session 05 (november 09) - m-pesa

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This case study was written by Stephanie Ludwig, Research Associate, and Tawfik Jelassi, Professor of e-Business and Information Technology, at the Scheel of International Management of Ecole Nationale des Ponts et Chaussees, Paris. It is and intended tobe used as the basis for class discussion rather than to il1ustrate effective or ineffective handling of a management situation. The case was compiled from published sources and the author's own fie1d research and interviews.

Copyright © 2011 ENPC Scheel of International Management, Paris

the case for learning

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Michael J oseph, CEO of Safaricom 1, the leading telecom operator in Kenya, has just received a market update for one of the company's profit centers: the highly acclaimed M-PESA ("M" for mobile and "PESA" for money in Swahili) service launched by Safaricom in March 2007 and used by more than 12 million Kenyans. Looking down from his high-floor office in the Nairobi corporate headquarters, he thoughtfully glanced at the jammed Waiyaki Way, filled with cramped matatus2

• Indeed, there is so much to be done to improve living quality in Kenya. With M-PESA, he has committed to provide a service to the country' s financially poor3 that has transformed their socio-economic situation for the better.

Michael Joseph recalled the major milestones he had managed which has changed Safaricom and has affected Kenya. Satisfied with his achievements, he decided that the time had finally come for him to step down.

"I have been the CEO of Safaricom for the past 10 years. I believe the time has now come for me to hand over the reign of the company to someone eise. I am very proud of what we have accomplished as a team, in particular our achievements to become a market Ieader, our extensive corporate social responsibility program [. . .} and the numerous innovative products and services we have introduced to the Kenyan market. It has been an extremely exciting ten years and has been a great honor to work with such a talented and committed team and indeed with the over 16 million Kenyans who believed in the brand. [. .. } We started with Jive people and we built this company to what it is today. I can 't just walk away from this company, which I consider to be my baby, with no

. I " 4 successor zn p ace .

Safaricom' s Board appointed Robert Collymore, 52 years old, as the new CEO of the company, who has worked in the telecommunications industry for more than 30 years. He served at V odafone as the Governance Director for Africa and also as Purchasing Director for UK business. He is very familiar with the Kenyan telecom sector because he was a member of Safaricom's Board for the past four years. To facilitate the transition, Michael Joseph decided toset up a meeting with his team and present to Bob Collymore their recommendations in order to sustain Safaricom's success, andin particular it's MPESA; "[Joseph 's} single greatest legacy"5

.

Launehing M-PESA, a service that offers access to financial inclusion through a mobile phone, has made a substantial difference at the country level6

. M-PESA is a mobile online service offering micro-payment, remittance and e-money storage through the handset. It is a technology enabling money deposit and withdrawal on the mobile account through the conversion of cash in e-value and vice versa. The main benefits are to conduct financial transactions at a lower risk and cost as weil as higher speed and

1 Michael Joseph has been CEO of Safaricom since July 2000 when the company was re-launched as a joint-venture with Telkorn Kenya. For more details on Safaricom, see the appendix ofthis case study.

2 Shared taxis in Kenya. 3 Regarding Pierre Bourdieu's (1986) theory on capital dimensions, we use the tenn "fmancially poor" referring to a lack of material resources. People may be rich of cultural, social and symbolic capital.

4 http://afrinnovator.com, 2010 5 Ibid, Nicholas Nganga, Chairman of Safaricom 6 This case study is based on ethnographic field research, including expert interviews in Kenya, carried out by one of the case authors.

Copyright© 2011 MBA ENPC No

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convenience than alternative money transaction systems such as Western Union, automatic teller machirres (ATM), post offices and other physical transportation means or even online banking.

Offering the possibility to send money from one mobile phone to another has included 12 million people in Kenya's financial system. By sending and receiving e-money, they can now support their families in rural areas and do much more.

M-PESA: An inclusive business model application

"Utilizing Information and Communications Technologies (ICT) as a catalyst for social and economic progress is an opportunity long held in high regard by the international development community. Impacting society at both the micro and macro Ievels, the tools of ICT equip us to help address our greatest social, economic and environmental challenges. "

World Economic F orum7

Business, as an engirre of growth and development, has a critical role to play in accelerating progress in developing countries through increasing investment, creating jobs, improving skills, and developing goods, technologies and innovations which can make people's lives better. This includes the private sector's role as a source of capital in developing countries: globally private sector investments make up over 85% of investment and financial flows. Global businesses benefit from providing sustainable solutions to the developing countries. Inclusive business models integrate poor individuals into the value chain as producers, partners, employees and consumers. Enterprises can also provide social investments or public advocacy.

Michael Joseph and many other entrepreneurs worldwide have followed the inclusive business model approach. They recognize that: • Business operations, innovation and risk management rely on grasping and

proactively addressing local socio-economic and environmental issues; • Investing in providing access to goods, services, and livelihood opportunities for the

"bottom of the pyramid"8 in commercially viable ways means investing in untapped and growing markets. These people, referred to as "next billions"9

, represent an estimated annual spending of US$ 2.3 trillion10 worldwide. The inclusion of lowincome people in business operations creates employment, income and qualitative capacities which again upgrade the financially poor as consumers. Additionally, businesses enter unsaturated markets characterized by a long-term demand; and

• Building a sustainable market requires long-term investments in infrastructure ( e.g., power, telecommunications, piped water supply, sanitation, sewage) and technology by the public and private sectors.

7 World Economic Forum, 2010 8 Prahalad, 2010 9 Harnmond et al., 2007 10 World Economic Forum, 2009


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ICT as an enable:r fo:r socio .. economic development

Information and Communication Technologies (ICT) can be used as an effective enabler for improving living quality and driving socio-economic development. The impact from investing in and implementing ICT is manifold. Direct and indirect impact can be felt in the every-day life ofthe poor, as ICT enhances the efficiency of development approaches and allows reaching out to a higher number of people. Furthermore, these technologies eliminate geographical and time barriers. They enable people living in rural or remote areas to take part in the economic activities which usually happen mostly in urban areas 11

• In order to succeed, such high-impact projects required an enabling environment and a stringent ICT strategy.

In the last decade, ICT growth worldwide was driven by mobile technologies 12. The

mobile phone has been the most rapidly adopted technology ever and is currently the most popular and widespread personal device, leading up to an estimated 4.6 billion subscriptions ( compared to approximately 7 billion world population).

Mobile phones- often referred to as agents of change- provide, through solutions and services, an effective support for people living in developing countries. The mobile phone seems to have a comparable impact on connectivity for the base of the pyramid as computers and the Internet had on the affluent13

. Low-cost devices and ever increasing mobile phone network coverage offer the means for communication and data transfer to approximately 2 million new subscriptions per day14

• Further drivers are stimulating market competition, liberalized regulation and bottom-up innovations. A massive number of services, for a variety of purposes, has been recently created to cater to the un-served. These include:

• Healthcare-related services for remote monitaring or awareness building; • Education and trainingvia the mobile phone; • Agriculture-related information for receiving market price data; • Sustainable development and environment through disaster management or

weather alerts; • Salutions like rural enterprise development or employment exchange; and • Rural finance like remittance or insurance15

.

M-PESA: A mass-ma:rket, technology-based service targeting the un-served in society

"[The] innovative and successful scheme [of M-PESA has} great potential to increase jinancial inclusion and drive economic activity. The reach and injluence of their product has been extraordinary, not just within Kenya but also beyond, as operators have been inspired by M-PESA 's success and launched similar services."

