Since 2007 M-PESA enables Kenyan to deposit, withdraw and transfer money using their mobile phone.
From the 1990’s onward, the mobile phone technology was quickly diffused on the African continent and now over 60% of the population have mobile coverage. The mobile phone is an eminent and helpful feature of the African day-to-day life where the current state of infrastructure severely hinders communications.
Phone companies have long allowed individuals to send purchased air-time credit to other users. The next logical step occurred when people started to exchange the received air-time to local brokers in return for cash: air time became an informal currency.
A team of developers working for Vodafone, the British multinational telecommunications company decided to formalise this “air time credit swapping”. In Kenya, they used Safaricom, a local mobile network operator they own, to launch M-PESA in 2007. It was baptised thus because the Swahili word “pesa” means “money” in English.
Three basic services
At the beginning, M-PESA provided three basic services: to deposit, to withdraw and to transfer money using their mobile phone. In order to enjoy these services, people need to go to an M-PESA agent location where they can create a virtual wallet. The registration is free and the client is only required to show a valid identity document.
To deposit cash on his “wallet”, the client gives the agent his phone number and the money. The transaction is processed by the agent. The cash is exchanged for M-PESA virtual money called “e-float” and the client receives a confirmation via a text message on his phone. To withdraw cash, the client needs to select this option on his phone and enter the agent number. The agent waits until he receives confirmation via a text message before handing the requested amount of money to the client.
M-PESA also allows users to send money to other people’s phones (both M-PESA users and unregistered users). Unregistered recipients receive a text message containing an M-PESA voucher number they can use to withdraw cash at an agent location. Every transactions are logged in a book possessed by the agent and signed by the client who must show a valid identity document in order to proceed. All deposits are free but withdrawals and transfers are charged. Transactions with unregistered users are more expensive.
An on-going success story
Simple, practical and useful, M-PESA rapid growth can only be described as a success. In two years (from 2007 to 2009) more than 7 million of people used M-PESA among which more than 70% were registered users. In 2009, an average of US$1.96 million was transferred through M-PESA every day, mostly in small amounts. The success can also be measured by the number of agents: 18,000 in 2010 (they were 450 in 2007).
The system is still growing in terms of services and territories. First, M-PESA provides new services to its customers such as directly buying goods, paying bills, paying salaries, and so on using only their mobile phone. Cash-less transactions, while still less numerous, are becoming more important in the overall system. They can also withdraw money from selected ATMs. Besides, 75% of users declared in a survey that they also use it to save money despite the fact that the system does not provide interest.
Secondly, M-PESA has been launched in other countries such as Tanzania (2008), South Africa (2010), India (2013) and Romania (2014). In 2014, M-PESA was present in 10 countries. It has attracted a lot of attention from journalists, scholars and industrialists. The world has its gaze turned toward the M-PESA experiment, trying to analyse the phenomenon and dissect the reasons behind this success.
The reasons behind the success
Many factors explain this on-going success. First of all, M-PESA provides a service very much needed. Indeed, people living in the country-side depend on the money sent by the members of their family that live in the city to get by. Before M-PESA, some people use to go down the country to visit their family and bring them some money. However, Kenya is a country plagued with armed violence and it is safer not to carry cash while commuting.
Secondly, the service can be used by a wide range of people. It is affordable, it is less expensive than Western Union or commercial banks and the minimum amount required to deposit, withdraw or transfer is very low (US$0.10). It also managed to build trust among its customers by launching a campaign to recruit a wide network of agents such as local merchants who beneficiated from the popular mistrust towards commercial bankers due to ethnic disputes. The customers’s trust is reinforced by the fact that M-PESA e-float is backed 100% by deposits held at three commercial banks in Kenya
Last but not least, Safaricom was the Kenyan first mobile provider before M-PESA was launched.
Looking back at the M-PESA success story is a very interesting journey providing us with insight on many issues such as how to formalise informal economy habits, how to provide a low-cost transactional platform to low-income customers and how virtual money can play a significant part role in all this.
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