Safaricom's initiative, enabling Kenyans to transfer money safely using mobile phones
November 22, 2011KENYA
Area of innovation: Enabling process
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.
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.