MMU releases infographic on Kenyan mobile money journey

Flag of Kenya

Flag of Kenya (Photo credit: Wikipedia)

As Nairobi jostles with the likes of Accra, Lagos and Johannesburg to become the continent’s technical innovation hub, mobile money continues to drive the Kenyan economy and is at the forefront of reaching the unbanked. Mobile money started as a simple money transfer system driven by a lack of entrenched financial systems and operates through a vast system of mobile money agents, enabling people to “cash in” and “cash out” using their mobile device. Safaricom’s hugely successful M-PESA is synonymous with the term mobile money, and has since launched in other countries in Africa as well as India, and now allows users to pay for goods and services using their mobile device.

The Mobile Money for the Unbanked (MMU) is a department within the GSMA and works with mobile operators and the financial industry to accelerate the access to financial services across the developing world. The following link is an infographic highlighting the Kenyan journey from 2006 to today, and outlines the exponential rise of mobile money.

http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/07/MMU-Infographic-The-Kenyan-journey-to-digital-financial-inclusion.pdf

Highlights of the report are are:

23m Mobile Money users in Kenya. 74% of the adult population

31% of Kenyan GDP transacted through mobile money services

96,319 mobile money agents in Kenya

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Orange opens up Mobile Money in Africa

Orange Shop

Orange Shop (Photo credit: Wikipedia)

Mobile Money has brought a great number of benefits to parts of the developing world including financial independence and improved security. Until now, Safaricom’s M-PESA has dominated this ever-growing market. However, it comes as little surprise to many that Orange is now trying to stake its claim. Orange Mobile has just rolled out its first international mobile money transfer service called “Orange Money International Transfer” which will operate between Mali, Senegal and Ivory Coast – the first such service in the region. According to Orange, 200 million euros are transferred between these three countries every year. Can Orange cut it in the ultra-competitive world of mobile money in Africa?

A customer in The Ivory Coast will now be able to send money directly to friends and family in Mali or Senegal with their Orange Money account. The sender simply needs to dial #144# from their mobile phone, and enter the Orange telephone number of the recipient and the amount to be sent. The money is immediately available in the recipient’s account to make payments, pay bills, purchases and transfers, or alternatively it can be withdrawn at a nearby location from any Orange Money distributor, also known as a Mobile Money Agent.

Mobile Money is the simple transfer of money through SMS based services. Its success in Kenya has been replicated in many parts of Africa, and more recently India. The system has flourished due to a lack of traditional banking infrastructure (consider the costs of building ATMs and bank branches in Africa’s remote, rural areas), the relative low cost of the service in comparison to bank charges, as well as the fact that the mobile phone has become ubiquitous in the developing world over the last decade. Mobile money has been particularly successful in reaching the ‘unbanked’, those most at need in society. A mobile phone is an essential device to many people in the developing world, and mobile money is simply an extension of this.

The mobile money system is dependent on a network of people who are in essence the face of the business called Agents. Agents can be anyone from people working in neighbourhood shops, petrol stations and lottery ticket stalls. These agents are the “face” of the business and determine customers’ trust and willingness to transact over the mobile platform, and allow people to cash-in and cash-out money when required. The whole mobile money system is dependent on this network. If the network of agents is too large, then there are too many agents who are not transacting meaning they have no incentive to ensure they are ‘topped up’. If the network is too small then there aren’t enough agents to enable consumers to transact meaning the network falls down and the whole system loses credibility. This loss of credibility was particularly prevalent in West Africa, which until Orange’s foray has had limited exposure and success in mobile money. It is costly to build and manage the agent network, but these costs are worth incurring in order to get to scale and they will eventually pay off – as some of the more successful mobile money experiments are showing.

The success of mobile money depends on the network of agents to build up trust, and to be readily available for people to cash-in or cash-out. Success for Orange in West Africa will depend on the quality, training and commitment of its network of Agents. The jury is still out on whether Orange will succeed in its Mobile Money roll-out in West Africa. What is evident is the necessity of an excellent network of Agents, a build-up of trust amongst the everyday user in Africa, as well as gentle persuasion that mobile money is a more cost-effective way of dealing with money that traditional everyday means.

Why does Africa lead the way in mobile money?

Satellite image of Africa, showing the ecologi...