Tom Standage, Digital Editor ofThe Economist magazine16

11 Arunga & Kahora,2007 12 International Telecom Union, 2009 13 GSMA report, 2009 14 World Economic Forum, 2009 15 ZMQ, 2010


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The M-PESA project started in 2003. It was initially developed by Vodafone and cofinanced by the UK Department for International Development (DFID). It is very likely that the basic idea stemmed from earlier African practices of paying airtime17 to a beneficiary as a method of distance payment. People often had informal agreements with merchants to reseil their minutes in exchange for cash.

For M-PESA's initial development, Vodafone contracted a small team from Sagentia, a technology consultancy located in Cambridge (UK). The team designed the business processes and developed the software for M-PESA; it also provided operational and technical support during the pilot test and also after the system's launch.

M-PESA's pilot test started in October 2005 and Iasted 6 months involving 250 users. During the test, users made payments on their loans with Faulu, a Kenyan microfinance firm, through M-PESA as a tool for the re-payment of loans granted. Then, the team's research on the usage patterns of M-PESA' s pilot user sample led to changing the system's application design and to turn it into a person-to-person (P2P) money transfer serv1ce.

Safaricom launched M-PESA on March 6, 2007. The roll-out started with 750 stores in all of the 69 districts of Kenya. From the beginning, the operator aimed at affering a country-wide coverage in order to build a critical mass of users18

. User numbers continuously increased: one year after the launch, M-PESA had more than 1 million users. The Sagentia teamwas on call 24/7 resolving system issues. A few months after M-PESA's launch, the initial system-related shortcomings were almost overcome. Especially in early 2008, M-PESA had attracted more customers than expected, which led to network congestions (mostly during peak tim es such as Friday nights) resulting in money transfer delays of several days.

Safaricom's slogan "Send Pesa by Phone" helped create awareness about the service's initial offering. Kenyans quickly adapted to M-PESA, but had to learn how to use it. A small percentage of transfers were sent to the wrong person. However, due to loose ID requirements and non-registered SIM (Subscriber Identification Module) cards at the beginning, criminals took advantage of M-PESA and used it for black-mailing, ransom paying (subsequent to a kidnapping) and other frauds. M-PESA's development team designed a service specifically for Kenya. The system' s research and pilot test helped gain a better understanding of the market which enabled the team to identify unmet users' needs and to understand key extemal factors in the Kenyan environment.

16 M-PESA is the 2010 winner ofThe Economist's "Social and Economic Innovation Award", which was announced in October 2010, www.economistconferences.co.uk, 2010

17 Airtime refers to calling minutes that can be used on a mobile phone. 18 Mas & Radcliffe, 2010


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Tackling unmet needs in Kenya

For a market-based solution to enable a transition towards a sustainable and inclusive future there must be an underserved need, a supporting external environment and enabling legal, institutional and financial frameworks 19

•

Although Kenya20 acts as a regional trade and finance hub for East Africa, inequality in the country is high, with half of the Kenyan population (about 39 million) living below the poverty line. Out of the entire Kenyan labor force of about 17.5 million, only 10% receive formal wage employment. Being confronted with an estimated unemployment rate of over 40%21

, the informal sector kept growing22. Micro and small enterprises

(MSEs) make up the most important source of informal employment because barriers to launehing a small business are usually low.

''Any gains in productivity, profitability and even basic stability are of the utmost importance to the livelihoods of the households involved. "

Jonathan Donner, Senior Researcher, Microsoft (South Africa) 23

Access to formal banking services is scarce especially in rural/remote areas of the country. Only 23% of Kenyans have a bank account. A substantial proportion of the Kenyan population either has to rely on informal financial services or has no financial access at all. Although micro-finance is on everyone's lips, only 3.4% use companies affering such services. Urban dwellers often combine formalandinformal services24 (see Exhibit 1).

The urban population accounted in 2008 for 22% of the total Kenyan population at an annual urbanization rate of 4%25

. The country has shown strong migration dynamics characterized by the movement of mainly young, male Kenyans to the cities in search of work or better education. These domestic migrants tend to keep strong relations with their family left behind in their home town or village. The money earned in urban areas serves to sustain the migrant's family, which makes urban-to-rural financial transactions very common in Kenya.

In 2009, the penetration rate of mobile phones reached 70% in urban areas and about 45% in tota126 (see Exhibit 2), while Internet and landline access were still very limited. The ubiquity ofmobile phones has in fact leapfrogged that ofthe fixed-line phone.

19 World Business Counsel for Sustainable Development 2010 20 The 39 million Kenyans represent a labour force of 17.5 million accounts for an average monthly GDP

per capita ofUS$ 1,600. However, Kenya's top 10% households gain 42% ofthe total income while the bottom 10% make less than 1%, (Society of International Development 2004, CIA World Fact Book 2009)

21 CIA World Fact Book, 2009 22 Macaria, 2007 23 Donner, 2007 24 FSD Kenya, 2009 25 CIA World Fact Book, 2009 26 International Telecommunications Union, 2009


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"Today, owning a cell phone in Kenya, like in most of Africa, is as much a personal decision about how life should be lived as a realisation of the age-old idea that prosperity is built on the ability to establish effective communication. "

Arunga & Kahora, Researchers on the Impact of Mobile Phone 27

M-PESA' s rapid uptake depended partly on the country' s open regulatory approach. Kenyan regulatory bodies, mainly the Central Bank, allowed telecommunication providers to process cash-in and cash-out although they were no financial institutions and there was no legal framework in place. M-PESA was not as tightly regulated as commercial banks in Kenya since, according to the banking act, Safaricom was not operating as a bank. As long as the money was in transit, a telecom operator was not considered a bank. In other countries like South Africa, telecom operators that received deposits from customers were viewed as banks and needed a banking license28

•

Commercial banks raised concern because many M-PESA subscribers actually used their M-PESA accounts as a checking account and shifted money from bank accounts to MPESA accounts. In late 2010, to address this issue, Kenya' s Central Bank was expected to introduce a National Payment System act as a core component of the broader financial system. Telecommunication operators and regulatory bodies worked closely tagether and exchanged information about planned products or security issues.

"Mobile bankingwill be the banking of the future. [. . .]Fora system or an economy to be cashless, it is really not up to the regulator; it is the people themselves. "

Stephen Mwaura Nduati, Head ofNational Payments System Division at CBK

M-PESA. development and roll-out

Having identified the main external factors that drive the adoption of a new service, the M-PESA development team formulated a marketing strategy for the new service. They knew that achieving quick adoption and usage of M -PESA required flawless execution of the pre-launch, launch and follow-up phases. The team also had to further refine the product's affering and establish a sound marketing mix. They set up a distribution network, a pricing strategy and accompanied the product launch with a comprehensive communication campaign to ensure brand awareness and customer education. F or the team, it was critical to rapidly create momentum and to achieve scale in order to avoid the adverse impact of network effect29

• Also they knew that more customers would attract more M-PESA agents and vice-versa. The team was convinced that customer education and trust are major challenges for ensuring M-PESA's success.

M-PESA's main requi:rements and features

M-PESA started with simple functions such as purchasing airtime, making domestic money transfer and deposit/withdrawal of cash at agents' shops (see Exhibit 3). Registration for these services required little identification and in most cases took less

27 Arunga & Kahora, 2007 28 Omwansa, 2009 29 The service's value increases with an increasing number ofusers, and vice-versa.


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than 5 minutes. Like a debit card, e-value is protected by a PIN code, as it is for a debit card. The majority ofKenyan users (81 %)30 stated that M-PESA is very easy to use.

