Which continent do you think has the fastest take-up of “mobile money” in the world?
It is not North America, Australia or Asia that pioneered the idea a few years ago. It’s Africa, a continent often regarded as lagging behind the rest of the world, that is leading the way.
In fact, it is easier to pay for a taxi ride using your mobile phone in Kenya than it is in Sydney. Considering that mobile money is projected to become a $617 billion industry by 2016, according to research by Gartner, this is a big deal.
Let me give you a few statistics that hit home the realities of both the growth and scale:
Of the top 20 countries in the world for mobile money usage, 15 are in Africa, according to a survey conducted by the Gates Foundation, the World Bank and Gallup World Poll.
East Africa, led by Kenya, has 80 per cent of the world’s mobile money transactions.
Africa’s mobile market topped $51 billion last year, which was more than the amount of money sent via mobile in Europe and North America combined in 2012, according to Gartner.
CHEAP, EASY TRANSFERRALS
It was a thief, in part, who unwittingly started one of the biggest revolutions in banking. In 2006, in a small village in Kenya, a woman had her bus fare stolen. She happened to be taking part in a micro-finance pilot named M-Pesa (M for mobile, pesa is Swahili for money) being conducted by the British government, Vodafone and Kenya’s largest mobile network operator, Safaricom.
At the time, the pilot was testing how micro-loans could be issued through basic mobile phones. The passenger’s husband realised he could use the service to quickly transfer a small amount of money to his wife’s phone as proof of payment for the bus ride. The M-Pesa team recognised there was an enormous gap in the Kenyan financial services sector: the ability to easily and cheaply transfer money person-to-person for all kinds of transactions, at scale.
Paul Makin, one of the initial project leaders at Vodafone, thought it would be big. At the time, he predicted about 250,000 customers would use the service within three years. He was very wrong. Within two years, M-Pesa had two million customers. Fast forward to 2013, and it is now being used by more than 19.5 million Kenyans, equalling approximately 83 per cent of the adult population, thus making it the most successful mobile phone-based financial service in the developing world.
Across sub-Saharan Africa, more companies are trying to follow suit; 41 new operators launched in 2012 alone. Although other countries have not emulated the Kenyan success, more than 56 million Africans currently have mobile money accounts.
Kenya was a fertile market for mobile money to take off, given 80 per cent of the population is “unbanked”, meaning they did not have access to any kind of financial service. In the past, when people wanted to pay or transfer money, they would often give a wad of cash to a bus driver and hope it got to the correct recipient, or alternatively take a few days off work after getting paid to travel the long distances themselves. It was not efficient, let alone safe. But many people in sub-Saharan Africa who do not have a bank account do have a basic mobile phone. In 1998, there were fewer than 4 million mobiles on the continent. Today, there are more than 500 million.
So how do you take simple mobile phones and turn them into money transfer devices? That’s the challenge the Safaricom team were the first to effectively solve.
HOW IT WORKS
M-Pesa goes like this: users register to join with one of M-Pesa’s agents, locally based representatives or stores in the network, and give them cash to load as credit onto their phone. When someone wants to, say, send money to a friend, the user simply enters the phone number of the recipient, the amount they want to dispatch and it is sent via text. The receiver can then convert it into cash at their local M-Pesa agent or store from their own account. The main types of usage of the service include: paying bills such as school fees, electricity or insurance; purchasing mobile airtime; depositing and withdrawing money; and transferring money person-to-person, whether to a relative or to a business.
M-Pesa has become a revolutionary economic juggernaut; the total value of Kenya’s mobile money transactions equals 25 per cent of the country’s GDP.
All kinds of new mobile services are now extending from the original M-Pesa model. For example, Kopo Kopo operates a platform that builds on top of M-Pesa to allow small businesses to accept mobile money payments at the cash register.
