Getting to Scale: How to Bring Development Solutions to Millions of Poor People

7. Scaling Up through Disruptive Business Models: The Inside Story of Mobile Money in Kenya

189 7 Scaling Up through Disruptive Business Models: The Inside Story of Mobile Money in Kenya pauline vaughan, wolfgang fengler, and michael joseph The M-PESA mobile money service was launched in Kenya in 2007 to provide basic financial services to a largely unbanked population. Reaching 50 percent of Kenyan adults in less than two years, M-PESA experienced an unprecedented rate of adoption, with 10,000 new customers registering for the service daily. Five years on, mobile money is ubiquitous in Kenya but is yet to scale in other countries. Similar applications were introduced earlier elsewhere; what made M-PESA special was the focus on scale. It was introduced as part of a medium-term business strategy with the aim of building brand loyalty rather than that of shortterm financial reward. More than one in two mobile money transactions worldwide are carried out in Kenya.1 Mobile money has radically reduced the cost of low-value financial transactions and lowered the barriers of entry to the financial system in Kenya. It is emerging as a powerful and innovative tool in the fight against poverty. Introduction Mobile money in Kenya (M-PESA) allows people to move money at the speed of a text message.2 Kenyans no longer need to travel long distances to the nearest 1. GSMA (2012). 2. M-PESA is the trademark of Safaricom Kenya Ltd.’s mobile money transfer service, introduced in March 2007. 190 Pauline Vaughan, Wolfgang Fengler, and Michael Joseph bank branch to send money nor queue for hours to pay school fees and electricity bills. Transfers to relatives in rural areas can be done safely and securely. By the end of 2011, M-PESA had signed up 15.2 million customers.3 Together with the services of other providers, four in five Kenyan adults have access to mobile money. Mobile money represents a culmination of the telecommunication revolution in Africa, and it demonstrates that Africa can be exporters of global innovations. How does mobile money work? To register for M-PESA customers need an ID document and their Safaricom mobile phone: the “e-wallet” account created is associated with the mobile phone number. Customers can deposit funds with an M-PESA agent and receive an equivalent value of funds in their mobile money account (a cash-in transaction). They then use their mobile phone to give secure instructions to the service provider to transfer funds to any other phone number, transactions that are carried out in a matter of seconds (figure 7-1). The recipient can then “cash out” from any of the 35,000 M-PESA agents across Kenya. M-PESA is short-message-service-based and works on any mobile phone handset. This chapter follows the origin of the M-PESA mobile money service. It shows how learning from a pilot led to the national launch of a simple, relevant service that has been adopted en masse. We analyze the scaling up of mobile money and recount the decisions taken when M-PESA was launched in Kenya. We then explore reasons that M-PESA has become such a dominant force in Kenya in comparison with other countries. Looking forward, we see that mobile money is being used by a growing number of organizations as a payment method of choice, and we examine how this will extend the reach of formal financial services to the unbanked. Finally, we explore the next frontiers in mobile-money-related services. Kenya’s Information and Communications Revolution As in most of Africa, the telecommunication revolution took hold in Kenya in 2000. At the close of the 1990s, less than 3 percent of Kenyan households owned a telephone, and less than 1 in 1,000 Kenyan adults had access to mobile phone services. By 2011 the number of phone subscriptions exceeded 26 million , which is more than the country has adults. Internet users also climbed to 12.5 million, which indicates that the data revolution is now in full swing (figure 7-2). Mobile money has been adopted even more rapidly. After five years of operation, there are some 18 million mobile money users in Kenya. 3. Customer and agent statistics are those of December 2011, according to Safaricom. These statistics to April 2011 are published at www.safaricom.co.ke/personal/m-pesa/m-pesa-resourcecentre /statistics. Figures beyond this were obtained from the company. Scaling Up through Disruptive Business Models 191 A combination...