Wednesday
Oct252017

Mobile Money Beyond m-Pesa

Do the poor in Africa and Asia really use mobile money?  How can they afford to?

Image: The Star, Kenya

People have been registering for mobile money accounts in droves in Africa and Asia.  But in many places usage has not followed?  How could that be?  M-pesa is used in Kenya, after all, by almost everyone.

Unfortunately, the m-pesa example has largely been an outlier.  Even it’s owner, Safaricom, in turn owned by Vodacom, has been perplexed.  In 2010 Vodacom introduced m-pesa into its home market of South Africa but was forced to pull the plug as the signs of another m-pesa miracle receded further and further away.  Yet something like a miracle had happened in Kenya.  Can mobile money move beyond this conflicting m-pesa experience?

As usual, a bit of history helps in understanding the future.  Ii’s important to know m-pesa scaled gradually.   Young migrant workers in Nairobi used it to send money home to their rural families.  To get paid they often stood in lines at the end of the week for hours.  Plus the money transfer charged hefty service fees in those days.  So the idea of paying wages directly into mobile money accounts, from which the workers could send a portion to their mothers via a rural agent, took hold.  Here was a way to have a beer at the end of the week rather than waiting in line and sending some money home all in one step, while paying less for the transfer.

The emphasis was on sending money not receiving it (see below) and on getting paid faster.  When civil disturbances hit Kenya’s urban streets in 2008, this added to the willingness to deposit money with a third party, instead of putting it under the mattress or carrying it.  The banks were not seen as user friendly.  And the government allowed Safaricom to try a new approach.  Also it didn’t hurt that it was such a dominant operator; network effects played out much faster than with a startup or secondary player.  (The large mobile innovations that caught on—whether prepaid in Mexico in 1993 or i-mode in Japan in the early 000s—were usually supported by dominant operators.)

After six or seven years, m-pesa became widely accepted and used in Kenya, which, by the way, has one of the highest levels of bank accounts per capita in the developing world.  Yet attempts to recreate the m-pesa success have often failed.  The focus of mobile money marketing campaigns has been on receiving money, so everyone signs up.  Only money rarely follows.  In some countries almost all the accounts have stayed unused for the first year or two.  What good are they if no money has appeared?  Meanwhile, clever users deposit transfers into the recipients’ accounts directly, avoiding the transfer fee—and no use of the account is recorded. 

The reasons for non-use include the product failing to live up to its over-embellished promise, the lack of interest payments on the accounts (something beginning to change), few agents in rural areas, the need to have several accounts to transfer money where three or more operators share the market, and—not to be forgotten—the lack of almost any income in many cases, wiith the unemployed, students and partly-employed dominating the registration rolls.  This type of user base doesn’t stop the receiving of money but impedes sending it.

In other words, progress requires lots of steps—steps that took a decade to put in place in Kenya.  With additional uses being added to the mix—the paying of electricity bills, school fees, and merchants, for example—and interoperability rules being adopted, progress is being made.  Ecobank and Visa have just introduced a speedier way of paying bills, though one still dependent on having a credit card, which remains a rarity in much of Africa.   Meanwhile, Safaricom’s owner, Vodacom, is thinking about rolling out m-pesa in other countries once again.

 

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