I have previously written about my enthusiasm for mobile payment and remittance schemes, particularly for their transformational potential in emerging markets. It therefore seemed appropriate to dedicate a couple of posts to Safaricom’s M-Pesa, perhaps the most famous and successful mobile payment scheme launched in a developing country.
In today’s entry I’ll give an overview of M-Pesa’s business model, describe its progress to date and explore the lessons for financial inclusion and development. market conditions that facilitated the development of a mobile payment scheme. My next entry will focus on the market conditions that facilitated M-Pesa’s success and Safaricom’s impressive execution and likely future developments.
For those who are not familiar with M-Pesa, it is an electronic payment and store of value system accessible through mobile phones. The idea was developed by Vodafone in London and launched through its Kenyan subsidiary in 2007. Customers sign up to the service through Safaricom’s extensive network of mobile credit agents. The user provides basic personal information and identification and is assigned a payment account that is linked to an application that sits on their SIM card. If the user’s SIM card is not already enabled, the agent will provide an upgraded SIM card at no cost.
The fee model is entire usage-based, so customers can sign up and deposit funds for free. The user is then charged a flat fee for available services; P2P transfers, bill payment, withdrawals and balance enquiries. As Safaricom is not a licensed bank, all funds are deposited with a commercial bank and customers are not offered interest on money that is stored in their account. Instead, all interest that is generated from deposits are donated to a non-profit organisation.
By mid-2010, M-Pesa had achieved tremendous success in the Kenyan market (source: http://www.pymnts.com/mobile-payments-go-viral-m-pesa-in-kenya/):
· 9 million customer base, equal to 40% of the adult population
· 17,000 agents for cash-in/cash-out services, of which nearly half are located outside urban centres
· $320 million monthly P2P transfers, equal to roughly 10% of GDP
· $650 million monthly cash deposits and withdrawals
A 2008 study revealed that early adopters of M-Pesa are more likely to be relatively affluent, have access to other bank services and be educated, literate and tech savvy. Yet usage is basic, with more than half of users primarily sending and receiving funds, and very few storing meaningful value. Still, 98 percent of users report being happy with the service and 84 percent claim that losing M-PESA would have a large, negative effect.
In a 2010 World Bank publication, Igancio Mas and Dan Radcliffe identify three important lessons from the M-Pesa experience for encouraging financial inclusion:
1. The potential of mobile and prepaid technologies to facilitate financial inclusion in developing countries. These technologies combines the ubiquity of mobile phones with low-risk nature of prepaid financial services to make basic banking services available to everyone
2. Usage-based fee models, as opposed to float-based models, are critical in reaching poor customers. These are customers that are not profitable in a traditional float-based model, I which banks make money from collecting and re-investing deposits. However, mobile operators in developing countries have developed a usage-based, prepaid model for mobile airtime. This model is fully aligned with the small-value, transactions-based payments model that is needed to serve poorer customers that are not profitable for traditional banks
3. The importance of developing a low-cost transactional platform that enables customers to complete a broad range of financial services. With access to M-Pesa, customers are able to complete all financial transactions that are necessary to fully participate in society
Combined, these three lessons suggest that financial inclusion through a low-cost, usage-based payment platform may be an important development strategy on par with more traditional credit- and savings-led approaches. In fact, providing access to a basic payment may be a more appropriate first step, on which credit- and savings-strategies can build.
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