[Dave Birch] The M-PESA mobile money transfer scheme in Kenya is, as is well-known to Tomorrow’s Transactions readers, an astonishing success. It will be a business school case study for years to come and I am sure that it will be come to be seen as what futurologists call a “weak signal for change” to a new monetary order. Astonishing? Yes. M-PESA launched in 2007 and last year handled it $10 billion. The scheme, which allows people to deposit and withdraw cash from accounts associated with their mobile phone numbers has something like 16 million users (more than two-thirds of the adult population) and 30,000+ agents. To understand these numbers in context, note that it took banks in Kenya a century to create a mere one thousand bank branches, 1,500 ATMs and a hundred thousand credit card customers.

M-PESA is so important that its origins and trajectory need to be recorded and reported from many perspectives. I was delighted to see a recent addition to the literature in the form of a book. In “Money, Real Quick – The story of M-PESA”, Tonny Omwansa and Nicholas Sullivan tell its story. It’s a super read if you’re new to the topic, explaining the history and the people involved, and is packed with potted case studies that clearly illustrate the magnitude of the impact of M-PESA on Kenyans and (always my favourite) the unexpected consequences of its introduction.

The first hero of the story (in my eyes, anyway) is Nick Hughes. Nick was then Head of Social Enterprise at Vodafone which owned 40% of Kenya’s Safaricom. Safaricom was the market leader in Kenya, with just over half the market. Nick had had the idea of using mobile phones to make the distribution of microfinance loans in Africa more efficient and he submitted a proposal to the UK Department for International Development (DFID) for matching funding. This was granted back in 2003, and M-PESA was born. Nick then brought in what the book refers to as “UK-based consultants” to develop the idea. Modesty forbids me from mentioning who these midwives to monetary revolution were (oh, all right then, it was Consult Hyperion).

The second hero of the story is Susie Lonie, also from Vodafone. Susie had been working on mobile commerce in the UK, and in 2005 she was sent to Nairobi to get the M-PESA pilot up and running. She combined first-class project management skills with real vision, and together with Nick steered the system from a pilot that could so easily have run out of control, such was the popularity of the system once it launched, to the launch of a genuinely new national payments scheme in 2007. By last year…

Local transactions by Kenya’s mobile money service, M-Pesa currently exceed transactions made by Western Union globally, the International Monetary Fund (IMF) reports.

[From Local transactions by Kenya’s mobile money service, M-Pesa exceeds Western Union’s global transactions – The Next Web]

That is a truly amazing growth curve from Nick and Susie’s pilot to national powerhouse in less than five years. I should say, incidentally, that it isn’t only me who sees Nick and Susie as heroes. In 2010, “The Economist” magazine gave them its Social and Economic Innovation award:

Mobile money-transfer services have proven a huge success in Kenya and several other developing countries. To mark this fact, The Economist today announces that Nick Hughes and Susie Lonie will jointly receive the Social and Economic award at its forthcoming Innovation Awards ceremony for their outstanding contributions in this field.

[From Social and Economic Innovation Award Winners 2010 | Economist Conferences UK]

When the system went live it was immediately apparent that the market was using it in ways that had not been part of the original business model. In particular, businesses began to use it. They started to deposit cash (as a kind of “night safe”) as well settling transactions and paying wages. Now there are some 600 businesses in Kenya accept payments through M-PESA. These include the national airline, the power utility and insurance companies.

Customers travelling on British Airways can now make payments for their tickets and ticket changes in Kenya through the mobile money platform (M-Pesa) thereby affording customers a quicker and more convenient way to make payments.

[From BA to use Safaricom M-Pesa | BiztechAfrica Business, Telecom, Technology & IT News Africa]

But I’m jumping ahead. Once Nick and Susie had got the pilot up and running, the very forward-looking CEO of Safaricom, Michael Joseph, realised that something big was going on and drove the team on to scale. Within a year, they had two million subscribers and were handling $1.5 million per day and he turned his attention to developing the agent network. Safaricom already had agents, of course, because they used them to sell airtime, but Michael realised that they needed to increase the size of the network substantially, and quickly. I won’t distract the reader with it here, but I strongly recommend anyone interested in the topic to read how this was done and the issues that needed to be managed: agent incentives, float management, trading and so forth. Suffice to say that becoming an M-PESA agent became an attractive proposition. (Betty Mwangi, Safaricom’s terrific M-PESA manager, says that she still gets 500 applications per day.)

