Why Kenya’s M-Pesa won’t work anywhere else

It’s the runaway success story: From a standing start just four years ago, over 15-million Kenyans now use the M-Pesa mobile money service to transact. Billions of Kenyan shillings have been moved through the system. It’s this success which leads to M-Pesa being held up as a case study of mobile payments in emerging markets (try researching mobile payments without reference to M-Pesa!). It’s also made financial services companies and rival operators salivate.

True, the growth rates are staggering. There are only 40-million people in Kenya, which illustrates just how many economically active adults in that country use M-Pesa (practically all of them).

This success has led to Vodafone (majority owners of Safaricom) launching M-Pesa in other markets. To date, it has been rolled out in neighbouring Tanzania, Afghanistan as well as South Africa, with pilots in other countries including India. Try as it might (with millions of dollars of advertising and promotion), Vodafone simply cannot replicate M-Pesa’s success in any other market.

Its high-profile launch by Vodafone group-company Vodacom in South Africa, in partnership with Nedbank, has faltered to the degree that it has had to completely reinvent its offering.

M-Pesa flourished in Kenya due to conditions which aren’t easy to replicate simply with just a management team and a budget.

M-Pesa got traction as a means for workers in urban areas to send money home to their family. (Originally the service was designed for microfinance borrowers to receive and repay loans using Safaricom’s airtime reseller network.) “Sending money home” was a killer use case — creating a user base that grew exponentially.

The distribution network makes it all work — it’s far easier to find one of 25 000-odd agents, than it is to find one of 1 000 bank branches. Add to this the fact that Safaricom’s airtime resellers are agents — real people — not faceless banks. Safaricom also managed to successfully leverage its trusted brand. The low transaction fees for using M-Pesa was a further attraction.

None of the reasons why M-Pesa is unbelievably successful are technology-related. Sending money via a mobile platform is not particularly difficult. That explains the hundreds (thousands?) of competing services in every market worldwide.

Rival operators in Kenya have launched similar services (Airtel Money, Orange Money, and Essar yuCash), with dozens of other players also active in the market. With all the attention, nearly every operator on the continent has some sort of mobile money offering.

M-Pesa’s success will not, however, be repeated in other markets, and definitely not in South Africa.

Interestingly, Vodafone understands the competitive advantage it needs in order to launch M-Pesa. Executives have, in private conversations, been clear that it’s all about distribution. While it aims to blanket new markets with agents, distribution costs money and it takes time to build.

We’ve seen this first hand in South Africa, where it only has 3 000 outlets, almost entirely comprised of Vodacom shops, Nedbank ATMs and Pep stores. Fairly steep transaction fees aren’t exactly causing customers to rush to the service either. Vodacom is shifting focus to higher LSM groups, hoping to broaden its appeal, but tough regulatory hurdles make the service far less seamless than it ought to be.

Banking legislation isn’t unique to SA — all operators and banks on the continent will continue to grapple with complex regulations as they aim to convert the unbanked into banked.

It’s time for new services to emerge, instead of a template-style rollout by multi-nationals. In South Africa, we’re seeing competing offerings attract users. For example, since launch over R800-million has been sent via FNB’s eWallet. On average, R2-million is being sent daily, and over 500 000 eWallets have been created. Other unexpected players are also capturing market share. Shoprite Holdings has seen a 52 percent increase in money transfers at its Money Market counters in the past year, and is quietly eyeing the financial services space.

Distribution remains king. And that also means scale, something hardly ever understood by new entrants.

Bring on true innovation.