Satellite image of Africa, showing the ecological break that defines the sub-Saharan area (Photo credit: Wikipedia)

Mobile payments,  mobile wallet and NFC are seen as the next big things in the UK mobile advertising landscape. The opportunity around the use of mobile data such as GPS and payment history to allow advertisers to target potential customers dependent on where they are and what they’ve bought is much hyped. It is seen as such an opportunity that former enemies Vodafone, EE and O2 have combined forces to form WEVE, a joint venture allowing advertisers to run targeted campaigns across the 3 giant UK telecoms operators networks. Mobile payment is seen as the future. However, while systems such as NFC limp along in the UK, Africa is at the forefront of mobile payments and it is the African continent that is most likely to teach the rest of the world valuable lessons.

It is important to separate mobile banking and mobile payments. In the UK, mobile banking often refers to an extension of the services of a traditional bank ‘s services and is widely used by consumers. In Africa, mobile money has been driven by the mobile operators and allows people to transfer money, pay bills, and purchase goods and services using a mobile device, all without accessing a traditional bank account. Mobile money, often associated with Kenya’s M-PESA, is aimed at serving the unbanked, the under-banked and the under-served. Mobile payment is an extension of mobile money and involves the use of the device itself to pay for goods, and Africa is likely to see a surge in this over the next few years.

Why is Africa so far ahead of the UK in terms of mobile money and payments?

A lack of entrenched payments systems in Africa

Africa is a continent that is rich in technological innovation and some of this can be attributed to an open-mindedness, a determination, and no fixed way of doing things. There are no preconceived ideas around debit cards and credit cards being used for payment. Mobile payments have therefore seen an early adoption on the continent. Whereas there are countless ways of paying for goods and services in many parts of the world, this hasn’t been the case in Africa, making mobile money a straightforward choice for many.

A tool of necessity for the unbanked

Many Africans fall into the unbanked category and don’t have access to traditional financial services that are taken for granted in the developed world. Mobile money is therefore a ‘must have’ service for many people. It is not a question of being ahead of the curve,  it is a necessity.

Minimal fees associated with mobile money

Fees charged by services such as Safaricom‘s M-PESA  are minimal compared to traditional banks so mobile money is tempting for many cash-strapped Africans. Despite an increase in the fees charged by mobile money agents in Kenya over the last few months, the total value of Kenya’s Mobile Money market hit $5bn dollars in the first quarter of this year.

Geographical distances and city workers

M-PESA was originally designed as a system to pay back microfinance-loans which reduced the transaction costs, allowing for lower interest rates. However, in a country like Kenya where lots of people work in cities like Nairobi and Mombasa and transfer money back to families in rural areas, the M-PESA service became increasingly used as a mobile transfer system. The distance that often separates the main bread earners and dependants in Africa is often vast. This has contributed to the exponential increase in mobile money usage in Kenya.

The integral role of mobile in Africa. Mobile money is simply an extension

Mobile is often an essential part of people’s lives, from agriculture, health care, to education, so it’s use for payments is a natural step for many people to take. If you’re an expectant mother receiving regular SMS updates that offer pregnancy and childbirth advice, why wouldn’t you use your mobile for payments?

Lack of regulation and restrictions

Safaricom’s M-PESA system was launched with very little resistance and it was allowed to flourish without the sort of restrictions we would see in the UK. It began in an experimental way with very little marketing around it and has benefited because of the lack of bureaucratic red tape as well as Safaricom’s dominance of the Kenyan market. This dominance has also meant a simple solution, whereas in other countries the launch of mobile money products has been ineffective due to too many players in the market.

Technology seen as critical in Africa, mobile much the same

The African continent is currently undergoing a technological boom, with mobile at the center, and this entrepreneurial spirit lends itself well to mobile money adoption.

We cannot mimic all of Africa’s success with mobile money, however many areas can be ‘copied’. Indeed, M-PESA is starting to do well in other countries, including Afghanistan, and it recently launched in India. In the future, mobile payments will extend to areas over and above the transfer of money, and devices will continually be used to pay for goods and services. This is happening now and will be even more prevalent  in Africa as sub $100 smartphones begin to flood the market. For this next stage to really take off, there needs to be a one system-fits-all approach across devices and network operators. There also needs to be a clear benefit for consumers to pay for goods using their mobile device such as loyalty schemes, offers and location based incentives. The future in mobile money and payment systems is likely to be driven by Africa.

Kenya’s Mobile Money Transfer hits $5billion in Q1. But doesn’t tell the whole story

English: Mombasa ferry, Kenya Русский: Паром в...

