{"id":6160,"date":"2015-12-09T21:20:35","date_gmt":"2015-12-10T02:20:35","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/how-kenya-created-the-worlds-most-successful-mobile-payments-service\/"},"modified":"2015-12-09T21:44:36","modified_gmt":"2015-12-10T02:44:36","slug":"how-kenya-created-the-worlds-most-successful-mobile-payments-service","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-kenya-created-the-worlds-most-successful-mobile-payments-service\/","title":{"rendered":"How Kenya created the world\u2019s most successful mobile-payments service"},"content":{"rendered":"<p><strong><a href=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/a9329ebf6090afb969b7a98195460892.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-6421 alignleft\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/a9329ebf6090afb969b7a98195460892-300x200.jpg\" alt=\"a9329ebf6090afb969b7a98195460892\" width=\"300\" height=\"200\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/a9329ebf6090afb969b7a98195460892-300x200.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/a9329ebf6090afb969b7a98195460892-600x400.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/a9329ebf6090afb969b7a98195460892.jpg 660w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a>What\u2019s this M-PESA thing all about?<\/strong><\/p>\n<p>The word \u201cpesa\u201d means \u201cmoney\u201d in Swahili, which is the most widely spoken language in Southeast Africa. M-PESA is a mobile-payment service, developed by Kenya&#8217;s largest mobile-network operator, Safaricom. Launched in 2007, M-PESA was originally developed to allow for payments on micro loans to be easily collected. However, it was found that M-PESA users were using the service\u00a0to transfer money to one other, in addition. In response, the M-PESA platform was built out around an e-wallet, allowing for deposits and withdrawals of cash, bank account transfers, the payment of bills from electricity to school fees, loan and savings transactions, and the receipt of salaries.<\/p>\n<p>Today, M-PESA has captured roughly 70% of households in Kenya, and over 50% of lower income households, demonstrating its contribution to financial inclusion. Kenyans benefit from the following advantages of M-PESA:<\/p>\n<ul>\n<li>A fast and convenient money-transfer system, available throughout the country and accessible to everyone with a mobile phone<\/li>\n<li>A secure and trusted service, removing\u00a0the need to carry cash and the consequent risk of theft or loss<\/li>\n<li>Time savings for users by removing the need to travel to banks and wait in queues<\/li>\n<li>Cheap rates that reduce costs of financial products, e.g. lower rates on micro loans<\/li>\n<\/ul>\n<p>Taking advantage of a range of contextual factors, M-PESA has reaped the dividend of network effects. In fact, the introduction of M-PESA has spurred a host of Kenyan start ups who run their businesses wholly on mobile phones.\u00a0Few of the ideas spawned from M-PESA and implemented elsewhere have managed to replicate its unique success.<\/p>\n<p><strong>So what\u2019s the big secret?<\/strong><\/p>\n<p>M-PESA has met all of the critical success factors of a high performing mobile-payments service \u2013 great technology, simple marketing, sound partnerships with banks and support from the regulator. But one factor outshines the rest in terms of the proficiency with which it has been structured and maintained \u2013 M-PESA\u2019s distribution system. As effortless as it may seem, transferring money via mobile requires a robust backstage set up.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-3368 alignright\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/201024fnc604.gif\" alt=\"201024fnc604\" width=\"291\" height=\"282\" \/>Customers who wish to deposit or withdraw cash from their M-PESA e-wallet, in exchange for mobile money, can do so at one of Kenya\u2019s 40 000 registered M-PESA agents. Compared to the 840 bank branches found countrywide, the superior convenience of M-PESA is evident, especially in rural areas. To appreciate the strength of the distribution system though, we must understand the challenges it faces. A large proportion of the population is\u00a0employed in cities, sending money home to family in rural areas using M-PESA. As a result, M-PESA agents in cities mostly receive deposits of cash, whilst agents in rural areas mostly pay out withdrawals. Therefore, the reliability of the system rests heavily on active liquidity management; rural agents need to have an efficient system of replenishing their cash resources once these have been swapped out for mobile money via customer withdrawals. M-PESA has achieved this through \u201cpooling\u201d and \u201clayering\u201d within the distribution system.<\/p>\n<p>M-PESA agents pool the net mobile money they receive from customers and travel a short distance to exchange this for cash from a registered M-PESA intermediary. These intermediaries, in turn, pool the cash and mobile money received from agents, and arrange the logistics between affiliated banks. The pooling in the system aims to increase efficiency by reducing the number of players that need to ferry cash at each stage. Meanwhile, the layering in the system acts a cushion against clearing delays in the banking system, allowing for the speed of M-PESA transfers. Because the availability of liquidity is core to any payment service, Safaricom visits all agents on a bi-monthly basis to check on the quality of this process, and how agents are handling the growth in volumes of transactions.<\/p>\n<p><strong>What\u2019s the headline?<\/strong><\/p>\n<p>In summary, if money\u00a0transfers made through M-PESA were not immediately available, or if cash could not be reliably obtained from an agent, the M-PESA system would be of little value to its users. M-PESA\u2019s carefully orchestrated distribution network\u00a0enables the required customer service levels. Kenya \u2013 not just a tech hub hey!<\/p>\n<p style=\"text-align: center\"><div style=\"width: 384px;\" class=\"wp-video\"><video class=\"wp-video-shortcode\" id=\"video-6160-1\" width=\"384\" height=\"288\" preload=\"metadata\" controls=\"controls\"><source type=\"video\/mp4\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/M-PESA-documentary.mp4?_=1\" \/><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/M-PESA-documentary.mp4\">https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/M-PESA-documentary.mp4<\/a><\/video><\/div><\/p>\n<p>&nbsp;<\/p>\n<p><strong>Sources:<\/strong><\/p>\n<ul>\n<li><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><\/li>\n<li>http:\/\/www.economist.com\/node\/16319635<\/li>\n<li>Bridges to Cash: The Retail End of M-PESA, Frederik Eijkman, Jake Kendall, Ignacio Mas, <a href=\"http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=1655248\">http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=1655248<\/a><\/li>\n<li>http:\/\/www.cgap.org\/blog\/10-things-you-thought-you-knew-about-m-pesa<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>M-PESA has transformed the everyday lives of most Kenyans, disrupting the traditional banking system and capturing the previously unbanked market. Allowing whole businesses to be run from a mobile phone, the secret to M-PESA\u2019s impressive performance can be found backstage. <\/p>\n","protected":false},"author":1059,"featured_media":6161,"comment_status":"open","ping_status":"closed","template":"","categories":[385,156,252,55],"class_list":["post-6160","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-banking","category-customer-service","category-distribution","category-technology"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How Kenya created the world\u2019s most successful mobile-payments service - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/how-kenya-created-the-worlds-most-successful-mobile-payments-service\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Kenya created the world\u2019s most successful mobile-payments service - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"M-PESA has transformed the everyday lives of most Kenyans, disrupting the traditional banking system and capturing the previously unbanked market. 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