M-Money services a huge success in Kenya but waiting for their breakout moment elsewhere

Top Story

Safaricom started its M-Pesa service in April 2007 with a first year target of getting 0.5 million users. It passed this target within six months and in February 2009 clocked up an astounding 5.8 million customers. Both in Kenya and elsewhere on the continent its competitors have been putting in place their own competitive M-Money products. But things seem to be going somewhat more slowly outside of the Kenyan market for these innovative service. Russell Southwood looks at what’s happening and tries to identify what makes a good M-Money market.

It has been estimated that 90% of Kenya’s 37.9 million population is unbanked. In February 2008 M-Pesa users transferred KS14.5 billion and cumulative total of money transferred since the launch two years ago has been KS118 bn. However, M-Pesa transfers are relatively small alongside total bank transactions.

But Pauline Vaughan who heads up the service says it is not competing with the banks:”The banks didn’t really understand what we were doing. We’re not paying interest. The money (transferred by M-Pesa) is not touched by us but held by trustees”. Indeed the Kenyan Treasury put out a note at the end of January 2009 on mobile money transfers which she sees as “re-assuring.”

The service has 7,512 agents countrywide. People with bank accounts were amongst the first users but very quickly its appeal was almost universal. Penetration rates are higher in urban areas but there are also high-use points in places like remote refugee camps. As Vaughan told us:”There’s some really remote agents and we want to encourage the service to go rural.” One of the keys to the service’s success seems to be its extensive network of agents. Each has to invest between KS50,000-100,000 and there is still considerable interest from people looking to start a new business.

There will be two further developments of the service this year: firstly, international transfers will be added (“…some time in 2009…) and the menu item Buy Goods will be implemented through a partnership with Pay Bill. The international transfer service will be done in partnership with money transfer giant Western Union and the final contract is being drawn up. Although it has been reported that there have been legal and regulatory hurdles, Vaughan says “there are no specific issues” that look likely to be hurdles.

Vaughan believes that there may be as many as 7-8 million more potential customers that would bring the total customer potential to around 13 million. However across the border in Tanzania the Vodacom M-Pesa service has had a much slower take-off, in part accounted for by its distribution network.

Its main mobile competitor Zain has launched its own M-Money service called Zap but is finding it hard to get a foothold in the market. In a straw poll of people I spoke to during my stay not one mentioned the Zap service. It costs subscribers a flat rate of US$0.1 (KShs10) for each transaction. A minimum of $0.63 (KShs50) and a maximum of U$443 (KShs35, 000) can be transacted with a limit of 25 transactions for one subscriber in one day. Zain has partnered with Standard Chartered Bank which holds a trustee account for the service. Other banks and companies need to have an account in Standard Chartered to enjoy the service. It can be used to pay bills and send and receive money from bank accounts.

Although the service seems to have a low profile, it already has over 3,000 ZAP agents spread across the country and the company claims that 40% of its subscribers are using the service.

Another of Kenya’s new entrants, Essar, has bought a share in Obopay and it seems likely that it will launch its own M-Money service before too long.

M-Money services are now spreading rapidly with a range of initiatives in very different markets:

* The GSM Association has a global initiative to promote M-Money services with a trial called 'Pay- Buy- Mobile Initiative'. It is calling for full Near Field Communications (NFC) functionality - including the standardised 'Single Wire Protocol' interface - to be built into commercially available mobile handsets from mid-2009.

* Orange announced the commercial launch of ‘Orange Money’ in Ivory Coast in alliance with BNP Paribas earlier this year and has extended the service to Mali. This is the Orange group’s first mobile-based payment and money transfer service in Western Africa. Orange customers do not need a bank account to subscriber to the service which is activated free of charge and without any minimum deposit. Customers will be able to deposit and withdraw money from the Orange Money account, transfer money from one person to another, purchase call credit 24 hours a day and pay bills. BNP Paribas’ Ivory Coast subsidiary BICICI is in charge of issuing and guaranteeing the electronic money.

* In January 2009, Cameroon’s Mobile Money (www.mobilemoneysa.com) launched a mobile payment platform that allowed mobile phone customers to transfer money and pay bills. The product was launched in December at the Promote 2008 exhibition in Yaounde by Express Union, an existing money transfer operator in Central Africa.

Mobile Money is delivered through a network of partners including micro-finance institutions, companies that provide cash for fund transfers and other physical outlets. These outlets have an electronic payment terminal that communicates in real time with a central server.

* Last month MTN announced the launch of its own M-Money service in Uganda. It is estimated that 80% of Uganda’s 29 million population are unbanked. The service is provided in partnership with Stanbic. Shortly after the launch it announced that it would launch M-Money trials in Benin, Congo Brazzaville, Guinea Bissau, Guinea and Liberia.

The speed of take-up may not be as dramatic as M-Pesa’s growth in Kenya for it will take time for people to have trust in the new services. Two factors seems to have played a part in Kenya’s success: the trouble after the last elections seems to have actually accelerated use as people avoided going out to make payments and the extent of Safaricom’s agent network. The latter is already over twice the size of its nearest rival Zain.