How the SIM card became a wallet in Kenya
And a key growth driver for the economy.
Once upon time, we had mobile phones in Kenya. We used them to make calls, send messages, make dinner plans, organize business meetings, and other normal things that phone calls and text messages enabled. Then came the year 2007, when there was a revolution for all of us. It was called mobile money. It didn’t make sense at first. How can a sim card be used to send money? Quoi? Safaricom was the platform that established this strange thing that was called MPesa. M is for mobile and Pesa is a Swahili word for money. MPesa is a mobile money transfer platform.
Safaricom is the leading communications platform in Kenya with a market share of 67.1% in 2015 with at least 33.8 million subscribers in a country whose population was 46 million in the same year. In 2007, its market share was 70% with 7.4 million subscribers, as stated by Bloomberg, the population in the country that year was 37.75 million people according to the World Bank.
MPesa started off through a pilot phase as a microfinancing attempt for the ordinary Kenyan to enable him or her to borrow money and send it easily, especially among the unbanked individuals. The main subjects of this pilot were women who quickly embraced the platform leading to more tests and finally a launch in the country.
The process is simple. You buy a Safaricom card and once it is working in your phone. You locate the Safaricom sim card icon and click on it to see your Safaricom services and your MPesa services. The process was made simple. The next step is to register at a mobile money agent using your Passport or Identity card. In less than 5 minutes you can make transactions. You can make a transfer to someone who uses MPesa. The process is based on simplicity and this aided the innovation as it made it user friendly for all users.
On launching the platform, MPesa had 1.1 million registered users in Kenya and more than $87 million had been transferred through the platform. A few years later, in 2009, there were 8.5 million users and $3.7 million had been transferred by September. In the same year, there were 491 bank branches (also referred to as agencies) and 352 ATM in the country, in contrast to the MPesa agents who were in more than 18,000 locations in the country.
To set up this infrastructure, Safaricom located several vendors with little kiosks branded by the company, turning this into a network of mobile money agents, country wide. MPesa agents represent the company where an individual can go withdraw or deposit money into the phone.
Using this platform, one can pay for Uber, buy airtime, get a loan, buy an air ticket, pay the City Council for parking, pay for fuel, medicine, cable TV, send money to the MPesa agent in London and so many other options.
Before the launch of MPesa money was sent using local bus services, Money Gram, Western Union, through the Post Office or informal options such as sending relatives. These channels were not always convenient due to the speed, or access to some of these services for those individuals living in the villages, accessing the service if you lived far from city or through the costs. Therefore, MPesa eliminated or reduced the usage of these services.
Several factors aided the spread of MPesa. In most developing markets, a large percentage of the economy is unbanked, especially the informal sector who include farmers, fishermen, and many other very small business owners. This is due to limited bank access outside main cities, in regards to location, other hindrances such as introduction letter to a bank and monthly charges. Through MPesa, most of these challenges were eliminated or reduced for the ordinary Kenya. In addition were the as the rates and requirements or access a bank loan to start or grow your business. According to a report from the Central Bank of Kenya, in 2007, interest rate for a loan of 5,000 euros tanged between 14% - 22% per month which is not very different today in 2016, where the interest rates vary form 8% - 25% depending on one of the 30 banks in Kenya. Such rates make it a challenge if you want to scale your business or buy a home easily.
Convenience is what MPesa gives us Kenyans. The ability to pay for Uber, dinner in some hotels, cable TV, a beer, recharge your phone, buy an air ticket to Paris, fuel, salon, pay school fees, buy clicking your phone. That is convenience.
This solution was created to absorb 80% of the Kenyan population that was unbanked. Also known as financial inclusion using a telecom service provider. In addition to providing financing to small business owners who were unable to scale up business due to stringent bank requirements.
Safaricom collaborated with the Central Bank of Kenya to mitigate financial risk that may arise with money transfers. Innovation was facilitated by the regulator to enhance the inclusion and bring an alternate source of revenue into the country. The platform has more than 20 million users and it provides a gateway for at least 30% of the country’s GDP.
Implementing this same platform has not been easy but there are certain factors that are needed to make it work. Developed markets have a sound financial system that works and has high penetration in the country with low costs. There needs to be massive government support and consumer demand, or creating that demand by providing a solution. For Kenya, there were certain factors that aided MPesa’s growth such as limited financial alternatives, mobile penetration which in 2009 was 61% in the country as stated by the Communications Commission of Kenya (CCK), micro-entrepreneurs who acquired business opportunities by becoming MPesa agents, as well as new entrepreneurs who could now access loans to start small businesses.
Yet there are possibilities of applying it in certain situations. An example is a developed market like France that has several refugees who are not yet a part of the system but pay indirect taxes through the products an series they purchase. It is very difficult for such a group to get banking services due to lack of paper work such as identification or housing documents yet their money goes unaccounted for in the system. Use of mobile money can enable them to have banking services and ensure these finances are absorbed into the system. This requires a lot of collaborations between Telco’s, the central bank, regulators, immigration and the government. But it is about creating a solution. This kind of innovation which is disruptive is used to create solutions.
Crédits photo : DR
Article paru dans le numéro #102 SIGNATURE
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