mobile money

This past summer I had the glorious opportunity to travel to East Africa for 6 weeks.  I would highly suggest this to anyone who wants to take a break from Canadian life and see how the other side is doing it.

While in Kenya I hooked up with someone I first connected with on Twitter, Soud Hyder.  Soud is a mover and shaker in the technology and innovation space in Kenya.

Recently, Soud wrote an article about a product called M-Pesa which is a mobile money solution that first launched in Kenya.  With his permission, here is that article:

M-Pesa is a mobile money transfer service conceptualized in Kenya by Safaricom/Vodafone and funded in part by the UK government. M-Pesa has since grown exponentially with a user base of over 50% of Kenya’s adult population, throughput of over 11% of the country’s GDP and higher transfer rates than those of Western Union globally. The service has slowly expanded to Tanzania, South Africa and Afghanistan in Vodafone networks. Other operators in the region have also deployed similar services.

If there is anything better than sliced bread for the average Kenyan, it has to be M-Pesa. A money transfer service that proves that endogenous growth of an economy mainly populated by the bottom of the pyramid is possible. All human beings are endowed with certain unique skills which can be monetized in a market oriented world. For Kenyan micro entrepreneurs M-Pesa has been the right lubricant that has catapulted them to be active participants in the economy. Growth in mobile telephony has allowed millions of people in the informal economy to connect and communicate with each other to render products or services. M-Pesa has allowed the same people to receive and send money to each other, thus greatly enhancing the velocity of money moving around the system.

M-Pesa’s success can largely be attributed to its open business model that allows local entrepreneurs and organizations to serve as M-Pesa agents. They pretty much act as rudimentary bankers that exchange hard cash for virtual cash stored in mobile phones. The virtual cash is transferable to all Safaricom subscribers who can withdraw the same as hard cash at any of the over 20,000 agents countrywide. The mobile operator charges a commission for the service, part of which is shared with the agent. An agency model such as the one used by M-Pesa has exponentially expanded the service and has allowed the service to permeate across all sectors of society across the country. A seasoned salesman would say “sell to people how they like to be sold to” and M-Pesa has done exactly that. By partnering with local shopkeepers, entrepreneurs, banks and other formal as well as semi-formal organizations, M-Pesa has piggy backed on established social and business networks to create a service that is very convenient with huge customer satisfaction. The thought of a recipient receiving money hundreds of miles away within five minutes of the transaction being executed creates an air of solid trust in the service. Never before has this been possible in a developing country such as Kenya plagued by challenges in infrastructure development and a relatively under developed financial sector that only served a certain segment of the economy.

The success of the service naturally would attract the likes of micro-finance institutions. Commerical banks have also jumped into the bandwagon creating symbiotic relationships and partnerships with Safaricom. The biggest so far has been with Equity Bank on a product dubbed M-Kesho. This service allows M-Pesa account holders to register for a virtual bank account that enables them to transfer their M-Pesa balances into a virtual bank account that would accrue returns on savings. All this is done without filling up more forms, as the data that already exists with the mobile operator is shared with the bank. These meet all regulatory requirements including KYC rules and regulation of deposit taking institutions as the money is moved to the bank and M-Pesa just facilitates the transfer of money from one point to another. Credit and debit cards may possibly never really work in the developing world, but mobile money certainly is.