Most people probably don’t think of Kenya as an innovation and technology hub, but in 2007 it became the launching pad for M-Pesa, a transformative mobile phone-based platform for money transfer and financial services. Since then, M-Pesa has undergone explosive growth: in 2013, a staggering 43 percent of Kenya’s GDP flowed through M-Pesa, with over 237 million person-to-person transactions. M-Pesa is nearly ubiquitous in the daily lives of Kenyans due to a range of services that include money deposit and withdrawal, remittance delivery, bill payment, and microcredit provision.
The idea that would result in the creation of M-Pesa was born after researchers funded by the UK’s Department for International Development (DFID), the foreign aid arm of the British government, noticed that Kenyans were transferring mobile airtime as a proxy for money. DFID researchers saw potential in this idea, and facilitated a connection with mobile service provider Vodafone. Vodafone had been considering ways to support microfinance through its mobile platform, as access to banking and credit was limited in Kenya and transporting cash was both risky and slow. Nick Hughes, Vodafone’s Head of Global Payments, developed the M-Pesa idea and applied for funding through a DFID challenge fund. Vodafone and DFID ultimately made matching investments of £1 million.
Nearly a decade after its launch, M-Pesa has transformed economic interaction in Kenya. Its success reshaped Kenya’s banking and telecom sectors, extended financial inclusion for nearly 20 million Kenyans, and facilitated the creation of thousands of small businesses. M-Pesa has been especially successful in reaching low-income Kenyans: new data indicates that the percentage of people living on less than $1.25 a day who use M-Pesa rose from less than 20 percent in 2008 to 72 percent by 2011.
Groups that typically have limited access to formal financial services have benefited from the financial products offered through M-Pesa. In particular, its short-termPay Bill Account service allows users to fundraise for a variety of purposes, including expenses relating to medical needs, education, and disaster relief. M-Pesa has also empowered business creation—many small companies rely on M-Pesa for nearly all transactions, or provide a service that is a derivative of the platform itself.
In Kenya, M-Pesa has been so successful that traditional banks have come to see it as a serious competitor. At first, these banks sought to limit M-Pesa by seeking regulations from the Kenyan government, but increasingly they have begun to offer mobile banking services that attempt to disrupt M-Pesa’s monopoly of the mobile money market. To compete, many of these services are offered with transaction fees that are even lower than M-Pesa’s. As more players enter the system, the mobile money market may become even more widely accessible.
M-Pesa’s success is derivative of the explosive growth in access to cell phones in the developing world. In the first quarter of 2015, there were over 900 million mobile subscribers in Africa, and 3.7 billion in Asia. The number of mobile lines in service is projected to surpass the global population at some point this year, and developing markets will continue to drive growth in mobile subscriptions for the foreseeable future.
M-Pesa’s impact in Kenya put mobile money services on the map; today there are a number of successful mobile money services around the world that are similar to or resultant from M-Pesa. M-Pesa’s impact in Kenya put mobile money services on the map, and the subsequent proliferation of similar services can be credited to this success. According to the Global Mobile Systems Association (GMSA), approximately 255 mobile money services were operating across 89 countries in 2014. They are now accessible in more than 60 percent of developing markets. Sub Saharan Africa is the region where mobile money is most widely spread, followed by Southeast Asia and Latin America. A few of the most successful examples include:
- In the Philippines, Smart was the first to transfer person-to-person remittances beginning in 2000. By December 2007, 5.5 million Filipinos had used their mobile phones for personal finance, making the country a leader in mobile transactions.
- In Bangladesh, which is quickly becoming a global leader in mobile banking, BRAC Bank’s subsidiarybKash accounts for 80 percent of market share. Dutch-owned Bangla Mobile as well as MCash, launched by Bangladesh’s largest private bank, are expected to make significant contributions.
- In Pakistan, mobile banking is led by EasyPaisa, one of nine providers. Tameer Bank andTelenor Pakistan launched EasyPaisa in 2009, and with 7.4 million users it is now the third largest mobile money service in the world.
- In Afghanistan, the country’s largest telecommunications company Roshan launched M-Paisa in 2009 in collaboration with Vodafone and the Ministry of the Interior to pay police salaries using mobile money. Costs dropped by 10 percent as phantom payments to nonexistent police officers were eliminated and corruption was reduced. Now with over 1.2 million subscribers, M-Paisa’s success led other large telecommunications firms to launch mobile money platforms in Afghanistan in 2012.
The proliferation of mobile money services does raise the need for banking and telecom regulators to work together to allow these mobile platforms to work. As mobile money services continue to expand more proactive policies are required to ensure that the market can continue to grow and serve local consumers. Getting banking and telecom regulators to coordinate can be easier said than done, and this hurdle has slowed the adoption of mobile money platforms around the world.
While M-Pesa and other services like it do expand opportunity and financial inclusion, mobile transfers are not a complete answer to fully participating in formal financial systems. M-Pesa only allows for relatively small amounts of money to be stored and transferred via mobile phones and can’t substitute for opening a bank account or getting a loan for a small business.
By enabling users to transfer money to each other and make payments directly to businesses and service providers, mobile money platforms cut down on corruption by reducing the need to operate in a cash-only economy. As a result, M-Pesa’s empowers individuals and supports entrepreneurial creativity in a less constrained financial marketplace.