In the developed world, particularly in the United States, mobile payments have entered the scene with a lot of fanfare and great expectations — but haven’t delivered all that much in the way of impressive results. As of the last PYMNTS/InfoScout report on in-store mobile wallet usage, and particularly for the longest running general purpose mobile wallet in the market, Apple Pay, 19 out of 20 users who could use a mobile wallet don’t. It seems when it comes time to pay the piper in the store, consumers in the U.S. and Western Europe still kind of like their cards.
In the developing world, the situation has been interestingly inverted over the past decade. M-Pesa did not enter the world with a great deal of fanfare or terribly high expectations for being a world changer. According to “the father of mPesa,” Michael Joseph, when the idea first appeared on his desk in 2006, M-Pesa was really about something quite different than what it has since grown into — originally it was designed for the microfinance industry for the disbursement and repayment of microfinance loans.
Joseph sat down with Karen Webster in 2015, shortly before his induction into the Payments Hall of Fame.
However, in his capacity as Safaricom’s CEO, Joseph saw that M-Pesa could play much bigger role on the larger stage of micro-transactions over and above lending — it could change the way people move and manage money.
Some people — Joseph noted that M-Pesa’s initial expectations were modest.
“When we started out, we didn’t know it would be so successful. We thought we should have maybe 200,000 or 300,000 customers,” Joseph recounted. “Where the success came was really in the execution. I set the target and the bar very high and said, ‘We need a million customers by the end of the year.’ My team didn’t think they could do it, but I said, ‘We’re going to have to do it.’ And that was the magic number that made it go viral.”
And viral it has gone. What started as a simple method by which to SMS text small payments between feature phones has grown to a full financial services platform with 30 million users in 10 countries. In 2016 alone, the system processed 6 billion transactions at a peak rate of 529 per second.
And the M-Pesa services menu has expanded greatly since its early days — international transfers, loans, and health care provision and payments can now all be managed through the M-Pesa ecosystem.
It has also, in some cases, completely changed the relationship of workers in the developing world to their money.
When M-Pesa first went online in Afghanistan in 2009, police officers who agreed to be paid through a pilot program with the system thought they had all gotten a raise — according to BBC reports — because their salary appeared to have gone up 30 percent.
But they hadn’t gotten a raise — they had just received their proper pay for the first time. Police had previously received their salaries in cash, passed down from the ministry via their superior officers. Somewhere along the way, 30 percent of their salary was being skimmed off.
The M-Pesa pilot also made it clear that 10 percent of the police on the payroll didn’t actually exist in reality.
And while the anecdotes are eye-catching, by the numbers M-Pesa is even more impressive.
Of the 30 million users signed into M-Pesa today, Kenya (its birthplace) represents 18 million of its users. And Kenya is where M-Pesa’s effects are most strongly seen.
A 2016 MIT study indicated that, since 2008, access to mobile-money services increased daily per capita consumption levels of 194,000 — or 2 percent — of Kenyan households, lifting them out of extreme poverty. For the purposes of this study, extreme poverty was defined as living on less than $1.25 per day.
The same survey also found that M-Pesa has been particularly potent in empowering women in the developing world — female-headed households saw far greater increases in consumption than male-headed households. The average rate of per capita consumption increased 6 percent on average as M-Pesa became more broadly available in Kenya (availability was measured by agent density in the report). Among female-headed households? That consumption rate rose 18.5 percent.
Moreover, mobile-money services have also altered what occupations users can, and do, pursue. And the agent network allows consumers to get cash out of their M-Pesa accounts and make purchases in their local villages.
“Increases in agent density caused about 3 percent of women in both female- and male-headed households to take up business or retail occupations over farming,” the study noted. “These occupations generally entailed single-person businesses based around producing and selling goods, which is made easier by mobile money. You used to grow vegetables, but now you take your vegetables to the market and sell them, or you open a little food cart or kiosk.”
All in, the survey estimates that M-Pesa has helped an estimated 185,000 women move from farming to business occupations.
M-Pesa has not had a universally run launch in 10 years — the system attempted to get off the ground in South Africa but wasn’t quite able to manage in the more bank-dominated environment and eventually withdrew the service.
And M-Pesa’s next decade will be a much more competitive time, now that it’s proved just how successful and useful mobile money can be in the developing world.
The Kenya Bankers Association — representing 46 banks — is introducing its own mobile payment platform that will allow convenient transfers between accounts at different banks, and the group hopes this will eat into M-Pesa’s market share. That effort is backed by Visa and will be QR code–based.
“Given the economics of the product, I think you’ll find customers moving over and preferring to use our product,” said Habil Olaka, CEO of the Kenya Banker’s Association.
Safaricom CEO Bob Collymore, however, said he is not concerned about the new entrants — he thinks it can only add more diversity and services to the marketplace. He said it’s a priority to refine the user experience and offer new services.
“One of the big problems has been the relative clumsiness of using M-Pesa,” he told CNN.
New streamlined solutions include a debit card that will allow users to tap and pay and a new mobile app.
And, it should be noted, that while the banks move on M-Pesa’s territory has caught some eyes, experts are not inclined to think it will be easy to uproot M-Pesa from its driver’s seat position in the mobile money ecosystem in the developing world.
“Are the (banks) going to be able to dislodge M-Pesa? I’m not so sure. It’s ubiquitous — it’s everywhere,” Collymore said.
“I think they’re going to struggle,” financial analyst Aly-Khan Satchu of Rich Management told CNN.
Ten years in, 30 million users down — and billions of transactions a year. Not bad for a service that started out with the dream of reaching a couple hundred thousand people.
So what is the lesson of M-Pesa that mobile players everywhere can learn?
The marketing doesn’t matter — the problem the solution solves does.
M-Pesa found a way to use payments to solve for poverty, commerce and entrepreneurship — with real progress on issues that big, the service doesn’t need a lot of outside hype.
It’s spent a decade proving that it can generate its own — one Kenyan farmer and Afghani police officer at a time.