The Kenyan Model of Mobile Payments
Posted by Zaki Alameddine 30 January 17


Kenya, a sub-Saharan country where many people live on just $2 a day, has emerged as a global leader in mobile payments. Mobile payment has increased security, convenience, and insight for Kenyan consumers and merchants. In Kenya, cash is all but eliminated from day-to-day transactions. Here is how it happened:


In 2006 a woman from a small village in Kenya was part of  a microfinance pilot project named M-Pesa (M for mobile and Pesa is Swahili for money). M-Pesa was initially supported by the British Government, Vodafone and Safaricom (a large mobile network operator in Kenya). Initially, M-Pesa was interested in  issuing micro-loans through basic mobile phones. One day, a thief stole the woman’s bus fare and her husband realized that he could use M-Pesa to send her a small amount of money to her as a proof that she is able to pay for the bus ride. Thus, M-Pesa as a mobile payment platform was born.


Vodafone had been considering ways to support microfinance through its mobile platform, as access to banking and credit was limited in Kenya and transporting cash was both risky and slow. Nick Hughes, Vodafone’s Head of Global Payments, developed the M-Pesa idea further and applied for funding through the UK’s Department for International Development (DFID). Vodafone and DFID ultimately made matching investments of £1 million.


The M-Pesa team quickly realized the value of easy and cheap money transfers, and person-to-person (p2p) payments for all kinds of transactions. M-Pesa quickly achieved scale.


Three key factors played in M-Pesa success:


  1. Innovation Before Regulation: The Kenyan regulator agreed that mobile money agents require limited requirements to enter the mobile payment business, as they were not providing banking services. The telecom operator (Safaricom) handled all of the reporting and periodically reported financial and usage data.


  1. Partnership with Telecom Operator (Safaricom): Safaricom had more than 50 % market share of the Kenyan market. M-Pesa’s partnership with Safaricom allowed M-Pesa to leverage Safaricom’s  strong position and national presence helped M-Pesa to quickly scale and target the national market. Even more important was Safaricom’s philosophy to “build a brand rather than make quick return”. Indeed, it took some three years until M-Pesa became profitable. By focusing on achieving scale, rather than profitability, it created indirect benefits from the beginning because in Kenya’s increasingly competitive market, mobile money boosted loyalty and attracted new customers to its core business of voice and SMS.


  2. People Management: Safaricom’s management understood that the success of M-Pesa was ultimately about people management, not technology. Many innovations fail because management focuses exclusively on designing and launching a product, and assume that technology will take care of itself afterwards. The opposite is true. You need people to run machines and the interactions you get after product launch can generate even better products. The true secret of M-Pesa’s success is the management of the agent network, which grew from 300 initially to almost 30,000 today.