KENYA Area of innovation:
Seventy-five per cent of Kenyans have no access to bank accounts, while 38 per cent are excluded from any form of formal financial services. Given this scenario, most relied on largely informal, highly inconvenient and invariably unsafe options for transferring money - done in-person or through long-distance bus company couriers. In 2007, Safaricom, Kenya's largest mobile network operator, having identified the need for a convenient, reliable and much cheaper form of money transfer mechanism, launched M-Pesa, an innovative payment service for the unbanked populace. (Pesa is money in Swahili.)Within a month of launch, Safaricom had registered over 20,000 M-Pesa customers, well ahead of initial projections.The product concept
is fairly simple yet powerful: an M-Pesa customer uses his or her mobile phone to transfer money quickly, safely, and across great distances, directly to another mobile phone user. The customer need not have an existing bank account. He can register with Safaricom for an "M-Pesa account".
M-Pesa continues to be a big driver for business at Safaricom. M-Pesa revenues grew 49.3 per cent in April-September 2011 from a year ago to 7.9 billion shillings (Rs 418.7 crore). This makes for about one-sixth of Safaricom's overall revenues for the six months. Safaricom is 40 per cent owned by Vodafone.
M-Pesa account holders can convert cash into "e-money" through a Safaricom dealer, and then follow simple instructions on their phones to make payments through their M-Pesa accounts in a safe and convenient way. While originally thought of as more of a mechanism to allow those who borrow from microfinance institutions, or MFIs, to receive and repay loans - in order to reduce MFI costs and improve borrowers' ability to track finances - M-Pesa quickly evolved into the most preferred way of conducting monetary transactions in the country.
Quick Fix to India's Unbanked
Sanjay Kapoor, CEO (India and South Asia), Bharti Airtel
Financial inclusion is the road that India needs to travel towards becoming a global player. Since nationalisation, the number of bank branches has multiplied 10-fold - from 8,000-plus in 1969 to 80,000-plus today. But a number of rural households are still deprived of basic banking services like a savings account or minimal credit facilities. The proportion of rural residents who lack access to bank accounts is nearly 40 per cent, and this rises to over 60 per cent in eastern and north-eastern India. The major barriers are lack of reach, higher cost of transactions and time taken in providing those services. The existing business model does not pass the test of convenience, reliability, flexibility and continuity.
Clearly, the task to cover the 1.2 billion population with banking services in India is gigantic in comparison to Kenya. Harnessing the power of mobile technology to provide customers with a secure and convenient way of sending and receiving money by effectively leveraging the existing distribution reach and a trusted brand name resonates strongly. From our experience, poor people are viable customers and there is tremendous potential for growth by providing banking services to them. The progressive regulatory environment in the country is showcased by policy moves made by the Reserve Bank of India, or RBI. Most recently, RBI allowed domestic money transfers within defined limits for non-bank players. This step is in the direction of proportionate regulatory regime advocated across many markets that have seen successful mobile money deployments.
India's diversity requires mobile money innovation to suit various customer segments - urban youth, migrants, housewives, rural. Each of these segments has its own need. Similar to Kenya, most operators will use their existing mobile network to connect within their own base and provide a reliable, consistent store network that serves customers' needs. However, unlike Kenya, we will see multiple models being innovated - some will be bank-led and some telco-led. Therefore, innovative business and delivery models co-created by leveraging the strengths of banks, telcos, and technology solution providers will emerge. Additionally, factors of scalability and sustainability in business models will be imperative for growth.
Within the current regulatory regime, cash-out through retail channel is not permitted for a telco wallet, which is the most widespread use case for Safaricom. Therefore, it appeals to customers with a bank account on the recipient end. To drive customer adoption, players will need to enable a wide range of use cases across merchant categories. Since payments is a low-margin business, mobile money through its penetration in the existing mobile base will provide a strong reason for our customers to stick to their existing telecom operator, besides generating an additional revenue stream.
Unlike in Kenya where Safaricom enjoys monopoly, cross-industry participation and cooperation to create this category will be key in India. Therefore, it will require joint efforts on messaging standards, customer education and driving adoption to generate the network effect.
The success of M-Pesa can be attributed to a combination of several key elements in the product offering: It gave users the facility to deposit/withdraw cash at any one of more than 20,000 outlets of its strong agent network nearly 20 times the number of bank branches; the service was backed by the Safaricom brand and catered to a large gap in the market given the low levels of formal banking penetration in the country; and ultimately, it was an easy-to-use product that offered a superior value proposition - providing a more reliable and cheaper alternative for transferring money than what existed.
Within five years of its inception, M-Pesa has gained over nine million subscribers, more than one-third of Kenya's adult population. It has helped change the way small businesses operate in Kenya by eliminating bank visits, unnecessary travel, and providing additional security to the money transfer process. M-Pesa accounts for half of all money transfers and attracts 11,000 new subscribers a day, and manages two million transactions daily. The concept has been transferred to other countries, such as Tanzania and South Africa.
While providing money transfer services is clearly not the primary role of a mobile network provider, the immense popularity of this offering has allowed Safaricom to build greater traction with its mobile customers, and provided it a new revenue stream.