{"id":18692,"date":"2016-11-18T15:26:55","date_gmt":"2016-11-18T20:26:55","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/m-pesa-providing-banking-services-to-the-unbanked\/"},"modified":"2016-11-18T15:26:55","modified_gmt":"2016-11-18T20:26:55","slug":"m-pesa-providing-banking-services-to-the-unbanked","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/m-pesa-providing-banking-services-to-the-unbanked\/","title":{"rendered":"M-Pesa: Providing Banking Services to the Unbanked"},"content":{"rendered":"<p><iframe loading=\"lazy\" title=\"M-PESA documentary\" width=\"640\" height=\"480\" src=\"https:\/\/www.youtube.com\/embed\/zQo4VoLyHe0?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p><strong>Kenya Banking Landscape Pre-2007<\/strong><\/p>\n<p>In 2006, basic banking penetration in Kenya was approximately 19%<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a>. Predominately providing banking services from their brick and mortar operations, many Kenya banks found it difficult to service much of Kenya\u2019s rural areas (which comprised a significant percentage of Kenya\u2019s populace). The spending power of rural areas and the perceived nominal services a bank could provide the average client made the provision of banking services through the traditional brick and mortar operations simply uneconomic. At the time, it seemed as if providing banking services to the rural populace would be an unachievable task.<\/p>\n<p><strong>Africa\u2019s Extraordinary Mobile Phone Growth<\/strong><\/p>\n<p>While the lack of banking services in rural areas continued to persist, something else very significant was occurring on the continent. Africa was witnessing the proliferation of mobile phones (mobile phone penetration in Kenya went from ~28% in 2007 to 88% in 2016<a href=\"#_ftn2\" name=\"_ftnref2\">[2]<\/a><a href=\"#_ftn3\" name=\"_ftnref3\">[3]<\/a>) in urban and rural areas alike. The growth in mobile telephony and the increased presence and scale of multinational mobile telecommunications companies helped drive increased internet penetration in Africa broadly and in Kenya more specifically. Off the back of the rapid growth in mobile phone use, a business was able to revolutionize the operating model for banking services in the African context.<\/p>\n<p><strong>The Emergence of a New Way of Banking<\/strong><\/p>\n<p>In 2007, Safaricom, a subsidiary of Vodafone brought to market M-Pesa (\u2018M\u2019 standing for mobile and Pesa Swahili for money<a href=\"#_ftn4\" name=\"_ftnref4\">[4]<\/a>). Known for its convenience, ease of use, and accessibility, M-Pesa enabled money transfers between the most basic mobile phones through SMS. Through M-Pesa\u2019s network of over 40,000 agents (oftentimes individuals or small shops who act as agents to M-Pesa and accept cash and load mobile credit to M-Pesa accounts for clients and vice versa for withdrawals) by the end of 2008 M-Pesa\u2019s payment and money transfer services were used by more than 5 million people<a href=\"#_ftn5\" name=\"_ftnref5\">[5]<\/a>. Today, M-Pesa is now used by more than 17 million Kenyans, equivalent to approximately 66% of the adult population. Furthermore, more than 25% of Kenya\u2019s Gross National Product flows through the M-Pesa platform<a href=\"#_ftn6\" name=\"_ftnref6\">[6]<\/a>. Since inception, M-Pesa\u2019s platform has grown from a money transfer business to a platform that offers loans and savings products, salary disbursement, and bill payment services.<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone  wp-image-18502\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa.jpg\" alt=\"m-pesa\" width=\"299\" height=\"224\" \/><\/a>\u00a0 \u00a0<a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa-Labs.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-18531\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa-Labs-300x225.jpg\" alt=\"m-pesa-labs\" width=\"300\" height=\"225\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa-Labs-300x225.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/M-Pesa-Labs.jpg 409w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a>\u00a0<a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/MPesa-labs.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone  wp-image-18547\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/MPesa-labs-300x200.jpg\" alt=\"mpesa-labs\" width=\"339\" height=\"226\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/MPesa-labs-300x200.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/MPesa-labs-600x400.