M-Kopa has provided over 30,000 Kenyan families with affordable solar power using M-Pesa to facilitate a pay-as-you-go feature. Earlier this year, Safaricom, in collaboration with Central Bank of Africa, extended into savings-and-loans with a new service called M-Shawri, after the Swahili word for cool, or calm. Many unbanked Kenyans had previously hidden money under mattresses, meaning it was not only earning no interest, but was also vulnerable to theft. In the first four months, 2.3 million subscribers opened accounts and more than 4 billion Kenyan shillings ($50.14 million) have been deposited. So what can we learn from the success of M-Pesa, and can these insights be transferred to mobile banking in the developed world?
The solution to mainstream mobile banking might not be fancy smartphones, apps or high-speed internet connection – just good old simplicity. All that M-Pesa requires is a basic SMS-enabled phone; everything from how to sign up, to fees and rates, is dead easy to understand. Users can also send money to any mobile device, even if the other user is not subscribed to the service. Stripping back the complex technology has enabled, and even forced, the functionality to be distilled to what users want.
Many banks are now designing services with lower technological requirements and simpler offerings. For example, in 2012, Barclays in the UK introduced a payment service called Ping-it that allows you to send or receive up to £300 ($530) a day to or from other people, just by using a mobile phone number. Sound familiar? It was downloaded more than one million times in the first six months of its launch in the UK.
One of the smartest things Safaricom did was use their existing mobile credit sellers – who were spread across petrol stations, bars and general stores – turning them into an extensive network of “mobile money agents”. There are now more than 50,000 distinctive green kiosks spread across the country, meaning people never have to travel far to access or send money. The lack of financial and technology infrastructure could have been perceived as a massive barrier, but instead Africa has managed to leapfrog over a world of credit cards, ATMs, bank managers and branches.
Undisputedly, the lack of alternatives to any kind of money transfer prior to M-Pesa has been at the heart of its rapid proliferation. But just because financial services exist in a country does not mean they are accessible to everyone. In fact, a 2011 study by the Centre for Social Impact at the University of NSW found only 43.4 per cent of the Australian adult population could be classified as financially “included”, meaning having access to what are considered three everyday financial products: a basic bank account, a credit card with a limit of $3000 and either household or car insurance. In other words, while our unbanked population only sits around 0.8 per cent, there is massive latent demand for financial services for the “under-banked”.
When a telecommunications company is transforming itself in a large payment network, but doesn’t want to become a bank, it’s a potential minefield for financial regulators. The Central Bank of Kenya (CBK) could have squashed M-Pesa before it even started. Not to mention caving to the pressure existing banks were applying to suggest double standards of the unfair ability of a telco to conduct financial services without the regulatory burden. But the CBK saw the need and opportunity to promote financial inclusion. They worked with M-Pesa to mitigate risks, but not create unnecessary barriers. For example, they agreed that the mobile money agents only needed minimum requirements to enter the business. As Wolfgang Fengler, the World Bank’s lead economist in Kenya, put it, “they allowed regulation to follow innovation, whilst reassuring the market of its oversight”.
TRUST AND CLEVER THINKING
When Safaricom first introduced M-Pesa, it faced the massive challenge of getting people to trust an entirely new service category in a market that had little experience with financial services. The advantage was that they didn’t have to convince users to switch or unlearn a behaviour, but they did have to develop trust that a secure payment system could be offered by a mobile operator, not a bank. At first, M-Pesa leaned heavily on the well-known Safaricom corporate brand, including using the same colour scheme. Another smart move was treating the mobile money agents as brand outposts, visibly carrying the brand into communities where people lived and worked.
It would have been tempting to try to convey everything M-Pesa could do for users and the way the service could transform lives, but for the first two years, they cleverly chose a single, simple message based on a clear understanding of the number one customer need. It was expressed across all marketing channels in just three words: “Send money home’”
In a world where financial service providers have lots of options around what features, apps and gadgets they can create, there is nothing simple about simplicity. Safaricom’s success has largely been due to focusing on just a few services that are indispensable to customers because they answer a real customer need better, cheaper and more safely than what is available. Every time I see one of our banks duplicate a service, come out with another fancy ad campaign or launch another app, I can’t help thinking that if we want clear insights into the future of banking, we should be looking at Africa.
Reposted from the Australian Financial Review