Mobile Money: M-Pesa in Kenya and South Africa

Cash in/cash out. Photo by Scott Mainwaring.

What is mobile money?

Ernst & Young defines mobile money as the services that allow electronic money transactions over a mobile phone, also referred to as mobile financial services, mobile wallet and mobile payment.


The mobile money transfer system M-Pesa started in 2007 as a project from Vodafone for Safaricom and Vodacom. Its creators were initially looking to devise a cheap and fast system for women to repay micro-loans, which would allow for lower interest rates. The product, however, soon proved to have great potential. Today, M-Pesa has around 18 million customers in Kenya only and operates in 10 countries, Romania being the last to join.

The Kenyan company has revolutionized access to banking for the disadvantaged—financial inclusion in Kenya would drop from 80% to 23% if it weren’t for mobile money. M-Pesa users can make payments of school fees, salaries, taxes, and traffic fines, in addition to sending and receiving money and saving and borrowing.

Why was it a big deal in Kenya?

Vodacom’s Director of Mobile Commerce Michael Joseph claimed to the Financial Times that while there have been around 200 mobile money experiments, perhaps only four or five have been successful.

The success of M-Pesa has been attributed to several factors. The Economist pointed out, firstly, that sending money by other methods was exceptionally expensive at the time M-Pesa launched. Other reasons were that Safaricom had significant market power at the time of the launch, that regulators allowed the project to start on an experimental basis without formal approval, a ‘clear and effective’ marketing campaign, an efficient system to move cash around behind the scenes, and the fact that the system was considered safer than the banks following post-election violence in early 2008. Additionally, it seems that Safaricom invested heavily in an extensive network of agents in Kenya and that there was a growing demand for cash transfer methods due to the high rate of migration from the countryside to the cities.

It is clear that these conditions might not happen again. Is there any hope for those who want to grab a piece of the mobile money cake? After all, what started with one project is now a global industry and Markets and Markets forecasts the mobile money market to be worth $78.02 billion by 2019.

Challenges for M-Pesa in South Africa

There is no better example for the fact that no two markets are the same. M-Pesa first launched in South Africa in 2010, but it didn’t go as expected—100,000 users signed up instead of the 10 million anticipated. The company re-launched last year. Did they clone the Kenya model in 2010?

OnFrontiers Advisor Charles Niehaus, expert in payments in Africa, told us that in 2010 M-Pesa tried to implement the traditional East Africa model of predominantly cash in and cash out transactions for money transfer to South Africa. At that time the company didn’t have a similar distribution footprint of existing agents when compared to their Kenyan and Tanzanian operations.

According to Niehaus, M-Pesa had some existing competition in the form of banks and retailers who were already offering similar services through their ATM and store networks and as a result M-Pesa were not offering a compelling proposition. Niehaus explains that M-Pesa’s approach with their most recent launch is closer to complementing the existing infrastructure in South Africa but it is too early to assess their success. When compared to the rest of the continent, South African banks have done a better job at reaching more people as the card, ATM and Point of Sale distribution is much higher than all the other African markets. Mobile would have to play a different role in South Africa as it does in many other African markets, where mobile financial services have reached into areas that banks have not traditionally served.

Niehaus identifies both a lack of standards and regulatory uncertainty as potential challenges for mobile money in Africa, although he points out that markets are very different and structures are starting to emerge in various countries. Countries see mobile money as an opportunity, since the increased digitization of cash will ultimately lead to economic growth.

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