The rest of this paper explores M-PESA’s success from three angles. First, we examine the environmental factors in Kenya that set the scene for a successful mobile money development. Then, we examine the service design features that facilitated the rapid adoption and frequent use of M-PESA. And, finally, we examine the elements in Safaricom’s execution strategy that helped M-PESA rapidly reach a critical mass of customers.
In so doing, we draw extensively on a sequence of four papers which readers can refer to for more detailed accounts of the M-PESA story: Heyer and Mas (2009) on the country factors that led to M-PESA’s success, Mas and Morawczynski (2009) on M-PESA’s service features, Mas and Ng’weno (2010) on Safaricom’s execution, and Mas (2009) on the economics underpinning branchless banking systems.
Beyond the compelling marketing, cold business logic and consistent execution of M-PESA, its success is a vivid example of how great things happen when a group of leaders from different organizations rally around common challenges and ideas. The story of M-PESA straddles the social and the commercial, the public and the private, powerful organizations and determined individuals:
The Individuals and Institutions Behind M-PESA
The idea of M-PESA was originally conceived by a London-based team within Vodafone, led by Nick Hughes and Susie Lonie. This team believed the mobile phone could play a central role in lowering the cost of poor people to access financial services. The idea was seized by the Safaricom team in Kenya, led by CEO Michael Joseph and Product Manager Pauline Vaughn. They toyed with the idea, convinced themselves of its power, developed it thoroughly prior to the national launch, and oversaw a very focused execution.
The Central Bank of Kenya (CBK), and in particular its Payments System group led by Gerald Nyoma, deserves much credit for being open to the idea of letting a mobile operator take the lead in providing payment services to the bulk of the population. The CBK had recently been made aware of the very low levels of bank penetration in the country by the first FinAccess survey in 2006, and they were determined to explore all reasonable options for correcting the access imbalance. The CBK worked in close partnership with Vodafone and Safaricom to assess the opportunities and risks involved prior to the launch and as the system developed. They were conscious that premature regulation might stifle innovation, so they chose to monitor closely and learn – and formalize the regulations later.
Finally, the UK’s Department for International Development (DfID) played an instrumental role, first by funding the organizations that made the FinAccess survey possible —the Financial Sector Deepening Trust in Kenya, the FinMark Trust in South Africa—, and then by providing seed funding to Vodafone to trial its earliest experiments with M-PESA. DfID’s role in spotlighting the need for mobile payments and funding the early risk demonstrates good roles for donor funding.
Kenya Country Factors: Unmet Needs, Favorable Market Conditions
The growth of M-PESA is a testament to Safaricom’s vision and execution capacity. However, Safaricom also benefited from launching the service in a country which contained several enabling conditions for a successful mobile money deployment, including: strong latent demand for domestic remittances, poor quality of available financial services, a banking regulator which permitted Safaricom to experiment with different business models and distribution channels, and a mobile communications market characterized by Safaricom’s dominant market position and low commissions on airtime sales.
Strong Latent Demand for Domestic Remittances
Safaricom based the initial launch of the M-PESA service on the ‘send money home’ proposition, even though it also allows the user to buy and send airtime, store value and, more recently, to pay bills. Demand for domestic remittance services will be larger where migration results in splitting of families, with the bread-winner heading to urban centers and the rest of the family staying back home. This is the case in Kenya, where 17 percent of households depend on remittances as their primary income source.12
In her study of M-PESA, Ratan (2008) suggests that the latent demand for domestic remittances is related to urbanization ratios. More propitious markets will be those where the process of rural-urban migration is sufficiently rooted to produce large migration flows, but not so advanced that rural communities are hollowed out. Countries with mid-range urbanization ratios (20 percent to 40 percent), especially those that are urbanizing at a rapid rate, are likely to exhibit strong rural-urban ties requiring transfer of value between them. This is the case in many African countries like Kenya and Tanzania, where the urbanization ratios are 22 percent and 25 percent, respectively.13 In the Philippines and Latin America, where urbanization ratios exceed 50 percent, remittances are more likely to be triggered by international rather than domestic migration patterns.
Where entire nuclear families move, remittances will be stronger where there is cultural pressure to retain connection with one’s ancestral village. In Kenya, migrants’ ties with rural homes are reinforced by an ethnic (rather than national) conception of citizenship. These links are expressed through burial, inheritance, cross-generational, social insurance and other ties, even in cases where migrants reside more or less permanently in cities.14 In other settings, a greater emphasis on national as opposed to local or ethnic identity may have diminished the significance of the rural ‘home’ and hence dampened domestic remittance flows.