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8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
1/28
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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Customerregistrationanddepositsarefree.CustomersthenpayaflatfeeofaroundUS404forperson
toperson(P2P)transfersandbillpayments,US33forwithdrawals(fortransactionslessthanUS$33),
andUS1.3forbalanceinquiries.Individualcustomeraccountsaremaintainedinaserverthatisowned
andmanagedbyVodafone,butSafaricomdepositsthefullvalueofitscustomersbalancesonthe
systeminpooledaccountsintworegulatedbanks.Thus,SafaricomissuesandmanagestheMPESA
accounts,but
the
value
in
the
accounts
is
fully
backed
by
highly
liquid
deposits
at
commercial
banks.
CustomersarenotpaidinterestonthebalanceintheirMPESAaccounts.Instead,theforegoneinterest
ispaidintoanotforprofittrustfundcontrolledbySafaricom(thepurposeofthesefundshasnotyet
beendecided).
MPESAisusefulasaretailpaymentplatformbecauseithasextensivereachintolargesegmentsofthe
population.Exhibit1showsthesizeofvariousretailchannelsinKenya.5Notethattherearenearlyfive
timesthenumberofMPESAoutletsthanthetotalnumberofPostBankbranches,postoffices,bank
branches,andautomatedtellermachines(ATMs)inthecountry.UsingexistingretailstoresasMPESA
cashin/cashoutoutletsreducesdeploymentcostsandprovidesgreaterconvenienceandlowercostof
accessto
users.
Exhibit1:OutletsofferingfinancialservicesinKenya6
440800 840
1,510
16,900
100,000
1
10
100
1,000
10,000
100,000
PostBank
branches
Totalpost
offices
Bank
branches
ATMs MPesa
stores
Airtime
resellers
4WeassumeanexchangerateofUS$1:75KenyanSchillings.
5Kenyahasatotalpopulationofnearly40million,with78%livinginruralareasandaGDPpercapitaof$1,600.
19%ofadultshaveaccesstoaformalbankaccount.SeeFSDT(2009a)forfinancialaccessdataderivedfromthe
FinAccesssurvey,anationallyrepresentativesurveyof6,600householdsconductedinearly2009.6DatafromthistablewaspulledfromtheCentralBankofKenya,KenyaPostOfficeSavingsBank,andSafaricom
websites.
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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ASnapshotofM-PESAafterThreeYears
MPESAisgoingfromstrengthtostrength.AsshowninExhibit2,Safaricomreachedthe9million
customermark
in
under
three
years.
Exhibit2:GrowthofMPESACustomerBase
ThelatestdevelopmentsandfiguresreportedbySafaricomasofJanuary2010are:7
9.0millionregisteredcustomers,ofwhichthemajorityareactive.Thiscorrespondsto60%of
Safaricomscustomerbase,23%oftheentirepopulation,and40%Kenyanadults.8
16,900retailstoresatwhichMPESAuserscancashinandcashout,ofwhichnearlyhalfare
locatedoutsideurbancenters.
US$320millionpermonthinpersontoperson(P2P)transfers.Onanannualizedbasis,thisis
equaltoroughly10%ofKenyangrossdomesticproduct(GDP).Althoughtransactionsper
customerhavebeenonarisingtrend,theyremainquitelow,probablystillundertwoP2P
transactionspermonth.
US$650millionpermonthincashdepositsandwithdrawaltransactionsatMPESAstores.The
averagetransactionsizeisaroundUS$33,butVodafonehasstatedthathalfthetransactions
areforavalueoflessthanUS$10.
US$7millioninmonthlyrevenue(basedonthesixmonthstoSeptember2009).Thisisequalto
8%ofSafaricomrevenues.
7Seewww.safaricom.co.ke/fileadmin/template/main/images/MiscUploads/M PESA%20Statistics.pdfforkey
monthlystatisticsforMPESA.AdditionalfiguresaretakenfromSafaricomspublishedhalfyearresultsforthe
periodendingSeptember2009andCentralBankofKenyareports.8The2009FinAccesssurvey(FSDT[2009a],p.16)confirmedthat40%ofadultshadusedMPESA.
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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19%ofSafaricomairtimepurchasesareconductedthroughMPESA.
Thereare27companiesusingMPESAforbulkdistributionofpayments.Safaricomitselfusedit
todistributedividendsonSafaricomstockto180,000individualshareholderswhooptedto
receivetheirdividendsintotheirMPESAaccounts,outofatotalof700,000shareholders.
SincethelaunchofthebillpayfunctioninMarch2009,thereare75companiesusingMPESAto
collectpayments
from
their
customers.
The
biggest
user
is
the
electric
utility
company,
which
nowhasroughly20%oftheironemillioncustomerspayingthroughMPESA.
Atleasttwobanks(FamilyBankandKenyaCommercialBank)areusingMPESAasamechanism
forcustomerstoeitherrepayloansorwithdrawfundsfromtheirbanksaccounts.
CustomerPerspectivesonM-PESA9
Asurveyof3,000MPESAusersandnonusersconductedinthefallof2008shedconsiderablelighton
theprofileofMPESAsearlyadoptersandcustomerusagepatterns.Thesurveyfoundthattheaverage
M
PESA
user
is,
in
comparison
to
non
users,
twice
as
likely
to
have
a
bank
account
(72
percent
versus
36
percent),wealthier(65percenthigherexpenditurelevels),moreliterate,andbettereducated.Early
adoptersappeartobeexperiencedwithbankingpropositionsandfairlytechsavvy,whichprobably
makesthemmoreacutelyawareoftheconvenienceofferedbyMPESArelativetothealternatives.
Exhibit3highlightshowcustomersusetheservice.Consistentwithitsbroadmarketpositioning,more
thanhalfthesampleuseitprimarilyforsendingandreceivingmoney.Interestingly,21percentofM
PESAusersreportusingMPESAforstoringmoney.However,thesurveyrevealedthatlessthan1
percentofaccountshadbalancesofoverKSh1,000(US$13),andagovernmentauditofMPESAin
August2009revealedthattheaveragebalanceonMPESAaccountswasonlyUS$2.70.10Thesurvey
alsofoundthat52percentofcustomersusetheserviceonamonthlybasis,suggestingthatcustomers
haveyet
to
incorporate
M
PESA
into
their
daily
lives.
Exhibit3:TheUsesofMPESA
9ThedataandtablesfromthissectionarefromSuri,TavneetandWilliamJack(June2008),Theperformanceand
ImpactofMPESA:PreliminaryEvidencefromaHouseholdSurvey.UnpublishedPaper10
Okoth,Jackson(2009).RegulatorgivesMPESAacleanbillofhealth.TheStandard,27January2009.
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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Thesurveyalsofoundthat98percentofusersreportbeinghappywiththeserviceand84percentclaim
thatlosingMPESAwouldhavealarge,negativeeffectonthem.Exhibit4belowillustrateshow
customerscompareMPESAwithalternativeservices.
Exhibit4:
Comparing
M
PESA
with
the
Alternatives
M-PESAsServiceEvolution
MPESAsoriginalcoreofferingwastheP2Ppaymentenablingcustomerstosendmoneytoanyone
withaccesstoamobilephone.Itopenedupamarketfortransactionswhichpreviouslywerehandled
largelyinformally
through
personal
trips,
friends,
and
public
transport
networks.
That
is
represented
bythesetoftransactionslabeledpersonalnetworksinthemiddleofExhibit5below.ManyP2P
transactionscanbecharacterizedasscheduledpayments(suchassendingaportionofsalaryearnedat
theendofthemonthtorelativesbackhome),butmanyrepresentabasicformoffinance,where
peoplecandrawonamuchbroadernetworkoffamilymembers,friends,andbusinessassociatesto
accessmoneyasandwhenrequired.Thus,MPESAnotonlyintroducesalargemeasureofconvenience
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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totransactionsthatwerealreadyoccurring,butitalsoenablesabasicformoffinancialprotectionfora
largenumberofusersbyenablinganetworkforinstant,ondemandpayments.
Inrecentmonths,SafaricomhasincreasinglyopenedupMPESAtoinstitutionalpaymentsenabling
companiestopaysalariesandcollectbillpayments.Infuture,SafaricomenvisionsincreaseduseofM
PESAfor
in
store
purchases.
