZING!
  4. Safaricom is now using M-Pesa to distribute dividends to shareholders who have opted to do so. More than 180,000 shareholders are paid dividends using M-Pesa out of a total of 700,000 shareholders.
  5. M-Pesa is now linked to at least two banks (Family Bank and Kenya Commercial Bank) and is used as a mechanism to make deposits, withdraw funds or even make loan payments to these banks.
  6. M-Pesa by itself can be thought of as a mobile checking account. As of 2010, the JV between M-Pesa and Equity Bank allows for customer to move money from M-Pesa to interest bearing accounts in Equity Bank. The JV is called ‘M-Kesho’.

Some of the reasons as to why M-Pesa took off the way it did are quite obvious. The main reason being that there was an unmet need and a latent desire for something better than the existing system. And the timing was right! And most importantly, the execution was flawless.  Apart from these headline items, there were other factors that also contributed to the success of M-Pesa. Some of them are enumerated below..

  1. Network Effect – Customer were the best evangelists of the program. While the company did promote M-Pesa and ran a unified national campaign, it was the customers who promoted the program to friends and family.
  2. Pricing – While I did highlight the various pricing plans in the high level 4P analysis, it must be noted that the service(s) was priced based on the customers willingness to pay. Customers were willing to pay more than what was being levied by ATM’s. This is because they were willing to pay for convenience and security (risk). Also, the market seemed to be ok with fixed fee(s) as opposed to paying a percentage of the transaction. Fixed fee(s) were easy to communicate and articulate to customers and Safaricom, to its credit did not change pricing since launch despite inflation and other economic factors. The simplicity of the pricing structure definitely helped M-Pesa gain solid traction.
  3. Channel Margins (Agency Effect) – Each transaction allowed, Safaricom’s agents to collect a margin. As mentioned before, agents collected additional bps while cross-selling other services. These margins, when aggregated were quite substantial on a per agent basis – often turning out to be more than the daily wages of a clerk. This incentivized agents to procure more customers for Safaricom and sign them up for M-Pesa. To enhance the agency effect, Safaricom also very cleverly ensured that the agent to customer ratio is not diluted by too many agents. If that were to happen, then the income per agent would fall resulting in a lower sign up rate. And as a consequence, distribution channel was very scalable.
  4. Regulations – The early (and ongoing) collaboration of Safaricom with CBK ensured a favorable regulatory environment under which M-Pesa could operate.

If I am to draw any analogies, the success of M-Pesa is quite similar to the success Microfinance, although with a very truncated time period. While Microfinance and M-Pesa are not the same, the social impact these programs have is quite spectacular. I hope to pen down my thoughts on the social impact sometime in the future.

There are also risks that could prevent M-Pesa from scaling further. Few of them worthy of mention are – changes in the regulatory environment, financial misappropriations and economic factors. Safaricom is well entrenched in this market and it will tough for competition to scale up to these levels.

M-Pesa is one of the few success stores in the mobile payments arena as of now. Other countries (China and India specifically) are trying to replicate this success. From a global perspective, NFC (Part 2, Part 3) could take a similar trajectory although the challenges NFC faces are way different than those faced by M-Pesa. But lessons can be learnt, if people are looking in the right direction.

The success of M-Pesa represents a huge step in the direction of serving the “Unbanked”. Agree?

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4 Responses to Mobile Technology and the “Unbanked” (M-Pesa) – Part 3

  1. CL Gray says:

    I cannot find a way to contact you on this website, but I would like permission to use your photo (with attribution) for an article. Is there a way to get in contact with you so I can email you with more details?

  2. Pingback: Kilimo Salama! | Pixel Ballads

  3. Pingback: NFC – Where art thou? | Pixel Ballads

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