T o make a cash deposit, the user hands over cash to an M-PESA agent and in exchange

receives an electronic value (the agent sends the e-value through an SMS). Once the

deposit is dorre, the user can either store the money on the phone or send it to another

person/party by entering the recipient' s mobile phone number, the amount to be sent and

the PIN for security reasons. The recipient receives an SMS about the receipt ofthe

monetary value. Subsequently, they may convert the money at any M-PESA agent kiosk

or ATM. The menu structure on the phone display for processing an M-PESA money

transfer is relatively simple as shown in

Exhibit 4. A simplified model of an m-transaction is provided in Exhibit 5.

Selling airtime has been the core business of telecom operators. Re-loading credit became easier since pre-paid phone accounts can be recharged any time with the money previously deposited. Prior to that, mobile phone users were only able to buy scratch cards at the agents' outlets and where therefore restricted to the shops' operring hours.

Registered M-PESA users can take money out of an ATM without using any debit or credit card. The user only needs to enter the registration number, displayed on the ATM, in the mobile phone. A message then appears on the mobile phone showing the transaction code to key in at the A TM. Then the actual withdrawal operation takes place. Safaricom used a network of independent A TMs called PesaPoints from the beginning. Over time partuering banks also provided their A TM networks.

The "paying bills" function is used to settle amounts that are regularly due such as the payment of electricity bills or school fees. In order to broaden the scope of this payment function, telecom operators established many partnerships with companies in a variety of business sectors ranging from retail to transport to loan repayment.

Distribution: Establishing consumer touch points

Safaricom built its distribution system through different layers. They set up an intermediary level made of HO agents, who acted as aggregators and managed liquidity, the distribution of commission as well as contracting or acquiring sub-agents. Banks acted as super-agents, using Safaricom' s parlance, who service agents and may offer A TMs for withdrawal.

Safaricom' s 19,5 00 agents ( as of September 201 0) were mostly airtime sellers or retailers ranging from petrol stations to pharmacies. Often the agents are running their small shops in the community they live in. Agents convert cash and e-value and write down every transaction in the Safaricom log book.

Becon1ing an agent required some basic business skills and start-up money, because the agent exchanges users their personal funding for e-money with M-PESA. Furthermore, they are required to buy licences such as US$ 1,250 for SIM replacement, US$ 175 for

30 Pulveret al., 2009


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establishing a small financial enterprise and another US$ 175 as a municipality fee (which is waived if the agent is based in a slum). However, since agents eamed US$ 9 cents per transaction, which is 3 times more than they would earn with selling airtime, and received financial incentives for newly registered customers, more people wanted to become M-PESA agents. On average, agents process 86 transactions per day. However, those processing less than 30 transactions per day arenot profitable31

. Still, not every MPESA agentwas successful as rural areas are more difficult to manage. Forthis reason, many agents provide M-PESA together with their core business (e.g. a coffee shop).

Agents are often located near bus stops, post offices, etc., where people usually send money32

. Safaricom's network covers very well urban areas. By 2008, Kenya had 7 times more M-PESA outlets than bank branches. In April 2008, each one of the 3,000 agents served about 1,000 customers andin August 2009, Safaricom had a network of 12,000 agents each serving 600 customers33

. However, remote areas are insufficiently covered as they have fewer customers to serve. The issue of handling cash is passed on from the user to the agent. Rural agents receive more e-value but lack cash to handle requested withdrawals. To balance the float between cash and e-value, they have to physically balance at an agent HO or a bank (acting as a super-agent), which can involve a bigger travel distance in remote areas. Additionally, they run the risk of attracting criminals due to the cash accumulated in their kiosk. Small sub-agents often prefer not to provide money conversion of large amounts to the customer ( who then needs to address another agent) to avoid theft or float imbalance. As a rule there are no agents' outlets where there is no network coverage.

Bank customers either physically went less frequently to their branch or exchanged their bank account for an M-PESA account. Banks targeting low-income people started to form strategic partnerships with their new competitor. They became super-agents and allowed Safaricom to use their A TM network. They also encouraged their customers to use M-PESA with the hope to cut overhead costs by reducing customer contact34

.

Pricing strategy

Safaricom set up a simple pricing structure for M-PESA, which in spite of high inflation has not changed for the last 3 years in order to increase people's familiarity with the service. Also the fact that M-PESA agents displayed a tariff flyer lead to over 66% of users understanding the service's pricing structure35 (see Exhibit 6).

In order to stimulate M-PESA's usage, making a deposit is free of charge. However, the sender pays a transaction fee of US$ 40 cents per remittance 36 (F or illustrative purposes, see box: "An actual usage example"). Per user, the maximum daily transaction is US$ 870, while it is US$ 435 per transaction. Money can be received across different telecom operator networks, although at a higher fee.

31 Pickens, 2009 32 GSMA report, 2009; In Zambia, a very similar strategy was used. 33 Jack & Suri, 2010 34 Maima, 2009 35 GSMA report, 2009 36 US$1 = KES 80. Figures are rounded.


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Non-M-PESA registered recipients can also receive money but the sender incurs additional costs. The latter bears additional costs if the transaction goes through different telco networks. Many Kenyans found a way around paying these costs as they use multiple SIM cards from different operators to capitalize on the best tariff. This usage has become more frequent since multiple-SIM handsets became available in the market. After every transaction, users receive a confirmation SMS stating that the money has been sent ( although not yet received) and their new account balance. For withdrawal transactions, M-PESA uses a step-wise fee structure instead of a percentage of the amount involved.

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A.n actual usage example Hosea wants to mpesa37 his friend Hyda US$ 1 to pay her matatu (shared taxi) fare. He has to deposit US$ 1. 70, since due to the transaction fee ( of 40 cents ); Hyda will receive only US$ 1.30. When she finally withdraws the money, she will have to pay a fee of 30 cents and then receive US$ 1. Thus, Hosea had to add to the M-PESA transaction value 55% ofthe requested amount. Relatively speaking, the fee would be significantly lower if Hyda needed a larger amount ( e.g., US$ 1 00).

M-PESA is costly for Kenyans, especially for those located in remote areas and living on US$ 1 a day, although recipients do not have to bear any costs38

. Low-value remittances are not cheap per se, but compared to the price, speed and convenience of alternative systems, M-PESA remains an attractive way ofmaking payments.

Retail commissions for the M-PESA agents are directly deducted from the customer' s transfer fee and sent to Safaricom. Subsequently, the agent received an aggregate commission, thus preventing agents from any possible fraud if they directly took their commission from senders. While customers do not pay for deposits, M-PESA agents also receive a small fee for deposits made. Head Offices agents (HO) receive 30% of the commissions paid by customers, while sub-agents received 70% of the commissions. However, the HO agents earn more than the sub-agents due to the higher amount of transactions they process.

Cornmunication approach

The M-PESA development team tailored the service to the needs of the financially poor people, thus aiming at integrating them in the country 's economic activities. Its communication strategy leveraged the strong and trustworthy brand of Safaricom. This strategy enabled M-PESA tobe perceived by the under-banked target group as a "product for people like us".

To create awareness about M-PESA, Safaricom used print advertisements - such as bill boards- (42%), TV and radio ads (30%), and also relied on word-of-mouth (30%) through family members or friends, whereby 1 0% of Kenyans leamed how to use MPESA from their social contacts. In addition to these communication activities, Safaricom pursued when launehing M-PESA's a major outreach operation in order to introduce the service and explain it to potential users. It also relied on agents to whom it gave a customer support training. Furthermore, the company set up a hotline for both customers and agents.

37 Kenyans have indeed included M-PESA in their everyday language 38 Brewin, 2009 and Karugu, 2009


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Safaricom became omnipresent in Kenya as it required its agents to paint their point of sale in the green corporate colour. It also created the Safaricom Foundation to carry out charity projects and activities. Such action positively contributed to eaming customers' trust, a critical success factor for affering mobile financial services.

