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Mobile Summit Day Two: M-PESA Boosts Kenya’s Economy

The service’s rapid growth shows mobile money and telecom/bank cooperation can work in emerging markets, if stakeholders are willing to invest and manage the distribution network

Bank Technology News  |  June, 2011

For all talk about how mobile technology can rapidly bring financial services to emerging markets, it’s really only worked in a few countries so far, most notably Kenya and the Philippines. Much of mobile money’s success in Kenya can be attributed to the work of Michael Joseph, a strategic advisor to Safaricom, who on Tuesday morning discussed his experiences building a new financial infrastructure in that country.

Called M-PESA, the four-year old telecom-driven service has attracted millions of users and won over skeptical banks-most initially tried to scuttle the service but now offer M-PESA as a mobile option; and regulators-who in some cases personally find the mobile transfer service a useful way to pay their own employees.

The result of M-PESA’s work and the cooperation of banks has been impressive growth of Kenya’s bank account penetration that’s a source of revenue for banks and the telecom. Only 7 percent of the country’s 39 million people had formal bank accounts in 2007, a percentage that’s grown to about 40 percent today. At the same time, mobile phone ownership has also grown from 17,000 to more than 23 million. About 70 percent of financial transactions in Kenya are now handled by M-PESA, which is a ubiquitous venue for utility bills, water purchases, farm equipment purchase, payroll, goods and services and international money transfers.

“Banks were at first alarmed,” says Joseph, adding that the nation’s banks actually formed a committee to try to stop M-PESA. But Joseph says he as able to win over the nation’s top bank regulator by pointing out that he could pay staff on his farm via mobile transfer. “We actually compliment banks. We don’t compete,” he says.

Beyond winning over Kenya’s financial establishment, another challenge for M-PESA is building and maintaining the distribution network of 27,000 agents.

Joseph freely admits that distribution is a tough part of mobile money in emerging markets, and is a reason why it’s not taken hold in more nations. In Kenya, the initial investment in distribution is about $30 million, which has gone toward renovating local stores that serve as agents, as well as provide due diligence to ensure the agents are conducting business properly. “We need to have a mobile money agent on every corner in Kenya,” Joseph says, adding that’s necessary to build comfort in the access and security of the system.

M-PESA’s success has led to expansion, including M-KESHO, a partnership with Equity Bank that allows people to open bank accounts with as little a $1. In its first 10 months, M-KESHO has signed up 350,000 new accounts totaling about $15 million. A prepaid Visa product has also been introduced.