Despite being familiar with the M-PESA story there were sections of this book which introduced me to new and fascinating aspects of the scheme’s growth and development. The section on the impact on the poor, and the dynamics in the Kibera slum, should be required reading for anyone interested in the topic. For instance: the average M-PESA balance has gone up fivefold since 2008. The poor are clearly using the service as an alternative to the mattress or the tin under the bed. Even with the M-PESA fees, mobile money is more cost-effective than cash.

Safaricom M-Pesa customers can now send and receive as little as Ksh10 (12 US cents) compared to a previous limit of 50 US Cents, for a transaction fee of 3 US Cents.

[From Safaricom drops M-Pesa rates | BiztechAfrica Business, Telecom, Technology & IT News Africa]

In summary: a non-bank payment system founded on new technology rather legacy infrastructure has changed people’s lives in ways that could not have been envisaged by the people who created it.

What general lessons can we draw from M-PESA’s rise? I would like to highlight a few points that the book didn’t dwell on but that I think deserve further reflection beyond M-PESA because they may help to stimulate the development of more efficient payment infrastructures in developed countries as well as in other developing countries.

One lesson concerns the regulatory environment that allowed M-PESA to flourish and how, despite the banks’ reservations about the scheme, once it was successful banks were able to use it to offer financial services to an new customer base. The authors indeed note that “commercial banks have finally decided to expand their borders beyond branches by hiring agents. But that was only after they tried, and failed, to shut down M-PESA”. This is why, for me, the most interesting part of the story comes once M-PESA reached five million subscribers (more than all 43 of Kenya’s commercial banks combined) back in 2008. At that time the acting Finance Minister said he was not sure that M-PESA would “end up well”. There was more than a suspicion that the worries were not around consumer safety and protection but the Kenya Banker’s Association concerns about competition. In the unrest that had followed the previous year’s elections, many consumers had withdrawn money from commercial banks and deposited it with M-PESA, which they judged to be less risky. When you think about it, that was a cusp in the evolution of monetary institutions. The post-election unrest also saw the telco replace the bank as a channel for aid.

Concern Worldwide pioneered the use of M-PESA for bulk cash transfers during the post-election emergency in early 2008 in the Kerio Valley, one of the remotest parts of Kenya. During the violence, cattle rustlers attacked communities in the Kerio Valley, looting their livestock and displacing them. Concern’s initial response was to provide food aid, but carrying and distributing food proved very costly and insecure. Cash transfers were seen as a way of overcoming the challenges posed by the terrain and the security situation.

[From Mobile phone-based cash transfers lessons from the Kenya emergency response – Issue 40 – Humanitarian Exchange Magazine – Humanitarian Practice Network]

No-one was sure who was supposed to be regulating M-PESA, but the Minister asked the Central Bank to study the scheme. Consult Hyperion were at that time engaged by the Central Bank to carry out the very detailed operational risk audit which the Permanent Secretary in the Ministry of Finance, Joseph Kinuya, said had found the service “safe and reliable”. He also said “there is nothing wrong with competition”. Hear hear.

M-Pesa now has over 15 million subscribers and the value its transactions topped Sh828 billion last year, equivalent of half of Kenya’s GDP… There are four other mobile money transfer services in the country, Airtel’s AirtelMoney, Telkom Orange’s OrangeMoney, and Essar Telecom’s YuCash.