Thus,
Safaricom
intends
for
M
PESA
to
become
amore
pervasive
retail
paymentsplatform,astrategyrepresentedbythedownwardarrowinExhibit5.
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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Exhibit5:PotentialRangeofTransactionsSupportedbyMPESA
FORMAL FINANCIALPRODUCTS
Savings, credit, insurance
INFORMAL SERVICEPROVIDERS
Pawnbroker, moneylender
On-demand payments
PERSONAL NETWORKS
Scheduled payments
REMOTE B2C/C2B
INSTITUTIONAL PAYMENTS
Salaries, bill pay, G2P,
online/e-commerce
IN-STORE MERCHANT PAYMENTS
For goods & services
JUST
PAYMENTS
PUSHING &
PULLING MONEY
ACROSS TIME
M-PESA role
in promotingfuller f inancialinclusion?
M-PESA as
a fuller retailpaymentsplatform
ThechallengeremainsforMPESAtobecomeavehiclefordeliveryofabroaderrangeoffinancial
servicestothebulkoftheKenyanpopulationrepresentedbytheupwardarrowinExhibit5.Sofar,the
evidenceislimitedthatpeoplearewillingtousethebasicMPESAaccountitselfasastoreofvalue.
Thereislikelytobeaneedtodevelopmoretargetedsavingsproductsthatbalancecustomers
preferencefor
liquidity
and
commitment,
and
which
connect
into
abroader
range
of
financial
institutions.ThisisthejourneyMPESAmustbeonforittodeliveronitspromiseofaddressingthe
challengeoffinancialinclusioninKenya.Akeypreconditionisregulation:theCentralBankofKenyaisin
theprocessoffinalizingregulationsthatwillallownonbankoutletsandplatformssuchasMPESAasa
channelforformaldeposittaking.Beyondthat,Safaricomwillneedtodevelopappropriateservice,
commercialandtechnicalmodelsforMPESAtointerworkwiththesystemsofotherfinancialservice
providers.Wereturntothistopicintheconcludingsectionofthispaper.
The
broader
significance
of
M-
PESA
BeforeexaminingwhyMPESAachievedsuchdramaticgrowth,wediscussbrieflythreetoplinelessons
thathaveemergedfromMPESAssuccess:
First,MPESAhasdemonstratedthepromiseofleveragingmobiletechnologytoextendfinancial
servicestolargesegmentsofunbankedpoorpeople.Thisisfundamentallybecausethemobilephone
isquicklybecomingaubiquitouslydeployedtechnology,evenamongpoorsegmentsofthepopulation.
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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MobilepenetrationinAfricahasincreasedfrom3percentin2002to48percenttoday,andisexpected
toreach72percentby2014.11And,happily,themobiledevicemimicssomeofthekeyingredients
neededtoofferbankingservices.TheSIMcardinsideGSMphonescanbeusedtoauthenticateusers,
therebyavoidingthecostlyexerciseofdistributingseparatebankcardstolowprofitabilitypoor
customers.Themobilephonecanalsobeusedasapointofsale(POS)terminaltoinitiatefinancial
transactionsand
securely
communicate
with
the
appropriate
server
to
request
transaction
authorization,thusobviatingtheneedtodeploycostlydedicateddevicesinretailenvironments.
Second,MPESAhasdemonstratedtheimportanceofdesigningusageratherthanfloatbased
revenuemodelsforreachingpoorcustomerswithfinancialservices.Becausebanksmakemostoftheir
moneybycollectingandreinvestingdeposits,theytendtodistinguishbetweenprofitableand
unprofitablecustomersbasedonthelikelysizeoftheiraccountbalancesandtheirabilitytoabsorb
credit.Banksthusfinditdifficulttoservepoorcustomersbecausetherevenuefromreinvestingsmall
valuedepositsisunlikelytooffsetthecostofservingthesecustomers.Incontrast,mobileoperatorsin
developingcountrieshavedevelopedausagebasedrevenuemodel,sellingprepaidairtimetopoor
customersin
small
increments,
such
that
each
transaction
is
profitable
on
astand
alone
basis.
This
is
the
magicbehindtherapidpenetrationofprepaidairtimeintolowincomemarkets:acardboughtisprofit
booked,regardlessofwhoboughttheprepaidcard.Thisusagebasedrevenuemodelisdirectlyaligned
withthemodelneededtosustainablyoffersmallvaluecashin/cashouttransactionsatretailoutlets
andwouldmakepossibleatruemassmarketapproach,withnoincentiveforproviderstodenyservice
basedonminimumbalancesorintensityofuse.
Third,MPESAhasdemonstratedtheimportanceofbuildingalowcosttransactionalplatformwhich
enablescustomerstomeetabroadrangeoftheirpaymentneeds.Onceacustomerisconnectedtoan
epaymentsystem,shecanusethiscapabilitytostoremoneyinasavingsaccount,sendandreceive
money
from
friends
and
family,
pay
bills
and
monthly
insurance
premiums,
receive
pension
or
social
welfarepayments,orreceiveloandisbursementsandrepaythemelectronically.Inshort,whena
customerisconnectedtoanepaymentsystem,herrangeoffinancialpossibilitiesexpandsdramatically.
Puttingtheseelementstogether,MPESAhaspromptedarethinkontheoptimalsequencingoffinancial
inclusionstrategies.Wheremostfinancialinclusionmodelshaveemployedcreditledorsavingsled
approaches,theMPESAexperiencesuggeststhattheremaybeathirdapproachfocusfirston
buildingthepaymentrailsonwhichabroadersetoffinancialservicescanride.
AccountingforM-PESAsSuccess:ThreePerspectives
TherestofthispaperexploresMPESAssuccessfromthreeangles.First,weexaminetheenvironmental
factorsinKenyathatsetthesceneforasuccessfulmobilemoneydevelopment.Then,weexaminethe
servicedesignfeaturesthatfacilitatedtherapidadoptionandfrequentuseofMPESA.And,finally,we
examinetheelementsinSafaricomsexecutionstrategythathelpedMPESArapidlyreachacriticalmass
ofcustomers.
11WirelessIntelligence(www.wirelessintelligence.com)
8/8/2019 Mobile Payments Go Viral_M-PESA in Kenya_Mas and Radcliffe
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Insodoing,wedrawextensivelyonasequenceoffourpaperswhichreaderscanrefertoformore
detailedaccountsoftheMPESAstory:HeyerandMas(2009)onthecountryfactorsthatledtoM
PESAssuccess,MasandMorawczynski(2009)onMPESAsservicefeatures,MasandNgweno(2010)
onSafaricomsexecution,andMas(2009)ontheeconomicsunderpinningbranchlessbankingsystems.
Beyondthecompellingmarketing,coldbusinesslogicandconsistentexecutionofMPESA,itssuccessis
avividexampleofhowgreatthingshappenwhenagroupofleadersfromdifferentorganizationsrally
aroundcommonchallengesandideas.ThestoryofMPESAstraddlesthesocialandthecommercial,the
publicandtheprivate,powerfulorganizationsanddeterminedindividuals:
TheIndividualsandInstitutionsBehindMPESA
TheideaofMPESAwasoriginallyconceivedbyaLondonbasedteamwithinVodafone,ledbyNick
HughesandSusieLonie.Thisteambelievedthemobilephonecouldplayacentralroleinloweringthe
costofpoorpeopletoaccessfinancialservices.TheideawasseizedbytheSafaricomteaminKenya,led
byCEOMichaelJosephandProductManagerPaulineVaughn.Theytoyedwiththeidea,convinced
themselvesof
its
power,
developed
it
thoroughly
prior
to
the
national
launch,
and
oversaw
avery
focusedexecution.
TheCentralBankofKenya(CBK),andinparticularitsPaymentsSystemgroupledbyGeraldNyoma,
deservesmuchcreditforbeingopentotheideaoflettingamobileoperatortaketheleadinproviding
paymentservicestothebulkofthepopulation.TheCBKhadrecentlybeenmadeawareoftheverylow
levelsofbankpenetrationinthecountrybythefirstFinAccesssurveyin2006,andtheywere
determinedtoexploreallreasonableoptionsforcorrectingtheaccessimbalance.TheCBKworkedin
closepartnershipwithVodafoneandSafaricomtoassesstheopportunitiesandrisksinvolvedpriorto
thelaunchandasthesystemdeveloped.Theywereconsciousthatprematureregulationmightstifle
innovation,sotheychosetomonitorcloselyandlearnandformalizetheregulationslater.
