Alternatively titled "My Obligatory M-Pesa Post". Mobile banking/payments is the topic I get asked about most often by people who have just begun to scratch the surface of tech in Africa. "Oh, you work for Google in Africa... I just read about this fascinating mobile banking system in Kenya! Perhaps you've heard of it?" And while I do grow a little tired of fielding the same question again and again, it is the first question I get asked for good reason! The mobile banking phenomenon is an innovation indigenous to Africa, and a perfect illustration of African ingenuity.
But before I get into my own opinions, first, a brief primer on the banking landscape in Africa. As some of you may know, banking is one of the more unsolved problems here (and that's saying something). Transferring money is a nightmare. Very few people have bank accounts, and virtually every society you meet is purely cash-based. When I first moved to Ghana, for instance, I had to stay in a special hotel catering to foreigners that would take my credit card, and when I moved into my first apartment, I had to pay 10 months rent, upfront, in cash. So I had to go to the ATM, several times, each time withdrawing several hundred dollars worth of money. Not the best system. There must be some better way of transferring money, of paying bills, of stocking away a savings fund, you may think. Well a few years back, some clever folks in east Afruca were thinking the same thing.
Originating in Kenya, M-Pesa is Africa's first and most widely-known mobile money service. M-Pesa literally means mobile money: 'M' for mobile, and Pesa, Swahili for money. It was originally conceived to facilitate microfinance payments in Kenya, but in just a few years, M-Pesa has become the largest banking operator in Kenya. At its essence, the system allows users to transfer money via mobile phones running on Safaricom, Kenya's largest telecom provider. The basic paradigm, which has become a model for many other African countries, is that of a branchless bank: customers can conduct all of their financial transactions without ever needing to visit a physical bank office. Customers can transfer money mobile-to-mobile and deposit/withdraw money from affiliate businesses.
In its first two years, from 2007 to 2009, M-Pesa accrued a staggering 6.5M customers in Kenya, quickly attracting the attention of many other mobile carriers in many other African states. It became the symbol of African tech innovation, and a demonstration that necessity is the mother of invention here just like anywhere else. Since then, many others have tried to duplicate its success, but to date, with very little success. Since I got to Ghana, a number of mobile money services have launched; just about every major carrier has one, it seems. And yet, none of them have taken off. This has been an issue that's been bothering me for some time. Why could this work in Kenya, and yet, it would seem, nowhere else?
When the topic came up in conversation at a technology roundtable that Google hosted last week, our country manager, Estelle, proclaimed that mobile money hadn't yet become enough a part of daily life in Ghana. "Sure, I can pay my cable bill, but what I really want to is to be able to pay my taxi driver." That makes sense, but it still begs the question: Why? What made M-Pesa different? Good product design? Better marketing? Superior distribution? I'm sure all of these facets played some role in M-Pesa's success, but I would posit that there was another factor that trumped all the others. At launch, Safaricom, the mobile operator on which M-Pesa runs, had an astounding ~80% market share. In fact, before going public, Safaricom was a joint venture between the Kenyan government and the British-owned telecom, Vodafone, effectively, a government-owned monopoly.
With that in mind, it's no wonder the service was able to take off so quickly. In Ghana, the largest carrier, MTN, only has around 55% market share. As a user, compare the two mathematically: with M-Pesa, there's an 8 in 10 chance that the person with whom you want to transfer money has an account, whereas in Ghana, we've seen a much more fractured market, where the best you are do is just slightly better than 1 out 2.
What does this mean for mobile money more broadly? Well it's clear that not every country is going to share the particularly suitable climate that Kenya enjoyed. If mobile money is to take off in other contexts, carriers are going to need to establish open standards that allow users to interact across networks. Unfortunately, I don't see that happening anytime soon. The best outcome, I think, would actually be for the government to step into a regulatory role, compelling operators to play nice with one another. But, this doesn't seem terribly likely in the short-term either, at least not in Ghana. Regardless, I'll be watching the space closely, wondering just who will be first to step up: the carriers or the national governments. Only time will tell.
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