Expanding M-PESA.'s service capabilities

Building on M-PESA's initial success, the service was further expanded by allowing withdrawal from A TMs, payment of goods and bills, bulk payment and money collection as well as mobile banking.

Organizationally, Safaricom did not set up M-PESA as a new profit centre. Instead it considered it as an additional means to enhance customer retention and the average revenue per user (ARPU). For Safaricom, buying airtime is M-PESA's core business. Often, people used the service not necessarily to transfer money but rather to store their money on the phone as an alternative to a bank account, something that the company did not expect. Although Safaricom affered a mobile financial service, it did not aim at entering the banking sector. Between its launch in March 2007 and July 2009, M-PESA registered more than 11,000 new users per day. By 2009, Safaricom was able to convert 40% of its mobile phone subscribers into M-PESA users, thus strongly impacting the way people in Kenya went about their financial transactions.

Bulk payments facilitate the payment of wages and salaries to employees. It was especially targeted at companies that have a large number of employees, including temporary workers earning a small wage.

Cash collection allows efficient cash collection for NGOs (donations, e.g. red-cross), wholesalers or other companies working with a large base of clients, whether they are donors or small suppliers. The service is especially beneficial to sellers since they do not need any more to collect a large number of checks.

Payment for goods39 through the mobile phone, dubbed "Nunua na M-PESA" (Swahili for Buy with M-PESA), can be done from two of Kenya's leading retail chains Uchumi and Naivas. Uchumi Supermarkets is Kenya's second largest retail chain by annual turnover; about 20 million customers sperrt US$ 120 million last year. Naivas ranks fourth. The payment process follows the usual process: Customers are required to show their ID and then select the following commands on their M-PESA menu:

1. Select 'Buy Goods' 2. Enter the 'Till Number' of the organization they are paying (every shop has its

own Till number which is displayed in the shops) 3. Enter the amount they wish to pay (Between Sh100-35,000) 4. Enter the M-PESA PIN number, confirm their entry and then press OK.

After payment, both the customer and the supermarket sales assistant receive a confirmation SMS. The sales assistant then completes the transaction and hands over the

39 www.safaricom.com, 2010a


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sales receipt in paper form to the customer. Currently there is no charge to use the service; however Safaricom may introduce a nominal fee in the future.

"This is yet another effort by Safaricom and partners to deepen online and cash-less payment solution in Kenya and also a jirst in the region. [ . .} It resonates with our company 's commitment to Iead the way in innovations that improve the living standards of our subscribers, in line with M-PESA 's 'Bigger Than Cash' aspirations."

Michael Joseph40

Through these partnerships the M-PESA mobile money transfer platform transforms into a electronic commerce tool that has the potential of changing the dominant cash-based Kenyan commerce. Safaricom now provides a total end-to-end offering for corporate, SME, home and individual users. It currently has around 200 pay-bill partners, which allows manifold usage of M-PESA. For example, the ''Fly with M-PESA" partnership established with East African, Air Kenya and Aircraft Leasing Service allows air travelers to book, to confirm and to m-pesa (to buy) a regional airline ticket of up to US$ 1 ,000. However, users need to have a data-enabled mobile phone.

In addition to these partnerships with Safaricom, M-PESA customers have used the service in various creative ways. The recipient (mostly the seller) only needs to agree on mobile payment and provide their mobile phone/account number41

•

Examples of an informal individual use of M-PESA: Salesman Abdul received the fare from his boss when he got stuck on an extended business trip. John frequently sends money to his sister living in the country side to supporther starting up her own business. Mama Mercy pays her daughter's school fees and saves the equivalent of a month's rent as she no Ionger has to pay for the bus ticket to go and settle quarterly bills during the school year. Student Benson discretely receives financial support from a local politician. Cattle re-seller Francis stores his revenues on his mobile phone after a market day, since robberies arefrequent in his region. Lillian sends her weekly instalments to her savings circle when she cannot physically artend the meeting. Farmer John borrows money to buy medicine for his ill cow and thereby prevents a considerable loss of money in case the cow dies. Bar owner Derrick attracts new customers by accepting payment by M-PESA as clients often run out of cash at night. Customers using M-PESA consume more than others as emoney is less tangible. Derrick charges every customer the M-PESA withdrawal fee, but he only has to pay the fee once when withdrawing the total sum. M-PESA has become an additional source of income for him. Agent Leonard has increased sales in his pharmacy because the provision of M-PESA as additional service has augmented the traffic in hissmall store in the Kibera slum, Nairobi.

40 ibid 41 Individual usage examples gathered during field work by one ofthe authors. Examples arenot

representative.


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Change of usage patterns

Before the introduction of M-PESA, money was either remitted by handing money in an envelope over to friends or family members (43%), through courier or bus companies (20%), via the post office, Western Union (18%), commercial banks (8%), etc. In 2009, 47% ofKenyans sent money via M-PESA, which was perceived as the least risky means (by 26% ofusers), the cheapest (32%), the fastest (64%) and the easiest service to access for making money transfer ( see


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Exhibit 7). Sending and receiving money was by far the most frequently used service (representing respectively 28% and 25% ofusage). Safaricom's core business (ofselling airtime) accounted for 22% ofremittances. Saving money, either for everyday use (14%) or for emergencies (7% ), ranked third. Early adopters were generally more likely to be farmers, public servants or businessmen, who tended tobe more male, slightly older, more literate and educated and have high er income. With the maturation of the service, a high diversity of customers used M-PESA. Most remittances occurred at the beginning of the month (salary payment). Typically, they consisted ofmobile money transfers made to family members living in a separate household. By March 2009, the average transaction value decreased from US$ 41 to US$ 28. Over 84% ofKenyans indicated that a sudden disappearance ofM-PESA would mean a tremendous loss for them42•

Adapting M-PESA's distribution approach

In early 2010, Michael Joseph decided to simplify the way of recruiting agents by introducing the "Aggregator Model", which removed the need to deal with sub-agents directly. About 10 newly appointed agent aggregators were set up Oll top of the agellts' channel; each aggregator mallaged 2,000 to 4,000 agellts. Safaricom selected them based oll their liquidity alld performallce as HO agellts. Aggregators received a commissioll of 20% (illstead of 30%) sillce they bellefitted from a higher transactioll volume. Thus subagellts received a bigger commissioll equalillg 80% instead of70% (see Exhibit 9)43

.

Safaricom planned to illtroduce an IT system at the agent' s level to overcome the current paper processing work. Agents will be required to key in data into a PC having an Internet connection rather than into their paper log book. However, these technical requirements would increase the agents' costs of doing business as few field agents own a computer or have access to the Internet or even to electricity.

Sustaining M-PESA's Iead in Kenya

In February 2009, Zain, Safaricom's main competitor44, launched ZAP as a response to

M-PESA. Initially, it had 500 agents but six months later, it accounted for 4,000 dealers all over the country. The service's roll-out was similar to the one used by Safaricom. However, in colltrast to M-PESA, ZAP came as an additional service and required a ZAP SIM card. In August 2009, Zain had 3 millioll customers out of which 300,000 are registered ZAP users. Zain offered mobile money transfer at a fee of only US$ 12 cents per transaction, making it 33% less than M-PESA's basic fee. Besides a similar product offering, Zain capitalizes on its international presence, allowing cash transfer from

42 Pulveret al., 2009; This profile goes along with research from South Africa (Ivatury I Pickens, 2008). 43 Mas & Ng'Weno, 2010 44 Zainstarted in 1983 as part ofthe Middle-East based MTC Group, which is now present in 8 countries.