[From Mobile money transactions to be audited by banks regulator | Mobile Money Africa]

Michael Joseph was always admirably clear on the key issue. M-PESA was not a bank, it was a payment system, and should be regulated as such. What’s more, the figures showed very clearly that despite the vast number of transactions flowing through M-PESA, the total amount of money was still inconsequential compared to daly inter-bank settlement. What’s more, starting back in 2007, the commercial banks had begun to offer new services over the M-PESA network, thereby demonstrating that mobile money could deliver financial inclusion. As the banks began to offer more services, and became part of the M-PESA ecosystem as savings accounts and super agents, it seems to me that the whole financial sector was invigorated. Dynamic partnerships (such as the one with Equity Bank that led to M-KESHO savings accounts) delivered products that simply would not exist in a “traditional” bank environment. These included pensions, micro insurance, “layaway” and more. In essence, as Omwansa and Sullivan say, a new financial sector emerged.

Another lesson is that I simply do not believe that a bank-led solution would have triggered the innovation revolution that M-PESA clearly did. A key element in its success is that it was born in telco culture, and conceived as an infrastructure for others to build on. Mark Pickens makes a point about “adjacent industries” stimulated by M-PESA and this seems to have led to a high-tech boom in “Swahili Silicon Valley” around iHub in Nairobi. Cashless schools, pay-for-use water, e-health and an incredible range of applications have been made possible by the ready availability of a mass market payment system for the 21st century. As the CEO of Kenya Commercial Bank is quoted as saying in the book, when asked if M-PESA is a threat to banks, “if you don’t respond it’s a threat, but if you embrace it, then it’s an opportunity”. I see this as a template for payment system evolution in the Europe and hopefully the US as well.

Finally, I cannot help but point to the relationship between identity and money. One of the most unexpected impacts of M-PESA was the use of M-PESA transaction histories as substitutes for conventional credit ratings. Remember that many M-PESA agents are merchants, so it is natural for them to extend credit in this way. In other words, M-PESA became a means for previously excluded people to demonstrate identity and reputation. Paul Makin, the head of Consult Hyperion’s Mobile Money practice (and the chap who carried out the original feasibility study on behalf of Vodafone), and I have discussed this many times.

One semi-technical note. I can see a future in which the regulator insists on interoperability between mobile money schemes and regulates the interchange rates, but some players want more than this, and in this they adumbrate skirmishes about to break out in developed markets. In Chapter 7, the authors refer to Safaricom’s control of the SIM and tensions arising from this because the banks want (but haven’t got) access to it. I can remember from the early days of the project that there was considerable debate about how to implement the service for consumers. Consult Hyperion recommended going down the hardware security route (i.e., using the SIM card). This meant writing new “SIM Toolkit” software and re-issuing Safaricom SIMs to customers who wanted to use mobile payments. Safaricom decided to make the investment required to go down this high-security route rather than use SMS or USSD, hoping that it would act as an anti-churn factor in a SIM-based market. This was at the time a brave decision, but one that has been repaid many times over. Good for them. I can’t see how regulators can realistically force operators to open up the SIM for more SIM Toolkit applications. But as in the case of smartphone applications in developed countries, it might be realistic to ask the operators to agree on a standard, SIM-based identity management infrastructure and then provide open, transparent and non-discriminatory access to it. But that’s another story.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


  1. Dave, many thanks for the comprehensive description of book, along with your own side of the story. I’ve always thought that the SIM Toolkit gambit was the real secret to success (along with, of course, all the business model innovation).


  2. Dave, that is a wonderful piece. The other thing I would have mentioned is the amazing readyness of the Kenya people to embrace this technology. It something in the kenyan DNA. Kenyans are adventurous. There will be many success stories coming from this country. Just watch!

  3. Hear hear. Finally the truth is out. Many thanks for identifying the real unsung hero of the adventure: the Central Bank for holding the line and protecting the system from the banks in its formative years.

    Having spent a year or two in Kenya following in footsteps, the message is clear. As we always suspected, the question of getting mobile money to the poor is simply one of bypassing the banks. Once that is done, the eradication of poverty becomes a tractable goal, one that competent engineers and companies can achieve.

    Payment systems are not banking. Has Europe learnt that yet?

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