Why does Kenya lead the world in mobile money?
May 27th 2013, 23:50 by T.S.
PAYING for a taxi ride using your mobile phone is easier in Nairobi than
it is in New York, thanks to Kenya's world-leading mobile-money system,
M-PESA. Launched in 2007 by Safaricom, the country's largest
mobile-network operator, it is now used by over 17m Kenyans, equivalent
to more than two-thirds of the adult population; around 25% of the
country's gross national product flows through it. M-PESA lets people
transfer cash using their phones, and is by far the most successful
scheme of its type on earth. Why does Kenya lead the world in mobile money?
M-PESA was originally designed as a system to allow microfinance-loan
repayments to be made by phone, reducing the costs associated with
handling cash and thus making possible lower interest rates. But after
pilot testing it was broadened to become a general money-transfer
scheme. Once you have signed up, you pay money into the system by
handing cash to one of Safaricom's 40,000 agents (typically in a corner
shop selling airtime), who credits the money to your M-PESA account. You
withdraw money by visiting another agent, who checks that you have
sufficient funds before debiting your account and handing over the cash.
You can also transfer money to others using a menu on your phone. Cash
can thus be sent one place to another more quickly, safely and easily
than taking bundles of in person, or asking others to carry it for you.
This is particularly useful in a country where many workers in cities
send money back home to their families in rural villages. Electronic
transfers save people time, freeing them to do other, more productive
things instead.
Dozens of mobile-money systems have been launched, so why has Kenya's
been the most successful? It had several factors in its favour,
including the exceptionally high cost of sending money by other methods;
the dominant market position of Safaricom; the regulator's initial
decision to allow the scheme to proceed on an experimental basis,
without formal approval; a clear and effective marketing campaign ("Send
money home"); an efficient system to move cash around behind the scenes;
and, most intriguingly, the post-election violence in the country in
early 2008. M-PESA was used to transfer money to people trapped in
Nairobi's slums at the time, and some Kenyans regarded M-PESA as a safer
place to store their money than the banks, which were entangled in
ethnic disputes. Having established a base of initial users, M-PESA then
benefitted from network effects: the more people who used it, the more
it made sense for others to sign up for it.
M-PESA has since been extended to offer loans and savings products, and
can also be used to disburse salaries or pay bills, which saves users
further time and money (because they do not need to waste hours queuing
up at the bank). One study found that in rural Kenyan households that
adopted M-PESA, incomes increased by 5-30%. In addition, the
availability of a reliable mobile-payments platform has spawned a host
of start-ups in Nairobi, whose business models build on M-PESA's
foundations. Mobile-money schemes in other countries, meanwhile, have
been held up by opposition from banks and regulators and concerns over
money-laundering. But M-PESA is starting to do well in other countries,
including Tanzania and Afghanistan, and last month it was launched in
India. At the same time, operators in some other countries are doing an
increasingly good job of imitating it. Some of the factors behind
Kenya's lead cannot be copied; but many of them can, which means it
should eventually be possible for other countries to follow Kenya's
pioneering example.
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