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Blog Post

Mobile money in Kenya part 1: the story of success – innovation, inaction, and monopoly.

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Since its introduction in 2007, Safaricom’s mobile money platform, M-Pesa, has not only transformed Kenya’s financial system, but has become the dominant medium for financial transactions in Kenya. It is now used by at least 70% of households in the country, with some 43% of the country’s GDP channelled through M-Pesa each year.  In 2014, more than $20 billion was transacted through the service. The service has grown from a money transfer platform to a bank account, and a payment platform that allows users to pay utility bills, school fees, rent, and for goods and services at shops, offices, restaurants and other businesses around the country. It would not be an understatement to say that mobile money has been akin to the internet in Kenya; a revolution in commerce, and in the way, which people relate to, and use money. How this came about is a result of three unique factors; innovation, inaction on the part of regulators, and power of a monopolistic market actor. These three reasons explain the failure to replicate the Kenyan mobile money phenomenon in other African that have a large unbanked population in need of safe and quick money transfer services.



As mobile phones began to take hold on the continent in the first decade of the millennium, various service providers introduced airtime transfer services and they soon noticed that users were starting to use airtime in lieu of cash with their phones acting as de facto electronic wallets. Airtime had the great benefit of having same value as cash and thus being fully redeemable, furthermore using airtime removed the need for banks or the security hazard that is cash.  Safaricom and its parent company Vodafone took notice of this, and at the time they already had a donor funded microfinance mobile loan system in development, this was quickly repurposed and after 2 years of pilots and development the system was launched in 2007, and the rest as they say is history. Mpesa was the product of consumers innovating with existing products and a company agile enough to recognise the opportunity to create a solution.


In other markets mobile money is an outside solution being brought in to solve a problem rather than being a native innovation that has developed in a process involving consumers, innovators and mobile operators, which translates into slower and lower adoption of the technology.



One of the most unique features of the Mpesa system is the environment it grew up in, it was given the time and space to mature. Until recently the regulatory structure, surrounding mobile money in Kenya has been very light. Furthermore, mobile money was never classified as a banking service thus it never had to comply with strict and foreboding laws and regulations of finance. This allowed the ecosystem to evolve and grow unhindered; creating the perfect conditions for the emergence of a mobile money system that is uniquely suited to Kenya.


Regulators in other countries have shown themselves far less willing to let a potentially disruptive technology grow and evolve with as little intervention as possible, particularly where it involves financial transactions.



Safaricom controls approximately 69% of the Kenyan mobile market and this dominance has been vital for the success of mobile money. Until recently in Kenya mobile money systems were locked into their service provider; users could only send money to people in the same network as themselves. For Safaricom who controlled a majority of the Kenyan market, this was never an issue. Coupled with the wide network of airtime vendors who soon became electronic money agents who could process transactions, Safaricom was the perfect platform for mobile money to take off, it managed to leverage its existing subscribers into users of Mpesa and its network of airtime vendors into agents.


The story else where

In many parts of Africa and the rest of the developing world, similar conditions such as a largely cash economy, a large unbanked population and an ever widening mobile telephony penetration; exist for developing a mobile money market. Mobile operators have recognised this opportunity and mobile money services have been launched in hundreds of markets including South Africa , Nigeria  and Uganda.



The story of Mpesa in Kenya is one that should serve as an inspiration for African development; a home grown solution enabled by taking advantage of new technology. Not only has the issue of a large unbanked informal cash based economy now largely been eased, it is also spawning innovation and growth. Today, mobile payment is emerging as Kenya’s way of conducting business: from the kiosk in informal settlements to the exclusive lounges of lush country clubs; purchase of goods in the neighbourhood grocery stores to the modern shopping malls; purchase of air tickets to settlement of hotel bills; paying utility bills such as electricity and water to paying school fees and insurance premiums. Mobile based saving schemes are also available in the country.


Government institutions have begun to integrate mobile money solutions into their systems. For instance one can pay for the renewal of a driving licence through mobile money. The county government of Nairobi, in August 2014, introduced a mobile based system to pay for parking fees (one of its main revenue generation avenues). Further, KRA is exploring ways of enabling taxpayers to pay taxes through mobile payment systems. The uses to which Mpesa and other mobile payment systems are put will only continue to grow.


One can only hope that elsewhere on the continent the stars align as they did for Mpesa and innovations are allowed to reach their full potential.


Where Mpesa goes next will be explored in part 2 of mobile money in Kenya


Eugene Ngumi, Associate Consultant, Nairobi

Eugene is an associate consultant with a deep knowledge of the political and regulatory structures of Kenya. He has previously worked in politics and digital media and was educated at The University of Sydney in Australia.


Frank Nyambweke, Associate Consultant, Nairobi

 Frank works as a researcher and analyst in africapractice’s stakeholder relationship management department and its intelligence and analysis department.  His recent consulting work has involved: advising a major multinational in the financial sector on the country’s payments environment; advising a large pharmaceutical company on the country’s health and pharmaceutical sectors; and country political risk assessment assignments.


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