Kenya’s M-Pesa

So, let’s give credit to whom credit is due! When it comes to easy money transfer, you’ve got to doff your hat to Kenya’s “M-Pesa,” the world’s most developed mobile money system. The “M” in M-Pesa is an abbreviation for “Mobile,” while “Pesa” simply means money in Swahili. So, M-Pesa literally means Mobile Money. Many […]

So, let’s give credit to whom credit is due! When it comes to easy money transfer, you’ve got to doff your hat to Kenya’s “M-Pesa,” the world’s most developed mobile money system. The “M” in M-Pesa is an abbreviation for “Mobile,” while “Pesa” simply means money in Swahili. So, M-Pesa literally means Mobile Money.
Many of the world’s poor, in Asia and Africa, don’t even have bank accounts, credit cards, or debit cards; but they have the same needs (as wealthier folks): to buy stuff, send money to relations and friends in far-away places, and to collect money that might have been sent to them. M-Pesa makes this possible, requiring no more than a basic Nokia phone and a valid ID.
In addition to the simplicity of not needing a bank account or credit/debit cards, the charges for money transfer via the M-Pesa model are very low compared to those from commercial banks. The extra savings are obviously quite attractive for struggling, low-wage, migrant earners. The service is also much faster compared to those associated with traditional banks. These advantages can explain why the World Bank might be encouraging mobile money transfer organizations. In fact, it has been rumored that the World Bank will be providing financial assistance to Bangladesh in setting up a mobile remittance system whereby the recipient can be sent an SMS (on her phone) containing a code that she can use to obtain money at specially-designated Automated Teller Machines (ATMs). Again, no bank accounts are needed.
Thus, with the M-Pesa-type mobile money transfer model, the responsibility of working with a bank shifts to the management of the money transfer business, who has to somehow connect to a bank, the same way that Western Union or MoneyGram operators need to work with a bank.
The M-Pesa mobile money transfer model should be contrasted with the models that many banks in developing countries use. This distinction represents a source of confusion with regards to the use of the phrase “mobile money.” Take Guaranty Trust Bank (GTB) in Nigeria as an example. Mobile money, as per GTB, basically pertains to using your mobile phone to remotely manage the account you have with the bank! This is how GTB describes its services: “Mobile Money is a convenient, secure and affordable way to send money to friends and family from your mobile phone. With Mobile money, all phone users can transfer funds to any recipient in Nigeria and also pay for goods.” Some of the “mobile money” services offered by GTB include: airtime purchase (topping-up, that is), cash deposits into your mobile wallet from your GTB account that has been linked to the wallet or via Quickteller using debit cards issued by other banks, card-less cash withdrawals from GTB ATMs, money transfers to any recipient (both mobile money subscribers and non-subscribers), balance enquiries, bill payment, and payment for purchases at selected merchant locations. Needless to say that the bank approach, as exemplified by GTB’s, will cost you much more, in addition to the requirement that you have a bank account.
Kenya’s M-Pesa offering has gone international, and as mentioned earlier in this article, it is considered the most developed mobile payment system in the world. With a credible national ID or passport, you can deposit, withdraw, and transfer money quite easily with a mobile device. The system also provides micro-financing services for Safaricom and Vodacom, which are the largest mobile network operators in Kenya. You’ll even like the manner in which M-Pesa came to be: from a student software development project in Kenya (in April 2007). With M-Pesa, you can deposit  your money into an account stored on your cell phones, send balances using SMS to other users (including sellers of goods and services), and redeem deposits for regular money. You pay a small fee for sending and withdrawing money using the service. M-Pesa has spread quickly worldwide, and is also the most successful mobile phone-based financial service in the world.   By some accounts, there were over 17 million registered user accounts for M-Pesa in Kenya in 2012. The continuing success of M-Pesa in Kenya is believed to be due to the affordable service charges and the limited involvement of a bank.
M-Pesa is now used throughout the developing world – Afghanistan, Kenya, India, South Africa, and Tanzania. In Afghanistan, Vodafone partnered with Roshan, Afghanistan’s primary mobile operator, to provide the local brand of M-Pesa in 2008. The deployment in Afghanistan helped the country reduce the incidence of ghost workers (police officers) and fraud. The service also includes limited merchant payments, peer-to-peer transfers, loan disbursements and payments. M-Pesa was launched in South Africa in 2010, although tough regulations in that country might have stifled the potential of M-Pesa to dominate the market there. M-Pesa also found its way into the Indian market in 2008, where it is locally referred to as M-Paisa, (the paisa is a subunit of the Indian rupee), and it seems to be striving there. The success of Kenya’s M-Peas has generated a competitive environment, to the tune of almost 200 similar products, including an effort by MoneyOnMobile, an Indian start-up that is working hard to give M-Pesa a run for its money.
The main idea in this article is that Kenya’s M-Pesa mobile money system is the most developed in the world, with users in many developing nations.