Finally,theUKsDepartmentforInternationalDevelopment(DfID)playedaninstrumentalrole,firstby
fundingtheorganizationsthatmadetheFinAccesssurveypossibletheFinancialSectorDeepening
TrustinKenya,theFinMarkTrustinSouthAfrica,andthenbyprovidingseedfundingtoVodafoneto
trialitsearliestexperimentswithMPESA.DfIDsroleinspotlightingtheneedformobilepaymentsand
fundingtheearlyriskdemonstratesgoodrolesfordonorfunding.
2.KenyaCountryFactors: UnmetNeeds,FavorableMarketConditions
ThegrowthofMPESAisatestamenttoSafaricomsvisionandexecutioncapacity.However,Safaricom
alsobenefited
from
launching
the
service
in
acountry
which
contained
several
enabling
conditions
for
a
successfulmobilemoneydeployment,including:stronglatentdemandfordomesticremittances,poor
qualityofavailablefinancialservices,abankingregulatorwhichpermittedSafaricomtoexperimentwith
differentbusinessmodelsanddistributionchannels,andamobilecommunicationsmarket
characterizedbySafaricomsdominantmarketpositionandlowcommissionsonairtimesales.
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1
StrongLatentDemandforDomesticRemittances
SafaricombasedtheinitiallaunchoftheMPESAserviceonthesendmoneyhomeproposition,even
thoughitalsoallowstheusertobuyandsendairtime,storevalueand,morerecently,topaybills.
Demandfordomesticremittanceserviceswillbelargerwheremigrationresultsinsplittingoffamilies,
withthe
bread
winner
heading
to
urban
centers
and
the
rest
of
the
family
staying
back
home.
This
is
the
caseinKenya,where17percentofhouseholdsdependonremittancesastheirprimaryincomesource.12
InherstudyofMPESA,Ratan(2008)suggeststhatthelatentdemandfordomesticremittancesis
relatedtourbanizationratios.Morepropitiousmarketswillbethosewheretheprocessofruralurban
migrationissufficientlyrootedtoproducelargemigrationflows,butnotsoadvancedthatrural
communitiesarehollowedout.Countrieswithmidrangeurbanizationratios(20percentto40percent),
especiallythosethatareurbanizingatarapidrate,arelikelytoexhibitstrongruralurbantiesrequiring
transferofvaluebetweenthem.ThisisthecaseinmanyAfricancountrieslikeKenyaandTanzania,
wheretheurbanizationratiosare22percentand25percent,respectively.13InthePhilippinesandLatin
America,where
urbanization
ratios
exceed
50
percent,
remittances
are
more
likely
to
be
triggered
by
internationalratherthandomesticmigrationpatterns.
Whereentirenuclearfamiliesmove,remittanceswillbestrongerwherethereisculturalpressureto
retainconnectionwithonesancestralvillage.InKenya,migrantstieswithruralhomesarereinforced
byanethnic(ratherthannational)conceptionofcitizenship.Theselinksareexpressedthroughburial,
inheritance,crossgenerational,socialinsuranceandotherties,evenincaseswheremigrantsreside
moreorlesspermanentlyincities.14Inothersettings,agreateremphasisonnationalasopposedto
localorethnicidentitymayhavediminishedthesignificanceoftheruralhomeandhencedampened
domesticremittanceflows.
PoorQualityofExistingAlternatives
Latentdemandforepaymentsmustbelookedatinthecontextoftheaccessibilityandqualityofthe
alternatives.Iftherearemanygoodalternativestomobilepayments(asistypicallythecasein
developedcountries),itwillbedifficulttoconvinceuserstoswitchtothenewservice.InthePhilippines,
forexample,theGCashandSmartMoneymobilepaymentservicesexperiencedlowtakeupinpart
duetotheavailabilityofacompetitivealternativetomobilepaymentsanextensiveandefficientsemi
formalretailnetworkofpawnshopswhichoffereddomesticremittanceservicesat3percent.
InKenya,
the
most
common
channel
for
sending
money
before
M
PESA
was
informal
bus
and
matatu
(sharedtaxi)companies.Thesecompaniesarenotlicensedtotransfermoney,resultinginconsiderable
riskthatthemoneywillnotreachitsfinaldestination.AndKenyaPost,Kenyasmajorformalremittance
12FSDKenya(2006)
13CIAWorldFactBook(https://www.cia.gov/library/publications/theworldfactbook)
14ForfulleranalysesoftheuseofmobilemoneyfordomesticremittancesinKenya,seeRatan(2008)and
Morawczynski(2008).
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1
provider,isperceivedbycustomersascostly,slow,andpronetoliquidityshortagesatruraloutlets.
Meanwhile,Kenyassparsebankbranchinfrastructure(840branches)isfartoolimitedtocompetewith
MPESAs16,900cashin/cashoutoutlets.Exhibit6belowillustrateshowKenyanhouseholdssent
moneybeforeandafterMPESA.Notethedramaticreductionintheuseofinformalbussystemsand
KenyaPosttotransfermoneybetween2006and2009.
Exhibit6:MoneyTransferBehaviorBeforeandAfterMPESA15
Asnotedabove,MPESAsearlyadopterswereprimarilybankedcustomers,whichsuggeststhatMPESA
didnotacquireitsinitialcriticalmassthroughcompetitionwiththeformalsectorbutratherasa
complementtoformalservicesforclientswhowerewealthier,moreexposedtoformalfinancialservice
options,andlessriskaverse.Asservicesmovedeeperintothemarket,unbankeduserswilllikelydrive
MPESAs
expansion,
due
to
the
competitive
advantages
of
formal
mobile
offers
over
other
options.
This
isonereasonwhyAfrica,withitshighpopulationofunbanked,isseenassuchapromisingmarketfor
mobilemoneydeployments.
ASupportiveBankingRegulator
Regulationofmobilemoneycanhelptosecuretrustinnewmobilemoneyschemes.Atthesametime,
regulationmayconstrainthesuccessofamobilemoneydeploymentbylimitingtheschemeoperators
degreesoffreedominstructuringthebusinessmodel,serviceproposition,anddistributionchannels.In
thecaseofMPESA,SafaricomhadagoodworkingrelationshipwiththeCentralBankofKenya(CBK)
andwasgivenregulatoryspacetodesignMPESAinamannerthatfititsmarket.
TheCBKandSafaricomworkedoutamodelthatprovidedsufficientprudentialcomforttotheCBK.The
CBKinsistedthatallcustomerfundsbedepositedinaregulatedfinancialinstitution,andreviewedthe
15FSDKenya(2006)andFSDKenya(2009).
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AReasonableBaseofBankingInfrastructure
Finally,theabilityofMPESAstorestoconvertcashtoevalueforcustomersdependsonhoweasilythey
canrebalancetheirliquidityportfolios.Thiswillbemoredifficulttoachieveifbankbranchpenetration
istoolow,asthiswillforcetheagentchanneltodevelopalternativecashtransportmechanisms.Thus,
anagent
network
will
need
to
rely
on
aminimal
banking
retail
infrastructure.
(This
qualifies
our
earlier
pointthatlackofaccesstoformalservicesindicatesastrongmarketopportunity.Thereappearstobea
branchpenetrationsweetspotformobilemoney,wherepenetrationisnotsohighthatithampers
demandformobilemoneyservices,butnotsolowthatagentsareunabletomanagetheirliquidity.)
KenyaisreasonablywellsuppliedwithruralliquiditypointsduetothebranchnetworksofEquityBank
andotherbanksandMFIs.Evenso,shortageofcashorelectronicvalueforMPESAagentsisaproblem
bothincountryandcity.Othercountriesfacemoreseriousliquidityconstraints,especiallyinruralareas,
whichislikelytobeamajorfactoraffectingthesuccessofmobileservicesinspecificcountrycontexts.
