M-Pesa: The Disruptor that Paved a New Way of Doing Business in East Africa

M-PESA and how it Works

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photo credit: Sophie Mbugua

Ten years ago, mobile phones in Kenya were primarily used for making and receiving calls, sending text messages, and surfing the net. That was before mobile phone operator Vodafone, through its Kenyan affiliate, Safaricom, introduced the country’s first mobile phone-based money transfer service, M-PESA. In its first year of operation, M-Pesa recorded $148 million in transactions, an amount that would go up by $80 million the next year. 10 years later, this mobile cash service is recognized worldwide as one of the most successful services of its kind. According to the Central Bank of Kenya, mobile transfers moved over $3 billion in September 2017 alone.

M-PESA and how it Works

M-Pesa – ‘M’ for mobile and ‘Pesa’ Kiswahili for money – is a mobile phone-based service that allows users to send and receive money, and pay their bills from their mobile phones. The service is available to all Safaricom SIM card holders who have registered their accounts with the mobile phone operator.

To top up the M-pesa account, a customer only needs to visit their local registered M-pesa agent, hand them cash and give their account details (phone number). The agent will electronically credit the customer’s M-Pesa account after which they will each receive a text message from M-Pesa confirming the success of the transaction. The customer can, therefore, send money electronically to another person, pay their bills, send the money to their bank account, or even buy airtime. The same applies to withdrawal where the customer will enter an agent’s unique number on their M-Pesa menu to withdraw money. The agent receives a commission for each transaction.

The Impact of M-Pesa

At the time when the service was introduced on the market, there were not many local banks selling their products to rural folks. A good number of rural Kenyans were unbanked and therefore unable to save money in any meaningful way or access loans. All that changed when banks saw the opportunity to bring unbanked Kenyans onboard, effectively partnering with Safaricom so that customers could deposit money directly into their bank accounts from M-Pesa.

Kenya, like many African economies, is cash driven, and so almost all bills are paid in cash. This service reduced risk associated with carrying huge amounts of cash, especially since the introduction of LIPA NA M-PESA, basically a POS service. New innovations have introduced B2B services where corporate customers use the service to make bulk payments.

Other than payments, banks such as Commercial Bank of Africa (CBA) and Kenya Commercial Bank (KCB) have partnered with Safaricom to provide short loans to registered M-Pesa users. One only needs to apply for a short loan through their phone and repay it with interest at the lapse of the agreed period, failure to which they will be listed with the local credit bureau. CBA’s loan service, M-Shwari, has grown tremendously since its inception and given emergency cash advances to those who would not necessarily qualify for loan facilities in banks.

Another product associated with Safaricom that has changed life in rural East Africa (Kenya, Uganda, and Tanzania) is M-KOPA, an installment based plan that enables poor families to buy solar-powered solutions for lighting.

Safaricom has structured charges depending on the value of the transaction. The lowest amount that can be transacted through the service is Ksh. 100 ($1) while the upper limit a retail customer can transact in a day is Ksh. 140,000 ($1,400). As noted earlier, corporate entities can make bulk transactions, hence have a higher limit.

Safaricom is not without competition. Other mobile service providers such as Airtel and Telkom have tried to reduce M-Pesa’s monopoly but Safaricom still controls a huge chunk of the market. Equity Bank Ltd, a local bank, has come up with a competing product, Equitel Money that may finally end M-Pesa’s dominance in mobile money transfers. Still, most Kenyans cannot begin to imagine life without M-Pesa.





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