Launched in 2004 as Celtel in Kenya, it was rebranded in 2008 as Zain. In June 2010, Zainsold 100% of Zain Africa BV (which operates in 15 counties) to Bharti Airtel Limited, one ofindia's telecom operators. Zain has 2.1 million subscribers, representing an 11% market share. In 2009, it had revenues ofUS$154 million, with aUS$ 7 million EBITDA. Its ARPU in Kenya was US$ 4.


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participating Western Union locations around the globe to ZAP customers in Kenya, Tanzania and Uganda. Zain has launched its service in three more African countries and is now available to a total population of 150 million in 6 countries. Safaricom and Zain had a different market positioning. While Zain offered pan-African modern advertising and targeted the wealthier, Safaricom addressed local masses in Kenya and aimed at lowincome people (see ).

YuCash (Econet Wireless/Essar) was launched in December, 2009 achieving a market share of 5%45

. In a similar way to Safaricom, Essar cooperated with Equity Bank and Obopay, a company specialized in mobile payment systems. Customers of competing networks used SMS to transact through YuCash and, unlike M-PESA and ZAP users; they did not need to have a Yu SIM card. Another difference consisted of allowing users to request money from subscribers, access transaction statement and include a personal message when sending money by phone. Yu set up partnerships with banks and developed an incentive system to attract users into its service. YuCash currently has 2,500 agents around the country and is used by 55,000 out of the 1.5 million Yu subscribers 46

. Yu mainly targets young customers (aged 18-35 years) and offers a competitive price for its service.

Orange 47 by Telcom Kenya has a market share of about 5%. Orange's strategy is to target top-range consumer and business services. Orange Money was launched in Kenya in November 2010 after being already launched in 5 other African countries. Orange took a different approach from M-PESA by combining the money transfer capability of a telco with the mobile banking service of a bank. Orange and Equity Bank forged a strategic partnership for setting up the technical solution and ensuring the distribution of Orange Money. The latter is a money transfer service linked to a bank account and hosted on Equity Bank's mobile banking platform. Usersare affered through their mobile phone a banking capability that has a less stringent transaction limit (KES 1 00,000). A cobranded Orange Money Debit Card, which is linked to the mobile phone, will soon be launched. Then, users can either withdraw money with the card or the phone from Equity's ATM network and they can pay for goods and services at retail outlets. The two partners intend to establish by the end of 2011 a joint distribution network with over 20,000 agents in Kenya. The Orange Money roll-out is expected in 19 more countries in Africa and the Middle-East. The partnership is also planned tobe extended to some other African countries where France Telecom is present (such as Uganda). Mobiletelecomoperators have been aggressively competing with each other by cutting tariffs and introducing various new promotions and offers, making their services more affordable to the wider population. More financially-poor people would be able to process micro-payments if the minimum transaction amount (US$ 1.2) and transfer fees (US$ 40 cents) were reduced.

45 In 2008, Yu (Econet Wireless) sold a 49% stake ofthe company to India's Essar Communications Holdings. Econet Wireless Kenya is 70% owned by Econet Wireless International. Essar Telecom Kenya Limited (ETKL) is a unit ofthe Essar Group. In November 2008, ETKL launched the "Yu" brand.

46 Business Daily Africa, October, 2010. 47 In 2007, Orange (France Telecom) acquired a 51% stake in Telkorn Kenya through its holding company

Orange East Africa (OrEA). In Sept. 2008, Telkorn Kenya launched its mobile voice service; it is currently a fixed, mobile and Internet operator.


15 0112011-

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M .. PESA's international expansion

In August 2009, Safaricom was authorized to launch a new service called "International Money Transfer (IMT)" allowing one-way remittances from the UK to Kenya, thus serving the Kenyan diaspora. With this new service, Safaricom wanted to tap into Bastern African countries or countries with a strong Kenyan diaspora (such as the USA).

To develop IMT, Safaricom worked with Vodafone, Western Union and relevant regulatory authorities. In 2008, tests and a three-month pilot were carried out with Western Union, Provident Capital and KenTV which served as agents in the UK. These tests involved 19 outlets covering areas with a high population density. IMT partners provided the cash-in location for senders to transact. The money was sent directly to the recipient's mobile phone with a Safaricom line. Safaricom customers got notified by SMS that they received money. Registered users could withdraw the money at any agent's outlet all over Kenya, while unregistered users had to go to Western Union branches.

The maximum amount that could be remitted via M-PESA in a single transaction is US$ 400. Per month, the maximum amount to remit through M-PESA cannot exceed US$ 1,590, with fees ranging between US$ 6.5 and US$ 10 charged to the sender. Recipients are not charged any fees. In contrast, sending money from the UK to Kenya via a bank transfer costs US$ 16. Leveraging Western Union's and Vodafone's global presence, Safaricom could quickly expand its IMT service to offer remittances in more foreign markets such as Uganda, Tanzania, Rwanda, the UAE and the USA.

Through its global partnership with V odafone, Safaricom was able to expand the international roll-out ofM-PESA to other countries. It did so in 2008 first in Afghanistan in partnership with Roshan and then in Tanzania in partnership with Vodacom. Afghanistan's "M-PAISA" offered financial services to the 97% of the unbanked population of Afghanistan. The service was based on an Interactive V oice Response (IVR) system available in Dari, Pashto and English and serving illiterate customers (which represented 70% ofthe populationt8

.

In Tanzania, where M-PESA was also launched by Vodacom in 2008, subscribers' uptake was much slower than that of Kenya. By June 2009, i.e. 14 months after the launch of the service, M-PESA only had 280,000 users and 1,000 agents49

• Although Kenya and Tanzania are East African neighbors, the two countries have major geographic, cultural, and economic differences. The two carriers (Safaricom in Kenya and Vodacom in Tanzania) had different strategies. Kenya' s distribution network relies on medium-sized airtime retailers as master agents, while in Tanzania; an aggregator model was built as a separate entity from the existing airtime distribution network.

48 Roshan website, 2010 49 Rasmussen, 2009 quoted in Camner et al., 2009


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M-I{ESHO: A banking revolution

"Now, Kenyans will have self-service savings accounts an cell phones. When these accounts are linked though M-P ESA, we will be the most-banked country in Africa and the developing world. "

James Mwangi, CEO ofEquity Bank50

In May 2010, Safaricom launched M-KESHO; "a product that is expected to promote a savings' culture in Kenya", as Michael Joseph put it. M-KESHO (with M standing for mobile and KESHO for tomorrow in Swahili), was launched in cooperation with Equity Bank51

. Through M-KESHO, Equity Bank's 4.5 million account holders and M-PESA's 12 million customers could connect the two services with one another. M-PESA customers have often expressed their wish to gain interest with M-PESA accounts and were now heard.

M-KESHO is an interest-bearing savings account at Equity Bankthat can be opened at any M-PESA agent. Money can be moved to and from an M-KESHO account and MPESA wallet, and from M-KESHO to another Equity Bank account. Safaricom's MPESA agents became also agents for Equity Bank account holders, and M-PESA users can withdraw cash from over 650 Equity Bank ATMs. Equity Bank also offers a personal accident insurance policy to M-KESHO holders. By November 2010, an instant loan product (based on a credit scoring model) was added to the offering. M-KESHO was able to grow its customer base to 455,000; however, only 176,000 were active customers52

•

((M-KESHO is a bigger barrier to leave the network [than other value-add services}." Pauline Vaughan, M-PESA Manager

In order to sustain its leading position in the market, Safaricom launched additional services. First, it introduced Kilimo Salama (Swahili for "safe farming") in partnership with the Syngenta Foundation for Sustainable Agriculture and UAP Insurance. The service offers insurance policies to over 11,000 farmers to send them financial support in times of crop loss. The second new service was the Mbale pension product, launched in cooperation with the Jua Kali Traders' Association. The service enabled the 18,000 informal sector workers (who hold a pension account) to deposit money as an investment into their future. Through M-PESA, traders can deposit money at any frequency, with amounts as small as 25 cents53

.