3.M-PESAs
Service
Design:
Getting
People
onto
the
System
WhileMPESAsexplosivegrowthwasfueledbycertaincountryspecificenablingconditions,thesuccess
ofsuchaninnovativeservicehingedonthedesignoftheservice.Conductingfinancialtransactions
throughamobilephoneisnotanintuitiveideaformanypeople,andwalkingtoacornershopto
conductdepositsandwithdrawalsmaynotatfirstseemnaturaltomany.Toovercomethisadoption
barrier,SafaricomhadtodesignMPESAinawaythat(i)helpedpeoplegraspimmediatelyhowthey
mightbenefitfromtheservice,(ii)removedallbarriersthatmightpreventpeoplefromexperimenting
withtheservice;and(iii)fosteredtrustintheretailoutletswhowouldbetaskedwithpromotingthe
service,registeringcustomers,andfacilitatingcashin/cashoutservices.
ASimpleMessageTargetingaBigPainPoint
MPESAwasoriginallyconceivedasawayforcustomerstorepaymicroloans.However,asSafaricom
markettestedthemobilemoneyproposition,theyshiftedthecorepropositionfromloanrepaymentto
helpingpeoplemakeP2Ptransferstotheirfriendsandfamily.Fromitscommerciallaunch,MPESAhas
beenmarketedtothepublicwithjustthreepowerfulwords:sendmoneyhome.Thismessagewas
welladaptedtotheKenyanphenomenonofsplitfamiliesdiscussedaboveandtappedintoamajorpain
pointformanyKenyanstherisksandhighcostassociatedwithsendingmoneyoverlongdistances.
Thisbasiceremittanceproductbecamethemusthavekillerapplicationthatcontinuestodrive
service
take
up
and
remains
the
main
(though
not
only)
marketing
message
three
years
later.
Although
peoplehaveprovedcreativeinusingMPESAfortheirownspecialneeds,sendingmoneyhome
continuestobeoneofthemostimportantusesthenumberofhouseholdsreceivingmoneyinKenya
hasincreasedfrom17percentto52percentsinceMPESAwasintroduced.18
18FinAccessSurvey,FSDT(2009a),p16.
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ASimpleUserInterface
ThesimplicityofMPESAsmessagehasbeenmatchedbythesimplicityofitsuserinterface.TheMPESA
userinterfaceisdrivenbyanapplicationthatrunsfromtheusersmobilephone.Theservicecanbe
launchedrightfromthephonesmainmenu,makingiteasyforuserstofind.Themenuloadsquickly
becauseit
resides
on
the
phone
and
does
not
need
to
be
downloaded
from
the
network
each
time
it
is
called.Themenupromptstheusertoprovidethenecessaryinformation,onepromptatatime.For
instance,foraP2Ptransfer,theuserwillbeaskedtoenterthedestinationphonenumber,theamount
ofthetransfer,andthepersonalidentificationnumber(PIN)ofthesender.Oncealltheinformationis
gathered,itisfedbacktothecustomerforfinalconfirmation.OncethecustomerhitsOK,itissentto
theMPESAserverinasingletextmessage.Consolidatingallinformationintoasinglemessagereduces
messagingcosts,aswellastheriskofthetransactionrequestbeinginterruptedhalfwaythrough.A
finaladvantageisthattheapplicationcanusethesecuritykeysintheusersSIMcardtoencrypt
messagesendtoend,fromtheusershandsettoSafaricomsMPESAserver.
RemovingAdoptionBarriers:FreetoRegister,FreetoDeposit,No
MinimumBalances
Safaricomdesignedtheschemetomakeitaseasyaspossibleforcustomerstotrythenewservice.
Theydesignedaquickandsimpleprocessforcustomerregistration,whichcanbedoneatanyMPESA
retailoutlet.Customerspaynothingtoregisterandtheclerkattheoutletdoesmostoftheworkduring
theprocess.First,theclerkprovidesapaperregistrationform,wherethecustomerentershisorher
name,IDnumber(fromKenyanNationalID,Passport,MilitaryID,DiplomaticIDorAlienID),dateof
birth,occupation,andmobilephonenumber.TheclerkthencheckstheIDandinputsthecustomers
registrationinformationintoaspecialapplicationinhismobilephone.IfthecustomersSIMcardisan
oldonethatisnotpreloadedwiththeMPESAapplication,theclerkreplacesit.Thecustomersphone
numberisnotchangedeveniftheSIMcardis.
SafaricomthensendsboththecustomerandoutletanSMSconfirmingthetransaction.TheSMSgives
customersafourdigitstartkey(onetimepassword),whichtheyusetoactivatetheiraccount.
CustomersenterthestartkeyandIDnumber,andtheyarethenaskedtoinputasecretPINoftheir
choice,whichcompletestheregistrationprocess.Inadditiontoleadingcustomersthroughthisprocess,
retailoutletsexplainhowtousetheapplicationandthetariffsassociatedwitheachservice.Suchagent
supportearlyintheprocessisparticularlyimportantinruralareas,whereasignificantpercentageofthe
potentialuserbaseisilliterateorunfamiliarwiththefunctioningoftheirmobilephone.
WhiletheminimumdepositamountisaroundUS$1.25,thereisnominimumbalancerequirement.
Customerscandepositmoneyforfree,sothereisnoimmediatebarriertotakinguptheservice.M
PESAchargescustomersonlyfordoingsomethingwiththeirmoney,suchasmakingatransfer,
withdrawal,orprepaidairtimepurchase.
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BeingAbletoSendMoneytoAnyone
MPESAcustomerscansendmoneytononMPESAcustomers,includinganypersonwithaGSMmobile
phoneinKenya,whethertheyaresubscribersofSafaricomorofanyoftheotherthreecompeting
networks(Zain,OrangeandYu).Underthisservice,moneyisdebitedfromthesendersaccount,and
therecipient
gets
acode
by
SMS
which
it
can
use
to
claim
the
monetary
value
at
any
M
PESA
store.
Thus,itsanaccounttocashservice,withthereceiversexperiencebeingsimilartohowWesternUnion
workstoday.Thepricingonthisserviceisinteresting:customerspayahigher(roughlytriple)P2Pcharge
whensendingmoneytoanoncustomer,butattheotherendcashingoutisfreeforanoncustomer,
whereasregisteredcustomerspayacashoutfeeofatleastUS$0.30.Sowhypenalizethecustomer
ratherthanthenoncustomer?Safaricomunderstoodthatthesenderhadpowerovertherecipient,so
itchosetoputpressureonthesendertorequiretherecipienttoregisterwithMPESA.Furthermore,
thenoncustomergotagreatfirstexperiencewithMPESAwhenhereceivedmoneyforfree,which
SafaricomhopedwouldconvincethemtoregisterforMPESA.
BuildingTrustintheRetailNetwork
SafaricomrecognizedthatMPESAwouldnotachieverapidadoptionunlesscustomershadenoughtrust
intheMPESAretailnetworkthattheywerewillingtoconductcashin/cashouttransactionsthrough
thoseoutlets.Safaricomemployedseveralmeasurestobuildthattrust.
First,itcloselylinkedtheMPESAbrandtocustomersaffinitywithandtrustinSafaricomsstrong
corporatebrand.AsthemobileoperatorinKenyawithadominantshare(over80%atMPESAslaunch
andscarcelylesstoday),Safaricomwasalreadyabroadlyrespectedandtrustedbrand,evenamonglow
incomecustomers.AsshowninExhibit7below,MPESAretailoutletsarerequiredtopainttheirstore
Safaricomgreen
which
not
only
builds
gives
customers
confidence
that
the
store
is
acting
on
behalf
of
Safaricom,butalsomakesiteasierforcustomerstolocatecashin/cashoutpoints.
Exhibit7:ATypicalMPESARetailOutlet
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Second,Safaricomensuredthatcustomerscanwalkintoanyretailauthorizedoutletandhavea
remarkablysimilarexperience.Thishashelpedtobuildtrustintheplatformandtheoutlets,andgives
customersaconsistentlypositiveviewoftheservice.Safaricommaintainsthiscontroloverthe
customerexperiencebyinvestingheavilyinstoretrainingandonsitesupervision.Safaricomchoseto
centralizethesefunctionsinasinglethirdpartyvendor(TopImage)ratherthanrelyingonitschannel
intermediaries(e.g.
master
agents)
to
cascade
these
functions
to
retail
shops.
A
Top
Image
representativevisitseachoutletatminimumonamonthlybasisandrateseachstoreonavarietyof
criteria,includingvisibilityofbrandingandthetariffposter;availabilityofcashandMPESAelectronic
valuetoaccommodatecustomertransactions;andthequalityofrecordkeeping.