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/MPesa-labs.jpg 630w\" sizes=\"auto, (max-width: 339px) 100vw, 339px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><strong>M-Pesa Opportunities and Threats<\/strong><\/p>\n<p>Considered by many to be one of the greatest mobile money\/mobile financial services success stories in the world, M-Pesa is faced with a number of challenges and opportunities from an operating model perspective:<\/p>\n<p><strong><em>Opportunities<\/em><\/strong><\/p>\n<ul>\n<li><em>Expand Service Offerings to Customers through M-Pesa Platform<\/em> \u2013 Thus far M-Pesa has been used as a means to extend money transfer services, loans and savings products, salary disbursement, and bill payment services to a large segment of consumers who prior to M-Pesa did not have access to the aforementioned services. Having proven concept, M-Pesa must continue to innovate and continue to extend additional financial services through the platform. As an example, Kenya\u2019s insurance penetration rate is estimated to be approximately 3%<a href=\"#_ftn7\" name=\"_ftnref7\">[7]<\/a>. Given the de minimis penetration rate in the country, surely M-Pesa has an opportunity to extend insurance products to customers on its platform. Not only will product expansion help to continue to drive customers to the M-Pesa platform but the number of products provided on the M-Pesa platform can help to build barriers to entry that will make competing with M-Pesa overwhelmingly difficult.<\/li>\n<li><em>Build Credit Score Capabilities<\/em> \u2013 While M-Pesa has helped consumers gain access to basic banking products, it is well known that credit extension in Kenya has been limited due to the lack of reliable credit scores. At the heart of the flow of capital to and from millions of consumers, M-Pesa has tremendous amounts of data on individual consumers and has the opportunity to think critically about how to turn this data into a useful credit metric that can be appropriately used for the provision of loans. If such a system is created, M-Pesa\u2019s importance to the broader financial infrastructure of Kenya would continue to increase thereby insulating the platform from competition.<\/li>\n<\/ul>\n<p><strong><em>Threats<\/em><\/strong><\/p>\n<ul>\n<li><em>Disruptive Business Models \u2013 <\/em>While M-Pesa\u2019s success can be largely attributed to its innovative approach to providing banking services, competitors are out in various markets trying to create new products and services that will compete directly with<br \/>\nM-Pesa. Local competitors and external innovations such as bitcoin have the potential to upend M-Pesa\u2019s current competitive advantage. In order to defend itself against ensuing competition, M-Pesa needs to continue to hire appropriate engineering talent that will help the company continue to innovate.<\/li>\n<\/ul>\n<p>(Words: 777)<\/p>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> <a href=\"https:\/\/www.oxfordbusinessgroup.com\/overview\/further-scope-sector-robust-and-profitable-and-there-are-growth-opportunities-home-and-region\">https:\/\/www.oxfordbusinessgroup.com\/overview\/further-scope-sector-robust-and-profitable-and-there-are-growth-opportunities-home-and-region<\/a><\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> Communications Authority of Kenya, Sector Statistics Report Q2 2008.<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> Communications Authority of Kenya, Sector Statistics Report Q4 2015-2016.<\/p>\n<p><a href=\"#_ftnref4\" name=\"_ftn4\">[4]<\/a> <a href=\"http:\/\/www.forbes.com\/sites\/danielrunde\/2015\/08\/12\/m-pesa-and-the-rise-of-the-global-mobile-money-%20market\/#7584961123f5\">http:\/\/www.forbes.com\/sites\/danielrunde\/2015\/08\/12\/m-pesa-and-the-rise-of-the-global-mobile-money- market\/#7584961123f5<\/a><\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\">[5]<\/a> <a href=\"http:\/\/www.afdb.org\/en\/news-and-events\/article\/fostering-financial-inclusion-with-mobile-banking-12125\/\">http:\/\/www.afdb.org\/en\/news-and-events\/article\/fostering-financial-inclusion-with-mobile-banking-12125\/<\/a><\/p>\n<p><a href=\"#_ftnref6\" name=\"_ftn6\">[6]<\/a> <a href=\"http:\/\/www.economist.com\/blogs\/economist-explains\/2013\/05\/economist-explains-18\">http:\/\/www.economist.com\/blogs\/economist-explains\/2013\/05\/economist-explains-18<\/a><\/p>\n<p><a href=\"#_ftnref7\" name=\"_ftn7\">[7]<\/a> KPMG Report &#8211; Insurance in Africa 2015.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Revolutionizing banking in Kenya<\/p>\n","protected":false},"author":1920,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-18692","hck-submission","type-hck-submission","status-publish","hentry"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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