English: Mombasa ferry, Kenya Русский: Паром в Момбасе, Кения (Photo credit: Wikipedia)

A Central Bank of Kenya report has shown that mobile phone based transactions across all networks reached $5bn in the first 3 months of 2013. This was an increase of $0.76bn on the same period last year. The CBK said Kenyans made the most transactions in January, when transactions were worth $1.69 billion. In February, the value dropped marginally to $1.68 billion. This fell again at the end of the quarter to $1.6 billion in March. This month on month drop does not reflect what happened in the same period last year, when the value increased month on month significantly.

This drop in value is a slight concern and coincided with M-PESA‘s increase in charges because of the government’s introduction of a tax on mobile money transfer.

What is mobile banking?

Safaricom launched the mobile banking M-PESA service in 2007 and its simple premise is to allow people to transfer money and pay bills who don’t have access to traditional financial institutions. Its success and uptake has been revolutionary in Kenya and the M-PESA service has since launched in other parts of Africa and India. Many Kenyans live and work in big cities like Mombasa or Nairobi and send money home through their mobile devices to families living in rural areas. The system is quick and easy and, crucially, M-PESA has gained the trust of millions of Kenyans with an estimated 17 million Kenyans using mobile banking in what is currently the world’s hotbed for mobile money. As one of many unexpected consequences of the service, mobile money was also credited for easing tensions in Kenya after the post-election violence in 2008 by allowing people to receive money when trapped hiding out in slums.

With mobile banking there is no need for a smartphone or an updated handset which is essential on a continent where the basic feature phone is still very much the phone of choice. Customers hand cash over to a mobile money agent, their mobile account is then credited, and can then send mobile money to a recipient who then cashes it in at another agent through a secret code. Commission is then paid to the agent. However this fee compares favourably to bank fees. The reduced costs coupled with the exponential uptake of mobile devices in Africa and the ease with which you can begin begin mobile banking have been the major reasons for its success.

However does the increase in mobile banking in Kenya tell the whole story? What should we take from the fact that the overall value of transactions fell month on month in the first quarter? What else needs to be done to improve access for the unbanked?

According to a new report from the International Telecomms Union (ITU) the number of mobile phone subscriptions is expected to pass seven billion by early 2013, surpassing the world’s population of 7.1 billion soon after. In Africa, despite the exponential uptake of mobile phones over the last decade, the continent still lags behind in terms of number of subscriptions per head. The poor and those in rural areas are often the ones lacking mobile devices and subsequently excluded from the mobile banking system. Governments need to do more to encourage the uptake of mobile devices or subsidise contracts for the poor to ensure everyone benefits.

Questions around trust in using a mobile device for the transfer of money still remain. Just as in the UK there probably needs to be a UK-wide advertising campaign to persuade people of the security around mobile payments and NFC, so do African governments need to reassure the population around the security of mobile transfers.

People also need to be persuaded of the benefits of mobile banking. What can mobile banking bring to a market trader in rural Kenya who has been using cash all her life?

Despite the success of Kenya’s M-PESA, more needs to be done to ensure the poor are not left behind and the gap between rich and poor is not widened. The premise of mobile banking is to reach those who had previously been unreachable, particularly those in rural areas, and its uptake needs to be stimulated by governments, NGOs and mobile operators.

The extraordinary success of Kenya’s M-Pesa

M-PESA Mobile Money Transfer in Kenya

M-PESA Mobile Money Transfer in Kenya (Photo credit: Erict19)

The elections in Kenya were overshadowed by memories of the atrocities and violence which erupted after the disputed electoral contest in December in 2007. However the recent elections passed off relatively peacefully and the new technology hub in Nairobi called Konza Technology City is evidence of an ambitious and promising future. M-Pesa (M for Mobile and Pesa is Swahili for Money) is a mobile-phone based money transfer and micro-financing service for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania.

Before the launch of M-Pesa, the traditional banking system was accessed by only a fraction of Kenya’s population, whereas now M-Pesa has more than 40,000 agents nationwide and more than 60% of the adult population has an account.

M-Pesa, allowing for the free flow of money in Kenya and Tanzania, is another example of Mobile access acting as a tool of empowerment and financial freedom for people in the developing world. Its extraordinary success has become synonymous with the Mobile revolution in Africa, and long may its journey continue on this incredible continent.