Third,customersreceiveinstantSMSconfirmationoftheirtransaction,helpingcustomerslearnby
experiencetotrustthesystem.TheconfirmingSMSconstitutesanelectronicreceipt,whichcanbeused
indisputeresolution.Thereceiptconfirmingamoneytransferdetailsthenameandnumberofthe
recipientandtheamounttransferred.Thisallowsthesendertoconfirminstantlythatthemoneywas
senttotherightpersonthemostcommonsourceoferror.
Fourth,Safaricomrequiresitsoutletstorecordallcashin/cashouttransactionsinapaperbased,
Safaricombrandedlogbook.Foreachtransaction,thestoreclerkenterstheMPESAbalance,thedate,
agentID,transactionID,transactiontype(customerdepositorwithdrawal),value,customerphone
number,customername,andthecustomersnationalIDnumber.Customersarethenaskedtosignthe
logforeachtransaction,whichhelpsdiscouragefraudandalsogivesagentsawaytoofferfirstline
customercareforcustomersqueryingprevioustransactions.Eachentryinthelogiswrittenintriplicate.
Thetopcopyiskeptbytheretailoutletforhisownrecords,asecondispassedontothestoresmaster
agent,andthethirdissenttoSafaricom.Recallthatallinformationcontainedintheagentlog(except
forthecustomersignature)iscapturedelectronicallybySafaricomwhenthetransactionismadeandis
availabletothemasteragentsviatheirwebmanagementsystem.Hence,themainpurposeoftheagent
logisnotforrecordkeeping,buttoprovidecomforttocustomerswhoareusedtohavingtransactions
recordedonpaper.
SimpleandTransparentPricing
MPESApricingismadetransparentandpredictableforusers.Therearenocustomerchargesfor
theSMSsthatdelivertheservice,andinsteadfeesareappliedtotheactualcustomerinitiated
transactions.Allcustomerfeesaresubtractedfromthecustomersaccount,andoutletscannot
chargeany
direct
fees.
Thus,
outlets
collect
their
commissions
from
Safaricom
(through
their
master
agents)ratherthanfromcustomers.Thisreducesthepotentialforagentabuses.Customerfeesare
uniformnationwide,andtheyareprominentlypostedinalloutletlocationsinthepostershownin
Exhibit8(feesareinKenyanShillings(KSh),whichtradeatabout75shillingstotheUSdollar).
MPESAchosetospecifyitsfeesinfixedcurrencytermsratherthanasapercentageofthetransaction.
Thismakesiteasierforcustomerstounderstandtheprecisecostofeachtransactionandhelps
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themthinkofthefeeintermsofthetransactionsabsolutevalue(e.g.,sendingmoneyto
grandmother).Italsohelpsthemcomparethetransactioncostagainstalternativeandusually
costliermoneytransferarrangements(e.g.,thematatufareplustraveltime).
Exhibit8:MPESATariffStructure
Depositsare
free
to
customers.
WithdrawalsunderUS$33cost
around0.33.Withdrawal
chargesarebanded(i.e.,larger
transactionsincuralargercost)
soasnottodiscouragesmaller
transactions.ATMwithdrawals
usingMPESAareslightlymore
expensivethanataretailoutlet
(40versus33.3).
P2Ptransferscostaflatrateof
aroundUS40.Thisiswhere
Safaricommakesthebulkofits
revenue.Thus,forapurely
electronictransfer,customerspay
morethandoublethanwhatthey
payfortheaveragecash
transaction(17)despitethecost
toprovidebeinglowerforpurely
electronictransactions
than
those
involvingcash.Thisreflectsa
notionofoptimalpricingthatis
lessbasedoncostandmoreon
customerwillingnesstopay:
enablingremotepaymentsisthe
biggestcustomerpainpointwhich
MPESAaimstoaddress.MPESAis
cheaperthantheotheravailable
mechanismsformakingremotepayments,suchasmoneytransferbythebuscompanies,KenyaPosts
Postapayor
Western
Union.19
ItisnoteworthythatMPESAhasmaintainedthesamepricingfortransactionsinitsfirstthreeyears,
despitethesignificantinflationexperiencedduringtheperiod.Thishashelpedestablishcustomer
19Inherfieldresearch,OlgaMorawczynskifindsthatsendingKSh1,000throughMPESAis27%cheaperthanthe
postofficesPostaPay,and68%cheaperthansendingitviaabuscompany.SeeMorawczynskiandPickens
(2009).
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familiaritywiththeservice.However,Safaricomhaschangedthepricingfortwocustomerrequeststhat
donotinvolveafinancialtransaction:balanceinquiries(becausetheinitiallowpricegeneratedan
overlyburdensomevolumeofrequests)andPINchanges(becausecustomerswerefarmorelikelyto
remembertheirPINifthefeetochangeitwashigher).Thevolumeofbothtypesofrequestsdecreased
substantiallyafterthesepricechanges.Asnotedearlier,theSMSconfirmationofatransactioncontains
theavailable
balance,
which
also
helps
cut
down
on
the
number
of
balance
inquiries.
LiquidityofLastResortatBankBranchesandATMs
Fromveryearlyon,MPESAsignedupbanksasagents,sothatanyMPESAcustomercouldwalkintothe
branchesofseveralbankstoconductcashin/cashouttransactions.Oneyearafteritslaunch,MPESA
wentfurtherandpartneredwithPesaPoint,oneofthelargestATMserviceprovidersinKenya.The
PesaPointnetworkincludesover110ATMsscatteredalloverthecountry,givingthemapresenceinall
eightprovinces.CustomerscannowretrievemoneyfromanyPesaPointATM.Todoso,theymustselect
ATMwithdrawalfromtheirMPESAmenu.TheythenreceiveaonetimeATMauthorizationcode,
whichtheyenterontheATMkeyboardtomakethewithdrawal.Nobankcardisneededforthis
transaction.ByaccessingthePesaPointATMnetwork,MPESAcustomerscannowmakewithdrawalsat
anytime,dayornight.
YetMPESAsliquiditysystemisnotwithoutitschallenges.Duetocashfloatconstraints,MPESAretail
outletscannotalwaysmeetrequestsforwithdrawals,especiallylargewithdrawals.Furthermore,the
agentcommissionstructurediscouragesoutletsfromhandlinglargetransactions.Asaresult,customers
aresometimesforcedtosplittheirtransactionsoverafewdays,takingmoneyoutinbitsratherthan
withdrawingalumpsum,addingbothcostandinconvenience.ItalsounderminescustomertrustinM
PESAasamechanismforhighbalance,longtermsaving.UsingbankbranchesandATMstogive
customersasortofliquiditymechanismoflastresortbolsteredthecredibilityoftheMPESAsystem.
4. Execution: GettingtoCriticalMass,Quickly
Withastrongservicedesigninplace,Safaricomthensetaboutdevelopingitsexecutionplan.It
recognizedthatitwouldbedifficulttoscaleMPESAincrementallyasithadtoovercomethree
significanthurdlesthatarecommontoanynewelectronicpaymentsystem,namely:
Adversenetworkeffects:Thevaluetothecustomerofapaymentsystemdependsonthe
numberof
people
connected
to
and
actively
using
it.
The
more
people
on
the
network,
the
moreusefulitbecomes.20Whilenetworkeffectscanhelpaschemegainmomentumonceit
20Ithasbecomehabitualtoillustratenetworkeffectswithreferencetofaxmachines:thefirstsetofpeoplewho
boughtafaxmachinedidntfinditveryusefulastheycouldntsendfaxestomanypeople.Asmorepeople
boughtfaxmachines,everyonesfaxesbecamemoreandmoreuseful.Networkeffectsaresometimesreferredto
asdemandsideeconomiesofscale,toemphasizethatscaleaffectsthevalueoftheservicetoeachcustomer.
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reachesacriticalmassofcustomers,theycanmakeitdifficulttoattractearlyadoptersinthe
earlyphasewhentherearefewusersonit.
Chickenandeggtrap:Inordertogrow,MPESAhadtoattractbothcustomersandstoresin
tandem.Itishardtosellthepropositiontocustomerswhiletherearefewstorestoservethem,
andequallyhardtoconvincestorestosignupwhiletherearefewcustomerstobehad.Thus,
thescheme
needed
to
drive
both
customer
and
store
acquisition
aggressively.