50 Rosenberg, 2010 51 Equity Bank is the leading microfmance bank in Africa and the largest bank in the region in terms of

customer base. It has over 4.5 million bank accounts, representing 54% of all bank accounts in Kenya. Equity Bank also operates in Uganda and Southern Sudan.

52 www.itnewsafrica.com, 2010 53 Mas & Radcliffe, January 2010


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M-PESA today

In October 2010, Michael Joseph looked back at M-PESA's constant development over the last 3.5 years. After overcoming its infancy challenges, the service matured and became increasingly enhanced with new capabilities and features. M-PESA's inclusive market approach has socio-economically benefited its customers and other stakeholders. Its current standing can be summarized by the following figures:

Twelve million registered customers (most them being active users) representing 7 5% of Safaricom' s total customer base, 31% of the Kenyan population, and 53% of Kenyan adults. 19,500 M-PESA agents providing cash-in and cash-out services; with half of them are located in rural areas. Customers buy about 20% oftheir airtime consume via M-PESA54

, consuming more call minutes than before. US$ 650 million per month in cash deposits and withdrawals take place through MDPESA agents. The average transaction amount is about US$ 30 while 50% of the transactions are worth less than US$ 1055

.

The amount of money which was transferred through M-PESA since the 2007 launch of the service reached US$ 6.5 billion in July 2010. The service has processed the transfer ofUS$ 408 million in July 2010 alone (compared to US$ 247 million a year earlier). M-PESA is expected to transfer 20% ofKenya's GDP by the end of 201056

• M-PESA transactions in numbers were about 70% ofthe volume of electronic transactions but amounted to only 2.3% in value in June 201057

•

In the 2009 fiscal year, M-PESA generated for Safaricom earnings of US$ 94.4 million representing 9% of the company's total revenues, thus becoming a significant profit center for the company58

.

Mobile online financial services are currently mushrooming around the world. However, competitors consider M-PESA as a global best practice. Safaricom's international presence was made possible through the partnership with V odafone. F or the industry, MPESA has a broader significance since59

.

By reaching out to millians of financially-excluded people, the service demonstrated how to leverage technology for socio-economic development at a country level; It illustrated how to develop and successfully roll-out a usage-based business model. Banks traditionally apply a float-based approach and evaluate customers' profitability by their deposits, an approach that has traditionally led to un-serving the financially poor. In contrast, telecom operators recognized the potential of generatingpro fit from millians of low-income customers who send small amounts of money but at high frequency;

54 Mas & Radcliffe, January 2010 55 Ibid, Pulver et al., 2009 56 ICT Works, June 2010 57 Alexandre, 20 1 0 58 McKay & Pickens, 2010 59 Mas & Radcliffe, 20 1 0

Copyright © 2011 MBA ENPC No

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It has shown the economic and business importance of establishing a low-cost transaction platform.

M-PESA as facilitato:r and enable:r fo:r othe:r (mobile) service p:rovide:rs

M-PESA is increasingly used by other service providers, which offer more holistic services to their customers enabling them to conveniently pay or be paid for their servicesvia their mobile phone.

Txteagle60 for example, a cloud-based provider for virtual outsourcing, is about to become Kenya's largest employer, with a worker base of approximately 10,000 users. Txteagle uses mobile crowd-sourcing, thereby providing personal reach to millians of remote customers for virtually any business or organization. Furthermore, it offers shortterm employment to local people for providing mainly market information and participating in online/mobile surveys. While the "outsourced staff' is usually paid by airtime or online banking, people receive cash in Kenya via M-PESA.

What next?

CEO Michael J oseph leaned back in his armchair while reflecting on M-PESA' s past and future. The service operates in a fast-paced market where innovative products, new partnerships and advanced technologies create an increasingly competitive business environment. He was convinced that Safaricom could not rest on its laurels; it needed to sustain its innovation capability and be able to continuously provide additional value to customers in Kenya and abroad. Michael Joseph knew all too weilthat M-PESA mobile money transfer and M-KESHO mobile account affered financial inclusion to millians of people. However, a developing country like Kenya is lagging behind in many other sectors.

((lf the mobile phone can penetrate and transform the financial sector, which is dominated by old and powerful players, imagine what it can do in [. .. ] other market spaces. "

Olga Morawczynski. Researcher at the University ofEdinburgh, UK61

Safaricom's CEO was convinced that mobile phones would be increasingly used for areas such as m-health and m-agriculture. Safaricom has already started preparing its entry into these sectors by providing the "Kilimo Salama" weather insurance via MPESA. Safaricom has also formed a partnership with Grundfos LIFELINK (part of the global pump manufacturer Grundfos ), which enables rural communities to access safe water and pay for it through M-PESA.

Since only 25% of M-PESA's customers are unbanked62, Michael Joseph wondered how

these untapped prospects could be addressed in a mutually-beneficial way for them and for Safaricom. He knew that M-PESA is widely known among Kenyans and international industry experts. Still, he feit that it was time to open up the service under the Safaricom

60 Txteagle website, 2010 and www .jwtintelligence.com, 2010 61 Morawzcynski, 2009 62 Jack & Suri, 2010


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brand name to a broader public, especially internationally. However, Safaricom has a lirnited international expansion capability and giant V odafone would be a direct cornpetitor in rolling out the very same product.

Keeping in mind the excellent work that his team has done so far, Michael Joseph asked hirnself what recomrnendations he could make at his next board meeting. He knew that Safaricom needed to keep advancing to sustain its customer base and financial revenues. However, the rnarket has clearly becorne rnuch tougher and cornpetitors have learned frorn Safaricorn's experience. M-PESA's success in Kenya cannot be easily replicated in other countries. Having had a recent talk with Bob Collyrnore, Michael Joseph shared his successor's optimisrn, trusting Safaricom's growth potential.

"With the support of the board of directors, I am very confident of leading Safaricom into the future. Given the competitive nature of the mobile industry in Kenya, my focus will be on delivering value and innovation for our customers and developing and empowering our employees and tagether with our Kenyan stakeholders, strengthening our outstanding brand "

Bob Collyrnore, Newly appointed CEO ofSafaricom Kenya63

There are tens of millians of financially-excluded people and un-served customers in rnany African countfies and other regions of the world. So for Safaricom and other telecom operators, willing to offer mobile financial services and a broad range of other rnobile-related services, the sky is the lirnit ...

63 http://afrinnovator.com, 2010


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Appendix

Background info:rmation 1 Safaricom at a glance

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((Safaricom changed the game: what used to be ping-pong is now rugby. lt is still a ball game, but a very different one. "

Winifred Karugu, Research Fellow at the UNDP Growing Inclusive Markets Initiative64

Safaricom is Kenya' s leading provider of converged communication solutions. Michael Joseph has been working at Safaricom since 2000 and joined the board in September 2008. Histeam of 2,470 employees provides mobile voice and data (SMS, M-PESA and broadband) services. With its country-wide GSM 900 network, Safaricom provides broadband high-speed data through its 3G network, Wimax and fiber.

