Mobile Money in Emerging Markets: An Inside Look at M-Pesa

by Rahim Kanani | rahimkanani | Rahim Kanani Media Group, Inc
Wednesday, 26 November 2014 15:13 GMT

* Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

“M-Pesa gives people who would otherwise be unable to access traditional financial services a simple, reliable and immediate way of moving and saving money,” explained Michael Joseph, Vodafone Group Director of Mobile Money. In an in-depth interview, we discussed the founding of M-Pesa, its evolution over the last 8 years and why it’s been so successful, challenges along the way, and much more. 

Michael Joseph is employed by Vodafone Group Services Limited as the Director of Mobile Money and is responsible for leading the strategic growth and development of M-Pesa. Michael is also Vodafone’s Strategic Advisor appointed to the Boards of Vodacom Group South Africa, Vodacom Tanzania, Vodacom Mozambique and Safaricom Limited. 

How did the idea of M-Pesa first come about?

Originally developed by Vodafone, with the Department for International Development’s (DFID) support, M-Pesa was launched in March 2007 by Safaricom in Kenya. The initial idea was to enable microcredit disbursement and repayments to be made simply and easily for people who would not ordinarily have access to a bank account. However, a number of focus groups showed that there was a need for simple person-to-person transfers, given that working members of families tended to move to Nairobi or other major cities to work and would then seek to transfer money back to family members living in rural villages. M-Pesa was commercially launched with the simple message of “Send Money Home” - and customers quickly adopted the service. From these small beginnings, M-Pesa is now available in Kenya, Tanzania, India, Egypt, South Africa, Mozambique, the Democratic Republic of the Congo (DRC), Lesotho and Romania. More than 18.5 million active users have used the service in the last 30 days.

Over the late eight years, how has M-Pesa evolved?

M-Pesa was initially launched in Kenya with basic functionality, such as person-to-person transfers and airtime purchase. Since then, the service has evolved to offer many more services, such as enabling the payment of bills, salary disbursements, international money transfer and merchant payments. Over the past 18 months, M-Pesa has also facilitated access to traditional financial services, such as savings and loans provided by the Commercial Bank of Africa.

Why do you think M-Pesa has been so successful?

M-Pesa gives people who would otherwise be unable to access traditional financial services a simple, reliable and immediate way of moving and saving money. It has met a longstanding demand that the traditional banking infrastructure and business model has not been able to address.

Our commercial success is attributable to a number of key factors, including:

- a good distribution network: it is essential that customers are able to access their cash when they require

- trust in the brand: customers need to understand and trust the company to look after their money

- strong and supportive senior management

Our success has been greatest where regulators understand how mobile money can enable financial inclusion, economic growth, and empowerment and have, in turn, sought to create a regulatory environment that can enable these benefits.

At the same time, what are some of the challenges you've overcome over the years?

One of the key challenges is the regulatory environment. We try to work closely with the regulators to find the right balance between protecting against risks, such as money laundering, and ensuring mobile money is accessible to those people who can benefit from it. There are a number of components to enabling regulation. The service provider should be licensed directly, regulated by the Central Bank, and have permission to offer a range of mobile money services. Regulation should also be proportionate to the risks involved. A good example of this is ensuring that the documentary requirements to open an account are calibrated to the transaction limits on the account. The uptake of mobile money has been greatest in those markets where regulators have taken steps like these, while maintaining a robust and direct dialogue with the companies on the ground providing the service.

How would you like to see M-Pesa evolve over the next 5 to 10 years?

I would like to see M-Pesa continue to grow. Going forwards, the use of M-Pesa in certain sectors such as health, education and agriculture could make a great difference to people’s lives. For example, using mobile money to undertake simple propositions like payments within a value chain and more complex propositions, such as the distribution of agricultural subsidies and enabling access to medication and medical services.

Finally, looking at the mobile payments sector more broadly in the developing world, what strikes you as two or three of the most important trends?

Given that M-Pesa is focused on emerging markets, I have focused my answer on this segment within the mobile money space. In general, the continuing advances in technology will feature heavily in the important trends over the next few years. Smartphone penetration is still low in emerging markets. However, the advent of new low-cost smartphones will change the landscape over the coming years and mobile money operators will need to adapt to this new development.

Outside of the technology space, I believe that interoperability in the mobile money space will be positive, but the timing and scope will matter considerably. Interconnecting mobile money accounts in markets can bring benefits to customers by extending networks and facilitating the uptake of the service by merchants. However, the impact of interoperability will be greatest in mobile money markets that are mature. In part, this is because that is where regulators and operators are best placed to manage the complexity and risks associated with cross-provider transactions. I am less convinced about the benefits of agent interoperability, which is likely to undermine competition by encouraging free rider behaviour. Our agents are not exclusive to M-Pesa, hence, mobile money providers who want to compete in this space can do so by investing in their distribution networks. Such investments have been critical to the success of M-Pesa over the last seven years and will continue to define our approach in the years to come.