Trust:Customershavetogainconfidenceinthereliabilityofanewsystem.Inthiscase,
customershadtobecomfortablewiththreeelementsthatwerenewatthetimeinKenya:(i)a
paymentsystemthatwasoperatedbyamobileoperator,(ii)goingtononbankretailoutletsto
meettheircashin/cashoutneeds,and(iii)accessingtheiraccountandinitiatingtransactions
throughtheirmobilephone.
Theseproblemsreinforceeachotherintheearlystagedevelopmentofapaymentssystem,creatinga
significanthurdletogrowth.Wesuspectthishurdlehelpsexplainwhymanyothermobilemoney
deploymentsremainsubscale.MPESAovercamethishurdlethroughveryforcefulexecutionontwo
keyfronts:
(i)
Safaricom
made
significant
up
front
investments
in
building
astrong
service
brand
for
M
PESA;and(ii)Safaricomeffectivelyleverageditsextensivenetworkofairtimeresellerstobuilda
reliable,consistentretailnetworkthatservedcustomersliquidityneeds.
AggressiveUp-FrontInvestmentinPromotingtheM-PESABrand
Fromthebeginning,Safaricomsoughttofostercustomertrustinthenewpaymentmechanismand
reliedonexistingcustomerstobetheprimemechanismtodrawinnewcustomers.Thiswasallthe
moredifficultbecauseSafaricomwasintroducingnotonlyanewproduct,butanentirelynewproduct
categorytoamarketthathadlittleexperiencewithformalfinancialservices.Theinternallaunchtarget
forM
PESA
was
about
1million
customers
within
one
year,
equal
to
17
percent
of
Safaricoms
customer
baseofabout6millioncustomersatthattime.21
Nationallaunchatscale.Aftersmallpilotsinvolvinglessthan500customers,22MPESAlaunched
nationwide,increasingthelikelihoodthattheservicecouldreachacriticalmassofcustomersinashort
timeframe.Atlaunch,Safaricomhad750storesandhadmadesuretocoverallofKenyas69district
headquarters.Itwasamassivelogisticalchallengethatledtoagreatdealofcustomerandstore
confusionand,inthefirstmonthsafterlaunch,severaldaysdelaystoreachcustomerservicehotlines.
Userandstoreerrorswerefrequentsinceeveryonewasnewtotheservice.Butthegamblepaidoff.
Logisticalproblemssubsidedafterafewmonths,leavingstrongbrandrecognitionandtopofmind
awarenessamong
large
segments
of
the
population.
The
service
outran
first
year
growth
targets,
quickly
Thisdistinguishesitfromsupplysideeconomiesofscale,whichrefertosituationswhereaveragecostsper
customerfallasvolumeincreases.Davidson(2009)discussesimplicationsofnetworkeffectsformobilemoney.21
SafaricomcompanyresultsfortheyearendingMarch2007.22
Theearliestpilotprojectconductedin2004/05revolvedaroundmicroloanrepayments,andinvolvedthe
CommercialBankofAfrica,Vodafone,FauluKenyaandMicroSave,inadditiontoSafaricom.
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turningnetworkeffectsintheirfavorasnewcustomersbegatmorecustomersandturnedMPESAinto
acompellingbusinesspropositionformorestores.
Anappropriatemarketingmix.Initialmarketingfeaturedandtargetedthewealthiercitydwellerwith
theneedtosendmoneyhome(seeExhibit9a).Thischoiceofthericherurbandwellerastheinitial
customercreated
an
aspirational
image
for
M
PESA
and
avoided
the
impression
that
it
was
alow
value
productaimedatthepoor.Overtime,themarketingmovedfromyoung,upmarketurbandwellerswith
deskjobstomoreordinaryKenyansfromlowerpaidprofessions.
WhileMPESAslaunchwasassociatedwithsignificantupfrontinvestmentinabovethelinemarketing
viaTVandradio,23therewasalsointenseoutreachthroughroadshowsandtentsthattraveledaround
thecountrysigningpeopleup,explainingtheproduct,anddemonstratinghowtouseit.Overtime,as
peoplebecamemorefamiliarwiththeproductandhowtouseit,itwasnolongernecessarytodothis
kindofhandsonoutreach.TVandradiowerelargelyreplacedbytheomnipresentMPESAbrandingat
alloutlets,supportedwithafewlargebillboards.Newerads(liketheoneinExhibit9b)featureageneral
emotionalappeal,withawiderrangeofservicesindicated.
Exhibit9a:EarlyMPESAademphasizingsendingmoney
fromurbantoruralareaslinkingintofamilyandsocialties
Exhibit9b:RecentMPESAadwith
moregeneralemotionalappeal
AScalable
Distribution
Channel
Safaricomunderstoodthattheprimaryroleofthemobilephoneistoenablethecreationofaretail
outletbasedchannelforcashtodigitalvalueconversion.And,forthiscashtodigitalconversiontobe
broadlyavailabletothebulkofthepopulation,ithadtodevelopachannelstructurethatcouldsupport
23Asurveyof1,210usersinlate2008revealedthat70%ofsurveyrespondentsclaimedtheyhadfirstheardabout
MPESAfromadvertisements,TVorradio.FSDT(2009b),p.6.
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thousandsofMPESAstoresspreadacrossabroadgeography.Toachievethis,Safaricombuiltfour
elementsintoitschannelmanagementexecutionstrategy:(i)engagingintermediariestohelpmanage
theindividualstores,therebyreducingthenumberofdirectcontactsithadtodealwith;(ii)ensuring
thatoutletsweresufficientlyincentivizedtoactivelypromotetheservice;(iii)maintainingtightcontrol
overthecustomerexperience;and(iv)developingseveraldifferentmethodsforstorestorebalance
theirstocks
of
cash
and
evalue.
Twotierchannelmanagementstructure.Safaricomcreatedatwotierstructurewithindividualstores
(subagents,inSafaricomsparlance)whodependedonmasteragents(referredtobySafaricomas
AgentHeadOffices[HO]).AgentHOsmaintainallcontactwithSafaricom,andperformtwokey
functions:(i)liquiditymanagement(buyingandsellingMPESAbalancefromSafaricomandmakingit
availabletoindividualstoresundertheirresponsibility),and(ii)distributingagentcommissions
(collectingthecommissionfromSafaricombasedontheoverallperformanceofthestoresunderthem
andremuneratingeachstore).IndividualstoresmaybedirectlyownedbyanagentHOormaybe
workingforoneundercontract.
Incentivizingstores.Retailoutletswillnotmaintainsufficientstocksofcashandemoneyunlessthey
areadequatelycompensatedfordoingso.Hence,SafaricompayscommissionstoagentHOsforeach
cashin/cashouttransactionconductedbystoresundertheirresponsibility.Safaricomdoesnot
prescribethecommissionsplitbetweenagentHOsandstores,thoughmostagentHOspasson70
percentofcommissionstothestore.24FordepositsunderUS$33,SafaricompaysUS13.3intotal
commissions,ofwhichUS7.4goestothestoreaftertax.Forwithdrawals,SafaricompaysUS20to
thechannel,ofwhichUS11.1goestothestore.So,assumingequalvolumesofdepositsand
withdrawals,thestoreearnsUS9.2pertransaction.Assumingthestoreconducts60transactionsper
day,itearnsaroundUS$5.50almosttwicetheprevailingdailywageforaclerkinKenya.
Recallthat
Safaricom
charges
customers
US
33.3
on
around
trip
savings
transaction
(free
deposit
plus
US33.3withdrawal),whichisinfactequaltowhatthechannelgets(US13.3onthedeposit+US20
onthewithdrawal).So,assumingequalvolumesofdepositsandwithdrawals,Safaricomdoesntmake
anymoneyoncashtransactions.Itmerelyadvancescommissionstothechannelwhencustomers
deposit,andrecoupsitwhencustomerswithdraw.BychargingUS40onelectronicP2Ptransactions
(whicharealmostcostlesstoprovide),Safaricomoptedtogeneratethebulkofitsrevenuefromthe
serviceforwhichthereishighestcustomerwillingnesstopay remoteP2Ppayments.