Safaricom, which started as a department of Kenya Posts & Telecommunications Corporation (KP&TC), the former state-owned monopoly operator, launched its operations in 1993. Safaricom Limited was incorporated in 1997 under the Companies Act as a private limited liability company. In 2000, the UK-based Vodafone Group Plc, the world's largest telecommunication company, acquired a 40% stake in Safaricom and obtained management responsibility. In 2002, Safaricom was transformed into a public company with limited liability. Until2007, the Government ofKenya (GoK) held 60% of the company shares, making it a state corporation. In March 2008, after the GoK sale of 25% of its shares, the State Corporations Act did no Ionger apply.

Today, Safaricom is East Africa's biggest company by market capitalization (US$ 2.76 billion). Dividends for the 40 billion shares held by local individual shareholders were paid out in 2010 by M-PESA. Safaricom is market Ieader in Kenya's telecom sector with a market share of 77% (down from 84% in 2008) corresponding to almost 16 million customers. It earned revenues of US$ 1.04 billion (EBITDA at US$ 455 million). In 2009, voice revenues represented 81% of total revenues with data services making the remaining 19% (see Exhibit). Capex decreased from US$ 3.81 million (40.2o/o of revenue) in 2008 to US$ 216 million (20.8% ofrevenue) in 2010.

64 Director, School for HR Development at Jomo Kenyatta University of Agriculture and Technology, Kenya

Copyright © 2011 MBA ENPC No

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Safaricom 's revenue breakdown safaricom's revenue S.hare by sep"~ent in" (2010]

Revenueshare of data segment in mill~on (2008- 2010)

200B 200§1 2010

Data segment: M-PESA Broadband WJ,!SMS ~'Volee "'tment

Source: Safaricom, 2010

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In 2008/2009, Safaricom's ARPU decreased 24% to US$ 6.3. Income tax expense at the group Ievel was US$ 59.8 million in 2009 (against US$ 76.1n in 2008), thus making it the biggest tax payer in Kenya.

Background information 2 The J(enyan ICT market

"Kenya showsimpressive growth rates with significant opportunities." Dearbhla McHenry Analyst at Pyramid Research

Kenya is the third largest telecom market in sub-Saharan Africa accounting for 7% of mobile phone subscribers, behind Nigeria (26%) and South Africa ( 19% ). In 2009, it had 17.4 million mobile phone subscribers, which corresponds to penetration rate of almost 46%. With the rapidly improving mobile infrastructure and intensifying competition among mobile operators, the number of mobile subscribers in Kenya will grow at a double digit growth rate65

.

Total market revenues are expected to increase by 42% from US$ 1.39 billion in 2008 to US$ 1.98 billion by 2013. 78% ofthese revenues will be generated by the mobile telecom sector. While voice services generate the largest share of revenues and will in 2013 be worth US$ 1.3 billion, mobile data is the fastest-growing revenue stream. It is expected to increase in 2013 from US$ 62 million in 2008 to US$ 224 million thanks to the launch of 3G services and the growth of low-tech, low-margin mobile data services like M-PESA.

65 Pyramid Research, 201 0


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References References and data sources used for writing the M-PESA case study

Arlicles, Books, Reports • Alexandre, Claire (2010): 10 things you thought you knew about M-PESA, CGAP: Washington,

http://technology. cgap. org/20 I 0/ II /22/ I 0-things-you-thought-you-knew-about-m-pesa/ • Arunga, June I Kahora, Billy (2007): The Cell Phone Revolution in Kenya, London.

http:/ /brunoleonimedia.servingfreedom. net/Papers/IBL _ Arunga _ Kenya.pdf( accessed 14.12.2009) • Bourdieu, Pierre (1986): Three Forms OfCapital." In: John G. Richardson (ed.), Handbook ofTheory

and Research for Sociology ofEducation. New York: Greenwood Press. 241-258 • Camner, G. /Pulver, C. I Sjöblom, E. (2009): What makes a successful mobile money implementation?

M-PESA in Kenya and Tanzania. Nairobi: FSD Kenya • CIA (2009): The World Factbook: Country Report Kenya,

https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html (28.01.2010) • Donner, Jonathan (2007): M-banking Extending Financial Services to Poor People. ID21 Insights, 69,

5. http://www.id2I.org/insights/insights69/art05.html

• FSD Kenya (2009): FinAccess National Survey 2009. Nairobi: Financial Sector Deepening Kenya • GSMA (2009): Mobile Money for the Unbanked: Annual Report 2009. London I Atlanta: GSMA,

http://www. gsmworld. com/documents/mmu _ 2009 _ annual_report.pdf • Hammond, A. L. I William, K. J. I Katz, R. S. I Tran, J. T. I Walker, C. (2007): The next four billion.

Market size and business strategy at the base of the pyramid. Washington: W orld Resource Institute and IFC, http://pdf wri. org/n4b Jull_text _lowrez.pdf

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• ITU (2009b ): The World in 2009: ICT facts and figures, International Telecom Union: Telecommunication Development Bureau, Geneva (Switzerland).

• Ivatury I Pickens (2008): Mobile Phone Banking and Low-lncome Customers. Evidence from South Africa, Washington: CGAP

• Jack, W. I Suri, T (2010): Mobile Money: The Economics ofMDPESA, http://www .mit.edu/~tavneet/M-PESA.pdf

• King, Kenneth (1996): Jua Kali Kenya: Change and Development in an Informal Economy 1970-95.

London: James Currey; Nairobi: EAEP; Athens, OH: Ohio University Press.

• Ludwig, Stephanie (2010): Socio-economic impacts and creative usage ofmobile financial services among low-income micro-entrepreneurs. Evidence from an ethnographic field research in Kenya. Thesis. Vienna: University ofVienna, Austria.

• Macaria, Daniel (2007): Entrepreneurial Spirit: The Jua Kali Micro and Small Enterprises ofKenya,

Booklocker.com

• Mas, I. I Ng'weno, A. (2010): Three keys to M-PESA's success: Branding, channel management and pricing, Seattle: Bill and Melinda Gates Foundation.

• Mas, I. I Radcliffe, D. (2010): Mobile Payments go Viral: MDPESA in Kenya, Seattle: Bill & Melinda Gates Foundation

• Mc Kay, C. I Pickens, M. (2010): Branchless Banking 2010: Who's Served? At What Price? What's Next? Washington: CGAP

• Morawczynski, Olga (2009): What you don't know about M-PESA, Washington: CGAP, http:/ /technology. cgap. org/2 009/0 7 I 14/w hat-you-dont-know-about-m-pesa/

• Nokia (2008): Expanding horizons, Espoo: Nokia (1/2008) • Omwansa, Tonny (2009): M-PESA: Progress and Prospects. Innovations Case Discussion: M-PESA,

Nairobi: Strathmore University, http:/ /www.strathmore. edu/pdf/innov-gsma-omwansa.pdf • Pickens, Mark (2009): Understanding what drives profits for agents- M-PESA, Washington I Paris:

CGAP

• Prahalad, C.K. (2010): The Fortune at the Bottom ofthe Pyramid. Eradicating Poverty through Profits. Pearson Education. Wharton School Publishing.

• Pulver, Caroline I Jack, William I Tavneet, Suri (2009): The Performance and Impact ofM-PESA: Preliminary Evidence from a Hausehold Survey, Nairobi: FSD Kenya.


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• Pyramid Research (20 1 0): Communications Markets in Kenya, http:/ /www.pyramidresearch. com/documents/090312%20Kenya%20excerpt.pdf

• Rosenberg, Jim (2010): M-PESA meets microsavings with Equity Bankdeal in Kenya, Washington: CGAP, http:/ /technology. cgap. org/20 10/05/ 18/m-pesa-meets-microsavings-with-equity-bank-deal-inkenya/

o Sciadas, George et al. (2005): From the Digital Divide to Digital Opportunities: Measuring Infostates for Development, Telecommunication Development Bureau, Geneva (Switzerland).

