People do not need to go to the bank or to
carry cash to pay their utility bills, taxi rides, or grocery shopping as long
as they have mobile phones in their pockets.
Believe it or not, I am not talking about the US or the UK or Japan; I
am talking about Kenya. Kenyans pay
these daily fees by just sending a text message thanks to their world-leading
mobile money transfer service, M-PESA (“M” for mobile and “PESA” for money in
Kiswahili).
Why has M-PESA become so popular? First, it is a quick way to transfer
money. In rural areas, banks are hours
away. Also, it sometimes takes weeks to
authorize financial transfer at the bank, and people are denied access to their
bank accounts if they cannot fully verify their identities (identity
verification is not that easy). Second,
it is cheap. Traditional transfer
methods are quite expensive in Kenya, and for those who just scrape by, the
transfer cost is a painful expenditure.
As for M-PESA, registration and deposit are free, and transfer and
withdrawal fees are much cheaper than other means. Third, it is relatively safe. As a financial transfer method, it is safer
than sending someone else with cash (the money carrier may get attacked on his
way, or he may run away with the cash).
It is also a safer way to save financial assets than hoarding cash or
transforming them into livestock (cash can be stolen, and livestock may
die). Fourth, as M-PESA widened its
coverage and deepened its penetration into the society, it benefitted from
positive network externality. With more
subscribers, the cost of service declined, which made more sense for people to
register for the service. Moreover, as
people’s demand for the service increased, corner shops became incentivized to
keep enough cash and e-money. The more the
M-PESA network expands, the more people sign up for the service, and the better
the service becomes. And the virtuous
cycle continues.
So there are many attractive features of
M-PESA as you can see, but I cannot end this blog without mentioning M-PESA’s
role in cultivating the field of “e-remittance” in Kenya. M-PESA matched well with Kenyans’ demand for
a better way of remittance to their families and relatives in the event of
emergencies or costly life-cycle events such as funerals and weddings. M-PESA’s e-remittance works like this. A Kenyan working in Nairobi brings cash to a
corner shop with an M-PESA sign, and the agent at the shop adds credits on his
M–PESA account. Then, almost as soon as
so he transfers mobile money to his relative’s account, his relative living in
a far-away village receives e-money, which can be withdrawn as cash at the
closest M-PESA shop. Safaricom wisely marketed
M-PESA to the public with a strongly appealing message: “send money home” (http://www.youtube.com/watch?v=nEZ30K5dBWU). This was a killer-phrase for Kenyans, who
highly value family ties.
M-PESA has presented the world a successful
African business model utilizing technology.
It has further potential of improving people’s lives by offering
low-cost loans and encouraging savings (savings in M-PESA accounts earn interest).
In 2010, Safaricom initiated its international mobile money transfer
service, and M-PESA has now expanded beyond Kenya to 45 countries and
territories overseas, mainly targeting Kenyan diasporas. Let’s see how the service develops.
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| Image by Safaricom |