Becausestorerevenuesaredependentonthenumberoftransactionstheyfacilitate,Safaricomwas
carefulnottofloodthemarketwithtoomanyoutlets,lestitdepressthenumberofcustomersper
agent.Instead,
it
maintained
abalanced
growth
in
the
number
of
outlets
relative
to
the
number
of
activecustomers,resultinginanincentivizedandcommittedagentbase.
Maintainingtightcontroloverthecustomerexperience.Safaricomalsorecognizedthatcustomers
needtohaveagoodexperienceattheretailpoints,wherethebulkoftransactionstakeplace.Toensure
thatitmaintainedcontroloverthecustomerexperience,Safaricomdidnotrelyonthebroadbaseof
24Safaricomwantsthesplittobe20%/80%,thuspassingmoreofthecommissiondowntotheretailoutlet.
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agentHOstoperformallchannelmanagementfunctions.Instead(asmentionedabove),itconcentrated
theevaluation,training,andonsitesupervisionofstoresinasingleoutsourcingpartner,TopImage.
Thus,weseethatSafaricomdelegatedthemoreroutine,deskbound,noncustomerfacingstore
supportactivities(e.g.liquiditymanagement,distributionstorecommissions)toalargerpoolofagent
HOs.Atthesametime,throughitscontractwithTopImage,itretaineddirect,centralizedcontrolover
thekey
elements
of
the
customer
experience
(e.g.
store
selection,
training,
supervision).
Developingmultiplestoreliquiditymanagementmethods.ByfarthebiggestchallengefacedbyMPESAstoresismaintainingenoughliquidityintermsofbothcashandefloattobeabletomeet
customerrequestsforcashinandcashout.Iftheytaketoomanycashdeposits,storeswillfind
themselvesrunningoutofefloatwithwhichtofacilitatefurtherdeposits.Iftheydotoomany
withdrawals,theywillaccumulateefloatbutwillrunoutofcash.Hence,theyfrequentlyhaveto
rebalancetheirholdingsofcashversusefloat.Thisiswhatwerefertoasliquiditymanagement.
TheMPESAchannelmanagementstructurewasconceivedtoofferstoresthreemethodsformanaging
liquidity.TwooftheseplacetheagentHOinacentralrole,withtheexpectationthattheagentHOwill
recycleefloatbetweenlocationsexperiencingnetcashwithdrawals(i.e.accumulatingefloat)and
locationswithnetcashdeposits(i.e.accumulatingcash).Wediscusseachofthesemethodsinturn:
1) AgentHOprovidesdirectcashsupporttostoresUnderthisoption,thestoreclerkcomestothe
agentHOsheadofficetodeliveroroffloadcash,ortheagentHOsendscashrunnerstothestoreto
performthesefunctions.
2) AgentHOandstoresusetheirrespectivebankaccounts Underthisoption,ifthestorehasexcess
cashandwantstobuyMPESAefloatfromtheagentHO,thestorewilldepositthecashintothe
accountoftheagentHOatthenearestbankbranchorATM.OncetheagentHOconfirmsreceiptof
the
funds
into
its
account,
the
HO
transfers
M
PESA
e
float
to
the
stores
M
PESA
account.
If
the
storewantstosellefloattogetcash,thestoretransfersMPESAefloattotheagentHO.Theagent
HOthendeposits(ortransfers)moneyintothestoresaccountatthebranchofthestoresbank.
ThestorecanthenwithdrawthecashatthenearestbranchorATM.
3) StoresinteractdirectlywithabankthathasregisteredasanMPESAsuperagentUnderthis
option,theagentHOdoesnotgetinvolvedinliquiditymanagement.Instead,storesopenan
accountwithaparticipatingsuperagentbank.Torebalancetheircash,storesdepositand
withdrawcashagainsttheirbankaccountatthenearestbranchorATMofthebank.Thestorethen
electronicallybuysandsellsefloatinrealtimeagainsttheirbankaccount.Fromastores
perspective,onedrawbackofthebankbasedsuperagentmechanismisthatitcanonlyuseitduring
bankingbusiness
hours.
This
presents
aproblem
for
stores
in
the
evenings
and
on
weekends.
TheefloatcashnexuswillremainthekeyconstrainttothefurtherdevelopmentofMPESAsinceit
requiresthephysicalmovementofcasharoundthecountryandisthustheleastscalablepartofthe
system.
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5.M-PESAsFutureEvolution
TheexperienceofMPESAdemonstrateshowpowerfulapaymentnetworkthatoffersconvenienceat
anaffordablecostcanbeonceacriticalmassofcustomersisreached.Italsoshowsthatachieving
criticalmassrequiresbothaservicedesignthatremovesasmanyadoptionbarriersaspossibleand
significantinvestment
in
marketing,
branding,
and
agent
network
management.
The
Kenyan
experience
alsosuggeststhatseveralcountrylevelenvironmentalfactorsneedtoaligntosetthescenefora
successfulmobilemoneydevelopment,includingthelabormarketprofile(demandforremittances
generatedbyruralurbanmigration),thequalityofavailablefinancialservices,supportfromthebanking
regulator,andthestructureofthemobilecommunicationsmarket(dominantmobileoperatorandlow
airtimecommissions).
Yet,whileMPESAhasbeensuccessfulbeyondwhatanyonecouldhaveimaginedatitslaunch,the
modelstillhassubstantialroomtodevelopfurther.OurwishlistforMPESAisthreefold:(i)the
mainstreamingofMPESAsregulatorytreatment;(ii)pricingthatopensupamuchlargermarketof
microtransactions;
and
(iii)
building
of
amuch
more
robust
ecosystem
around
M
PESA
that
enables
customerstoaccessabroaderrangeoffinancialservices.Weaddresseachofthesebelow,before
offeringsomeconcludingthoughtsonhowMPESAoffersarekindledvisionforachievingfinancial
inclusionindevelopingcountries.
MainstreamingM-PESAsRegulatoryTreatment
MPESAsregulatorytreatmentasapaymentsvehicleneedstobeformalizedsothatitcanbecome
regulatedinthemostappropriateway.Tothisend,theCBKhasbeentryingtogetanewpaymentslaw
enactedbyParliament,butthedrafthasnotyetbeenapproved.TheintentionisforMPESAtobe
coveredin
future
by
regulations
emanating
from
this
payments
law.
The
CBK
is
also
in
the
process
of
finalizingagentbankingregulationswhichwouldallowcommercialbankstouseretailoutletsasa
deliverychannelforfinancialservices.Banksarequitereasonablycomplainingthattheycouldnot
replicatetheMPESAservicethemselvessincetheyarenotcurrentlyallowedtoundertakecustomer
transactionsthroughagentnetworksontheirown.Webelievethereshouldbealevelplayingfield,so
thatbothbanksandMPESAcanoperatesuchagentnetworks.
PricingthatEnablesSmallerPayments
MPESAscurrentpricingmodelisnotconduciveforsmalltransactions.AUS$10P2Ptransferplus
withdrawal,forexample,costsaround7percentofthetransactionsize(US0.40forthetransferplus
US0.33forthewithdrawal).WeseetwoadvantagestoadjustingMPESAscurrentpricingmodelto
makeitworkforsmallerdenominationtransactions:
Itwouldmaketheserviceaccessibletoapoorersegmentofthepopulation,forwhompricingis
nowtoohighgiventheirtransactionalneeds.ThiswouldallowSafaricomtomaintaincustomer
growthoncesaturationstartstosetinatcurrentpricing.
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ItwouldallowcustomerstouseMPESAfortheirdailytransactionneeds,andinparticularto
saveonadailybasiswhentheyarepaiddaily.
Areductionincustomerpricescouldcomeaboutinseveralways:
Forelectronic
transactions,
the
current
P2P
charge
of
US
40
allows
for
substantial
scope
for
pricereductions.Butletsbecareful.Thereisacompellinglogicbehindthecurrentmodelof
extractingvaluefromremotepayments(forwhichthereissubstantialcustomerwillingnessto
pay),whilemaintainingtightpricingoncashtransactions(forwhichcustomersarelesswillingto
pay).ButwedobelievethereisroomfortranchingtheP2Pfeesothatthepriceworksfor
smaller(e.g.daily)transactions.