• Society for International Development (2004): Pulling Apart. Factsand Figures on Inequality in Kenya. Nairobi: SID.

• Taga, Karim I Oswald, Gregory (2009): Mobile Payment Update 2009. Vienna: Arthur D. Little Austria.

• The Economist (2010): Social and Economic Innovation Award. London: The Economist, www. economistconferences. co. uk

• Vodafone (2005): Africa: The Impact ofMobile Phones, Moving the debate forward. In: The Vodafone Policy Paper Series: 3, http://www. ictportal. org.za/documents/d00003/Vodafone _ March2005.pdf

• World Business Counsel for Sustainable Development (2010): Creating Inclusive Business Opportunities. Linking local communities with big business, www.inclusivebusiness.org 2010

• World Economic Forum (2009): Scaling Opportunity: Information and Communications Technology for Social Inclusion. Geneva: World Economic Forum, http://www. weforum. org/pdf/ICT/Scaling!CT.pdf

• ZMQ (2010): Mobile for Development- Reaching the Unreached, Gurgaon: ZMQ, www. m4dev. org/m4d.pdf

Interviews conducted by the authors • Brewin, Michael (2009): Face-ta-face interview with Michael Brewin, consultant to Concem's

Cashaid project, September 2009, Nairobi • Donner, Jonathan (20 1 0): Telephone interview with Jonathan Donner, Senior Research er at Microsoft,

October 2010, South Africa: Microsoft • Karugu, Winifred (2009): Face-to-face interview with Winifred Karugu, Managing Director Jomo

Kenyatta University of Agriculture and Technology; Consultant to UNDP on M-PESA case study in 2007, September 2009, Nairobi

• Maima, Stephen (2009): Face-to-face interview with Stephen Maima, SME officerat K-REP Bank, September 2009, Nairobi: K-Rep Bank

• Mwaura Nduati, Stephen (2009): Face-to-face interview with Stephen Mwaura Nduati, Head of National Payments System Division at Central Bank ofKenya, September 2009, Nairobi: Central Bank

• Pulver, Caroline (2009): Face-to-face interview with Caroline Pulver, Researcher at FSD Kenya, September 2009, Nairobi: FSD Kenya.

• Vaughan, Pauline (2009 and 2010): Face-to-face interview with Pauline Vaughan, M-PESA Manager at Safaricom, September 2009, Nairobi: Safaricom

• Vaughan, Pauline (2010): Telephone interview with Pauline Vaughan, M-PESA Managerat Safaricom" October 2010, Nairobi: Safaricom

Online sources • Business Daily Africa (2010: Essar's entry into money transfer to deepen turfwars,

http://www.businessdailyafrica.com/Company%201ndustry/Essars%20entry%20into%20money%20tra nsfer%20to%20deepen%20tur.f/o20warsl-/539550/905566/-lview/printVersionl-/6cgat1zl-/index.html

• Equity (2010): Official Website, www.equitybank.co.ke • ICT Works (2010): Safaricom's M-Pesa to Transfer 20% ofKenya's GDP in 2010,

http://www.ictworks.org/news/2010/06/23/safaricom-mpesa-20-gdp-2010

• IT News Africa (2010): M-Pesa costumers up by 60%, http://www.itnewsafrica.com/?p=8665 • Orange (2010): Official Website, www.orange.co.ke • Roshan (2010): Official Website, www.roshan.af • Safariemu (2010): Official Website, www.safaricom.co.ke • Safaricom (2010a): Press Release October 2010, http://www.safaricom.eo.ke/index.php?id=1105


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• Txteagle ( 2010): Official website, www.txteagle.com GI Vodacom (2010): Vodacom and Nedbank launch mobile money revolution in South Africa, Mirand:

Vodacom, http://www. vodacom. com/news _ article.php? article!D=679 GI Yu (2010): Official Website, www.yu.co.ke • Zain (2010): Official Website, http://www.attz·ca.zain.com/mlash/


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Exhibit 1 Financial access in Kenya 's urban areas

URBAN

2!

Formal only

formal ano tormal other Formal an;j informal

tnfonna< cnly

Source: Financial Sector Deepening Kenya, 2009

Exhibit 3

911-012-1

Exhibit 2 Mobile phone and banking penetration in urban J(enya

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Mobile penetration

l'lii P eople wilhoutm obile

Unbanked

Banked

Source: Financial Sector Deepening Kenya, 2009

M-PESA launch advertisement; Comparison of advertisements of ZAP and MPESA

Source: Safaricom, 2009; co-author's documentation 2009


26 0112011-

Ca!! upmain phmtemenu

Source: GSMA, 2009

Exhibit 4 M-PESA phone menu structure

ConfirmOK

CcflfirmOK

From m.ün pliwne menu, sef.ect App~catioos

Confim10K

ConfirmOK

ConfirmOK

Enter PIN

Enter PIN

From Appllc.ations n:tenu,select. S.afa~ico.rn

Enter PIN Enter amoont

Enter PIN Enter amc\Jnt

Enter PIN Enter amoont

Enter amctnt Enterr:h::me#

Enter amcu1t Enter acccmt #

Enter PIN

Rer:~at ne:.v PIN

ConfinnOK

Ei1ter new PIN

EnterPIN

Enter PIN

Confirm call OK

Enterdd PIN

Enter nel"i ~ret wcfd

Enter PIN

Frem l3nguage rnenu .. sele-..'1 En·~ ish or

Ki~w.-ahli

EnterPIN

From Sa.farkont merm,seled

lliHESA

Show balance

Callsupport

Chaii~Je PIN

Secretword

Updatemenu

Language

911-012-1

Fmrl!lMcPfSA menu, se [\i:clt

s~nd rnoney

V1•ltl·~:lraw •::a~h

BL~~ air1lm~

Pa~gx,ds

Pay·bill

AJM \'.<ithdra·,•ial

M~·ao:c:unt

Exhibit 5 m-Transaction model (simplified)

Exhibit 6 M-PESAprice list

Transaction type Transaction range Charge

CustomerA (Sender)

Source: Illustration by authors


CustomerB

Deposit cash Send money to a registered user Send money to a non-registered user

Withdraw cash by registered user at agent

Withdraw cash by registered user at ATM

Withdraw cash by non-egistered user

Buy airtime Pay bill transactions

Source: Safaricom, 2010

27

Min. 100 100 100

2,501 5,001

10,001 20,001

100 2,501 5,001

10,001 20,001

200 2,501 5,001

10,001

100 20

-

Max. 35,000 0 35,000 30 2,500 75 5,000 100

10,000 175 20,000 350 35,000 400 2,500 25 5,000 45

10,000 75 20,000 145 35,000 170 2,500 30 5,000 60

10,000 100 20,000 175

35,000 0 10,000 0

- 0-30

0112011-

Exhibit 7 M-PESA usage patterns

911-012-1

How did people send money before M-PESA? How do people send money today?

Other Other M-PESA

Bus

What M-Pesa is mainly used for? Why do people send money?

Pay bills Repayment of debt

Buy airtime

Store money for everyday use

Source: Adapted from Pulver, Caroline & Jack, William & Tavneet, Suri, 200966

Exhibit 9 Value chain and roles of selected M-PESA players

Source: Ludwig, 2010

66 Financial Sector Deepening Kenya (2009) carried out the "FinAccess National Survey 2009" in partnership with Safaricom and the CBK. Publishing on M-PESA: Pulveret al., 2009. Sampie used: 6,598 people.


28 Ol/2011-

session 05 (november 09) - m-pesa

Documents