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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.

Author | Hilton Tarrant: Columnist

Hilton Tarrant: Columnist
Hilton Tarrant is production editor at Moneyweb. His main focus is project management for the listed company’s local and international websites, and contributes to their strategic direction. From time-to-time, he also fills in for Alec Hogg on the SAfm Market Update with Moneyweb radio programme. In between, he covers... More
  • Anonymous

    I have to agree with the article, but I would not completely write off M-Pesa to be successful elsewhere. It has had some modest success in Tanzania and Afghanistan, but I believe what is holding Mpesa back is that they have failed to build on their initial success and come up with more exciting products. Although Mpesa is touted as a Kenyan innovation, the intellectual property actually belongs to Vodafone, a UK telecom giant. Vodafone has refused to release the API for Mpesa and perhaps shutting doors to many would-be innovations based on the platform. NFC will in a few years steal the thunder from Mpesa (if it hasn’t done so already) and we haven’t heard any moves towards that direction in Kenya. Mpesa will at the end of this year appear quite rudimentary technology if they do not innovate.

  • One of your contributors, Erik Hersman, hit on what I think is a reason M-Pesa hasn’t taken off elsewhere – the management of the product and the nimbleness with which it was launched, both of which were exploited in Kenya before Vodafone took notice of the potential behind M-Pesa’s success. In addition, contributing to M-Pesa success was a set of unique circumstances to Kenya at its launch – a low-tech SMS approach, the culture of sending money from urban wage earners to rural subsistence workers, the largely un-banked rural population, etc.

    Indeed, from other accounts it was originally developed as a micro-payment method, and only when the ease of transactions was noticed was it channeled into being a money transfer product. Once it gained traction, there was no escaping its ubiquity and subscribers adopted it wholesale.This unique set of cultural circumstances – what Michael Joseph (MJ), the pioneering CEO of Safaricom (Vodafone’s subsidiary in Kenya) called ‘peculiar calling habits’ of Kenyans at the time – made for a catalyst for M-Pesa’s success. I feel that such cultural norms are what need to be closely examined, and the product adjusted for in each of the markets where Vodafone tries to replicate the M-Pesa success. I have little doubt that if MJ has his way, he’s advising both Vodafone and the World Bank to take into account these nuances in spreading mobile banking to Vodafone and World Bank member states (the large differences in the two sets of members notwithstanding).

  • Odhuno Were

    I just completed writing about the impact of Mpesa in Kenya after 3 years of research. The bottom line is that every country is unique and to expect the level and scale of success Mpesa has enjoyed in Kenya to be replicated in other countries is foolhardy. Kenyans are unique when it comes to innovations. There are many factors that come into play, Culture, business drive, existing money transfer gaps, geopolitical issues of the day etc. I also don’t expect Vodafone to use the same template they have used in Kenya in other countries. South Africa and Tanzania are even more unique because of the education levels of the poor majority as compared to Kenyans.

    It s true that distribution was key to Mpesa’s success but even in places where there are few Mpesa agents, people are still more inclined to choose to walk to an Mpesa agent instead of using the more expensive banks. So, other advantages also played a key role in its success in Kenya.

    I am a bit biased because I am Kenyan but I think that Mpesa’s success was mainly because of Kenyans involvement. Kenyans are generally innovative and if other countries want to succeed, they should look at why we are innovative. Perhaps that is the key to emulating Mpesa’s success elsewhere.

  • Great article Hilton!

  • Jon Hoehler

    One of the things not considered in M-Pesa’s low up take of the service in South Africa is simply the name. The factors mentioned above have obviously impacted on the growth of M-Pesa. 

    But in reality the word PESA is Swahili for “MONEY”… In South Africa, the PESA has no relevance in South Africa which i think in its most basic form is contributing to the slow growth cause the average South African doesn’t know what the product is… M-PESA = M-MONEY…

    I know this is probably an over-simplification of the over issue, but i think it contributed greatly to the issues experienced with the products update in South Africa

  • Chechon287

    Jon M stands for Mobile, Pesa means Money. Therefore M-Pesa means Mobile Money

  • Yet again consider the regulatory environment. mPesa foray into Kenya was heralded by a vacuum in financial market’s awareness of the status of money transfer. the central bank  of kenya easily granted trade licenses allowing mobile money transfer, probably underrating the potential of the medium. it’ belatedly that more stringent regulatory frameworks are being set, with proprietary  banks crying foul since a huge proportion of their revenue streams has been irrevocably redirected. meanwhile, they are playing catch up, launching own mobile money transfer / payment gateways riding on the mpesa wave and AGENCY BANKING. this scenario places banks and regulators in other countries on high alert, and mobile money transfer is ever eyed with suspicion. The Kenyan scenario probably hints that stringent legal and regulatory frameworks are a huge obstacle to innovation.

  • Pingback: MPesa: What does Kenya’s mobile darling look like five years on? [Infographic] | memeburn()

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