In Kenya M-PESA is king...and says the best is yet to come

Over six million transactions are carried out over the service daily

FROM her second floor office at Safaricom House, in the Nairobi suburb of Westlands, Betty Mwangi talks to the guy who is servicing her car and asks for her bill. She then asks him for his M-PESA till number, a number registered merchants are given by Kenya’s largest telco to use to accept payments via mobile.

Mwangi is no ordinary customer, she runs what is seen as the key to Safaricom’s future; the Financial Services division better known as M-PESA. Currently, M-PESA contributes 20% of the company’s revenues but that figure has been growing rapidly year on year.

With 19 million registered users, 12.7m of whom are active, M-PESA has evolved from a mere SMS money transfer tool to perhaps the world’s leading and first significant mobile money product.

The numbers are impressive.

Over six million transactions are carried out over the service daily, more than Western Union does globally, and it has an 80,000 strong agent network - more than any bank in Kenya can ever dream of.

The widespread use of the service has been such that financial inclusion figures for the country dramatically shift when you include or exclude M-PESA figures.

Surface barely scratched

“There is a huge opportunity to drive financial inclusion. Just from an access point of view, the figures for financial inclusion have risen to about 70% in Kenya because of M-PESA,” Mwangi says.

Exclude M-PESA and that figure drops to about 26%, she says, quoting figures from the Central Bank of Kenya.

Mwangi says the surface has barely been scratched.

“Over 90% of transactions still happen in cash,” she says, a factor she attributes to historical beliefs that cash is king.

The Consultative Group to Assist the Poor (CGAP), a global partnership that seeks to deepen financial inclusion offers some sobering facts about M-PESA that would seem to fit well with Mwangi’s optimism that much ground remains to be covered.

“Many publications from the Economist to the Financial Times have quoted the large percent of Kenya’s GDP that flows through M-PESA. However, this statistic is misleading,” because of double-counting incoming and outgoing transactions, the group says on its 2014 M-PESA update carried on its website.

“In actuality, M-PESA flows are roughly equal to the transaction flows of one of Kenya’s larger commercial banks.”

Figures from the Central Bank of Kenya indicate that while mobile money makes up close to 70% of the volume of total national payments, it only contributes to 7% of the value of these payments.

The next stage

Safaricom is looking to improve these numbers through its network with the “Lipa na M-PESA (Pay with M-PESA)” tagline.

In its latest earnings report to investors, the company said that over $1.3billion real time payments are being made with monthly via M-PESA. However, these are predominantly person-to-person transactions that stand at about 76.5% of the total value of payments.

Transfers from persons to business made up 12% or $161m, while another $153m (11.4%) represented transfers from businesses to persons.

Company statistics show it has 140,000 merchants registered to its P2B (Lipan a M-PESA) service.

This category grew by 64% in the year as compared to a 20% growth in person-to-person payments.

Businesses are also choosing to interact with individuals via M-PESA. The $153m transferred from businesses to persons in the half-year Safaricom reviewed for investors represented an 83% jump from a similar period the previous year.

Mainly this has consisted of listed companies paying dividends to their shareholders, and businesses paying employee salaries.

Competition to get stiffer

While its dominance has been unmatched in the market, Safaricom is acknowledges that changes are taking place that could ultimately see it playing in a more competitive environment.

CGAP notes that the operator has recently allowed its 80,000 agents to work for other services, a move it had resisted pointing the amount it has invested to build its agent network.

Recently, Equity Bank, the grassroots-lender acclaimed globally for banking the poor, was awarded a Mobile Virtual Network Operator license to carry out mobile money services.

It has partnered with Safaricom’s rival Airtel to roll out its network and will use SIM overlay technology to offer banking services to its customers at what it says are cheaper rates than M-PESA.

“The market is evolving,” Mwangi says without referring specifically to Equity. “We have a very sophisticated (customer) who looks at the broadness of the service – what other things am I able to do,” she says.

She points out that M-PESA is already integrated with 37 financial institutions and that a platform to allow interoperability with other mobile money services in the market is ready but is yet to be deployed.

“This is a conversation that is being led by the CBK (Central Bank of Kenya),” says Mwangi.

A banker who did not want to be named as he is not authorised to speak on behalf of his institution says the market is about to see a number of innovations as the mobile space becomes a major battleground. The biggest development will be in cutting out the intermediaries in financial transactions, he says.

“The extent of disintermediation that the mobile phone will create in Kenya shall never be experienced anywhere else – at least not in another five years. April to June shall have a series of interesting announcements.”

“There’s no choice to the execution challenge. Basically, Equity, Safaricom and other actors who are either competitors or collaborators must up their game on execution. The bets being made are big, so failure in execution means disaster,” he said.

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