Forcashtransactions,onewaytoenablelowerfeeswouldbetocreateacategoryofstreet
levelsubagents,characterizedbylowercostsandcommissionsthanstorebasedagents.Sub
agentswouldbeakindofesusucollector,operatingwithsmallworkingcapitalbalancesin
ordertoaggregatesmallcustomertransactions.SubagentswouldusenormalMPESAretail
outletsto
rebalance
their
cash
and
M
PESA
stored
value.
The
key
principle
here
is
that
segmentationofcustomersneedstogohandinhandwithsegmentationofagents.
LinkingwithBanksandotherInstitutionalPartnerstoOfferaFuller
RangeofFinancialServices
WhilesomecustomersuseMPESAasasavingsdevice,itstillfallsshortofbeingausefulsavings
propositionformostpoorpeople.AccordingJanuary2009CBKauditofMPESA,theaveragebalanceon
MPESAaccountswasaroundUS$3.Thisispartlyalargenumberproblem: if900,000peopleusedM
PESA
to
save,
that
would
only
be
10
percent
of
users
and
their
savings
would
be
diluted
within
an
averagesavingsbalance.Butthefundamentalproblemisthatthereisstillalotofconversionof
electronicvaluebackintocash,sayfollowingreceiptofadomesticremittance.Weattributethistoa
combinationoffactors:
Lackofmarketing.SafaricomdoesnotwanttopubliclypromotethesavingsusageofMPESA
forfearofprovokingtheCentralBankintotighterregulationofMPESA.
Customerpricing.ThereisaflatfeeofaroundUS33forwithdrawalsunderUS$33,which
meansthatsmallwithdrawalscarryalargepercentfee.
Productdesign.MPESAworksverymuchlikeanelectroniccheckingaccount,anddoesnot
offerstructured
saving
products
which
may
help
people
build
discipline
around
savings.
Inflation.MPESAdoesnotpayinterest.Inanenvironmentwith15percentinflation(duringits
firstfullyearofoperationin2008),thismaybetooonerousforsavings.
Trust.DepositsarenotsupervisedbytheCentralBank.Andunlikepayments,wheretrustcanbe
validatedexperientiallyinrealtime,savingsrequirestrustoveralongerperiodoftime.
Privacy.Peoplemaywantmoreprivacyintheirsavingsbehaviorthananagentprovides.
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Excessliquidity.16,000cashinpointsarealso16,000cashoutpoints.TheubiquityofMPESA
agentsmaymakeittooeasyforcustomerstocashouttheirfunds,thuslimitingtheirabilityto
accumulatelargebalances.
RatherthanexpectingSafaricomtodevelopandmarketrichersavingsservices,webelievethatMPESA
shouldsupport
savings
propositions
by
linking
into
banks.
M
PESA
would
then
become
amassive
transactionacquisitionnetworkforbanksratherthananalternativetothem.Safaricomisbeginningto
connectwithbanks.InSeptember2009,forexample,FamilyBankconnectedtoMPESAtoallowtheir
customerstotransfermoneyfromMPESAtotheirFamilyBankaccount(usingMPESAsbillpay
function).ThisisfollowingasuccessfulpilotofloanrepaymentsviaMPESAsbillpayfunction.
MPESAwouldalsobenefitfromestablishingfurtherlinkageswithinstitutionsbeyondbanks,suchas
billers,distributors,andemployers.BypromotingMPESAasamechanismfordistributingsalariesand
socialwelfarepayments,enablingpaymentsacrosssupplychains,andpayingbills,theneedforcashin
andcashoutwouldbeminimized,and,asaresult,akeycomponentoftransactioncostscouldbe
reduced.We
also
suspect
savings
balances
would
be
higher
if
people
received
payments
directly
into
theiraccountratherthanincash,andiftheyhadmoreusefulthingstheycoulddowiththeirmoneyin
electronicform.
Concludingthoughts:HowM-PESAcanreinvigoratevisionsaround
financialinclusion
Imagineaworldwherebanksarenowherenearwhereyoulive.Thenearestbranchis10kilometers
away,butittakesyoualmostanhourtogettherebyfootandbusbecauseyoudonthaveyourown
wheels.Withwaitingtimesatthebranch,thatsaroundtripoftwohoursaquarterorsoofyour
workingdaygone.Andthebusfareisonly50cents,butthatsonequarterofwhatyoumakeonagood
day.Soeachbankingtransactioncostsyoutheequivalentofalmosthalfadayswages.Itwouldbelike
anATMchargingussomethinglike$50foreachtransaction,givenwhatweearn.
Then,imagineaworldwithoutcreditinstrumentsorelectronicpayments.Nochecks,nocards,no
moneyorders,nodirectdebits,nointernetbanking.Allyourtransactionsaredoneincashor,worse,by
barteringgoods.Allexchangesarephysical,persontoperson,handtohand.Considerthehassleand
theriskofsendingmoneytodistantrelatives,businesspartners,orbanks.
Howwouldyouoperateinsuchaworld?Arecentbook,PortfoliosofthePoor,hasdocumentedhow
poorpeople
cope.
How
they
save
to
push
some
excess
money
from
today
to
tomorrow,
how
they
borrowtopulltomorrowsmoneytofundsomeneededexpensetoday.Youstoresomecashinthe
hometomeetdailyneeds,youparkitwithatrustedfriendforemergencies,youbuyjewelrybecause
thatrepresentsafutureforyourchildren,youpileupsomebricksforthedaywhenyoucanbuildan
extraroominyourhouse.Youmakeregularcontributionstoasavingsgroupwithacircleoffriendsto
buildupapot,andonedayitwillbeyourturntotakethatpothometobuynewclothes.Youalso
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borrowfromfriends,seekadvancesfromyouremployer,pawnsomeofyourjewelry,andgotothe
moneylender.
TheauthorsofPortfoliosofthePoordocumentsomepoorfamiliesacrossIndia,BangladeshandSouth
Africausingupto14differentmechanismstomanagetheirfinanciallives.Theyhavefewoptions,but
youneed
to
deploy
all
your
ingenuity
to
use
them
all,
precisely
because
none
are
very
good.
Some
are
notverysafebecauseoftheirsheerphysicality.Ifyousavebystoringyourgrainorbuyinggoats,when
yourvillagehitshardtimesyoumaynotbeabletofindreadybuyersforyourgrainorgoats.Forget
aboutgettingloansfromneighborsduringhardtimes.Thelocalmoneylenderrunsaquasimonopolyin
thevillagebecauseitistoocostlyforyoutogotoothermoneylendersinothervillages,andinanycase
theydontknowyouthere.Soyouenduppayingdearlyforaloan.
Weestimatethatover2billionpeopleneedtocopewithsuchcircumstances.Thelackofgoodfinancial
optionsisundoubtedlyoneofthereasonswhypoorpeoplearetrappedinpoverty.Theycannotsustain
orevenaspiretohigherincomebecausetheyarenotabletoinvestinbetterfarmingtoolsandseedsto
enhancetheirproductivity,startamicroenterprise,oreventakethetimetosearchforbetterpaying
employmentopportunities.Theirincomeisvolatile,oftenfluctuatingdaily,sowithoutreliablewaysof
pushingandpullingmoneybetweengooddaysandbaddaystheymayhavetofacethestarkdecisionto
pullthekidsoutofschoolorputlessfoodonthetableduringbadpatches.Andwithoutgoodfinancial
toolstheymaynotbeabletocopewithshocksthatsetthembackperiodically.Mostoftheseshocksare
foreseeableifnotentirelypredictable:adrought,illhealth,lifecycleeventssuchasmarriageanddeath.
Cashisthemainbarriertofinancialinclusion.Aslongaspoorpeoplecanonlyexchangevalueincash
or,worse,physicalgoodstheywillremaintoocostlyforformalfinancialinstitutionstoaddressin
significantnumbers.Collectinglowvaluecashdepositsandredeemingtheirsavingsbackintosmall
sumsofcashrequiresacostlyinfrastructurewhichfewbanksarewillingtomakeextensiveinlow
incomeor
rural
areas.
But
once
poor
people
have
access
to
cost
effective
electronic
means
of
payments
suchasMPESA,theycould,inprinciple,beprofitablymarketablesubjectsbyarangeoffinancial
institutions.
MPESAitselfdoesnotconstitutefinancialinclusion.Butitdoesgiveusglimpsesofacommercially
sound,affordableandeffectivewaytoofferfinancialservicestoall.
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