In Kenya M-Pesa is king - and the best is yet to come

Betty Mwangi of M-Pesa in Nairobi. (Photo: supplied)

Betty Mwangi of M-Pesa in Nairobi. (Photo: supplied)

From her second floor office at Safaricom House, in the Nairobi suburb of Westlands, Betty Mwangi talks to the guy who is servicing her car and asks for her bill. She then asks him for his M-Pesa till number, a number registered merchants are given by Kenya’s largest telco [telecommunications system] for accepting payments via mobile [phone].

Mwangi is no ordinary customer. She runs what is seen as the key to Safaricom’s future: the financial services division, better known as M-Pesa. Currently, M-Pesa contributes 20% of the company’s revenues but that figure has been growing rapidly year-on-year.

With 19 million registered users, 12.7 million of whom are active, M-Pesa has evolved from a mere SMS money transfer tool to perhaps the world’s leading and first significant mobile money product.

The numbers are impressive.

Over six million transactions are carried out over the service daily, more than Western Union does globally, and it has an 80?000-strong agent network, more than any bank in Kenya would ever dream of.

The widespread use of the service has been such that financial inclusion figures for the country dramatically shift when you include or exclude M-Pesa figures.

Surface barely scratched

“There is a huge opportunity to drive financial inclusion. Just from an access point of view, the figures for financial inclusion have risen to about 70% in Kenya because of M-Pesa,” says Mwangi.

Exclude M-Pesa and that figure drops to about 26%, she says, quoting figures from the Central Bank of Kenya.

Mwangi says the surface has barely been scratched.

“Over 90% of transactions still happen in cash,” she says, a factor she attributes to historical beliefs that cash is king.

The Consultative Group to Assist the Poor (CGAP), a global partnership that seeks to deepen financial inclusion offers some sobering facts about M-Pesa that would seem to fit well with Mwangi’s optimism that much ground remains to be covered.

“Many publications from the Economist to the Financial Times have quoted the large percent of Kenya’s GDP that flows through M-Pesa. However, this statistic is misleading,” the group says on its 2014 M-Pesa update carried on its website.

“In actuality, M-Pesa flows are roughly equal to the transaction flows of one of Kenya’s larger commercial banks.”

Figures from the Central Bank of Kenya indicate that while mobile money makes up close to 70% of the volume of total national payments, it only contributes to 7% of the value of these payments.

The next stage

Safaricom is looking to improve these numbers through its network with the “Lipa na M-Pesa (Pay with M-Pesa)” tagline. In its latest earnings report to investors, the company said that over $1.3-billion real time payments are being made with monthly via M-Pesa.

However, these are predominantly person-to-person transactions that stand at about 76.5% of the total value of payments.

Transfers from persons to business made up 12% or $161-million, while another $153-million (11.4%) represented transfers from businesses to persons.

Company statistics show it has 140?000 merchants registered to its P2B (Lipa na M-Pesa) service.

This category grew by 64% in the year as compared to a 20% growth in person-to-person payments.

Businesses are also choosing to interact with individuals via M-Pesa. The $153-million transferred from businesses to persons in the half-year Safaricom reviewed for investors represented an 83% jump from a similar period the previous year.

Mainly this has consisted of listed companies paying dividends to their shareholders, and businesses paying employee salaries.

Competition to get stiffer

While its dominance has been unmatched in the market, Safaricom acknowledges that changes are taking place that could ultimately see it playing in a more competitive environment.

CGAP notes that the operator has recently allowed its 80?000 agents to work for other services, a move it had resisted due to the amount it had invested to build its agent network.

Recently, Equity Bank, the grassroots-lender acclaimed globally for banking the poor, was awarded a Mobile Virtual Network Operator licence to carry out mobile money services.

It has partnered with Safaricom’s rival Airtel to roll out its network and will use SIM overlay technology to offer banking services to its customers at what it says are cheaper rates than M-Pesa.

“The market is evolving,” says Mwangi, without referring specifically to Equity.

“We have a very sophisticated [customer] who looks at the broadness of the service — what other things am I able to do?” she says.

She points out that M-Pesa is already integrated with 37 financial institutions and that a platform to allow interoperability with other mobile money services in the market is ready but is yet to be deployed.

“This is a conversation that is being led by the CBK (Central Bank of Kenya),” says Mwangi.

A banker who did not want to be named, as he is not authorised to speak on behalf of his institution, says the market is about to see a number of innovations as the mobile space becomes a major battleground.

“The extent of disintermediation that the mobile phone will create in Kenya shall never be experienced anywhere else — at least not for another five years. April to June shall witness a series of interesting announcements.

“There’s no choice to the execution challenge. Basically, Equity, Safaricom and other actors who are either competitors or collaborators must up their game on execution. The bets being made are big, so failure in execution means disaster.”

Snapshots of two unlikely ‘killer’ ideas for a brave future

The energy market for East Africans who are not connected to national power grids is huge. Such households spend about 44 US cents to buy half-a-litre of kerosene daily, another 22 cents on charging their phones at a nearby town and routinely purchase dry cell batteries for flashlights, creating a total spend in the region of about US$3-billion a year.

This is according to a company angling for a piece of that impressive spend. M-Kopa Solar, funded partly by grants and partly by debt and equity, is seeking to capture that market by selling solar panel units that come equipped with two lamps, a phone charger and a chargeable transistor radio.

Managing director and co-founder Jesse Moore said extensive in-house research was undertaken in developing the M-Kopa Solar solution.

He said several millions of dollars is spent in Kenya on what one would call poor energy substitutes. “The biggest one of those is kerosene, but there are also phone charging services, batteries, candles; taking all those together, it’s more than a $1.3-billion market or KSh100-billion [KSh is the Kenyan Shilling].”

That is for Kenya only, but M-Kopa is also operating in Uganda and Tanzania, and those markets are almost the same size. 

So in the three big East Africa markets the company is looking at a $3-billion market.

That’s what prompted the company to ask: “Isn’t there a way we can leverage M-Pesa [Vodacom’s money transfer service] to give people something better for their hard-earned money than the smoky, bleary eyes that kerosene gives?

“To charge a phone costs East Africans 10-20 bob per charge, and to buy batteries they spend 50 bob a week, so when you add up all those costs, they are spending a lot of money in daily increments.”

M-Kopa developed the solar solution where users pay by the day, which comes to just under 50 US cents a day, and utilises M-Pesa in Tanzania and Kenya. In Uganda the company uses MTN and Airtel money.

Over those mobile systems people can conveniently pay for their power, wherever they are and whenever they want to.

M-Kopa Solar now has over 130?000 supplied customers. Its model has been hailed as a groundbreaking asset-financing programme for the poor.

It is one of the biggest movers of mobile money transactions, doing well over 12?000 M-Pesa paybill transactions daily, ranking just behind big utilities like Kenya Power.

Mastercard in Nigeria

Mastercard is branding new Nigerian national ID cards and embedding its chip into them, to allow them be used as a payment device.

Estimates put the eligible population (age 16 and over) at about 120 million — easily making this the biggest financial inclusion initiative in Africa.

“The Nigerian National Identity Management Commission (NIMC) will be issuing MasterCard-branded national identity smart cards with electronic payment capability,” Mastercard notes on its website.

“This programme is the largest roll-out of a formal electronic payment solution in the country and the broadest financial inclusion initiative of its kind on the African continent.”

In the first phase of the programme, Nigerians of 16 years and older, and all residents in the country for more than two years will get the new multipurpose identity card, which has 13 applications including MasterCard’s prepaid payment technology.

Issuing banks will include AccessBank, UBA, Union Bank, Zenith, Stanbic and Skye.