{"id":6507,"date":"2015-12-09T21:44:23","date_gmt":"2015-12-10T02:44:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/m-pesa-how-sub-saharan-africa-bred-the-global-leader-in-mobile-money\/"},"modified":"2015-12-09T21:45:52","modified_gmt":"2015-12-10T02:45:52","slug":"m-pesa-how-sub-saharan-africa-bred-the-global-leader-in-mobile-money","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/m-pesa-how-sub-saharan-africa-bred-the-global-leader-in-mobile-money\/","title":{"rendered":"M-Pesa: How Sub-Saharan Africa Bred the Global Leader in Mobile Money"},"content":{"rendered":"

Context<\/span><\/p>\n

Often perceived globally as a lagging region when it comes to innovation, Sub-Saharan Africa \u2013 specifically Kenya \u2013 has served as the perfect breeding ground for a major leap in how the basic consumer bank account is structured. In 2007, the retail banking market characteristics in Kenya included:
\n\u2022 Exceptionally high costs for transferring money relative to even similarly developing country financial sectors
\n\u2022 Driven partially by the above, a cultural aversion to electronic payments and a broader lack of trust toward financial services companies was apparent \u2013 resulting in a largely cash-based economy
\n\u2022 Significant mobile phone penetration across the country with the biggest player (Safaricom) dominating the market with ~80% share<\/p>\n

Company overview<\/span><\/p>\n

As a response to these market inefficiencies, M-Pesa was launched in 2007 by Safaricom with Vodafone as a minority shareholder. Originally developed with a sole purpose of expediting loan disbursements and collections for microfinance institutions, its core proposition quickly expanded to include:
\n\u2022 A \u201cmobile wallet\u201d with functionality to make deposits and withdrawals
\n\u2022 Mobile-based money transfers to both users and non-users of M-Pesa \u2013 all that is required is for the receiver to have a mobile number
\n\u2022 Bill payments
\n\u2022 Linkages to full-service bank accounts<\/p>\n

Business strategy\/ objectives<\/span><\/p>\n

M-Pesa was developed with the objective of transforming the way that money is managed and transferred by the average consumer. The strategy the company deployed to achieve this objective rested on the following pillars:
\n1. Scale (customers and money volume) \u2013 the success of M-Pesa would rest on the company\u2019s ability to generate a sufficient foundation of users due to the network effect. This was due not only to ensure future growth of the user base but also to attract enough 3rd-party agents to execute operationally (see \u201coperating model\u201d section)
\n2. Low cost to the user \u2013 given the low income levels of the typical customer and the relatively low ticket sizes of money transfers, a low transaction cost was critical for adoption to be achieved. The company\u2019s ability to employ such competitive rates rested on their success in driving volume (#1)
\n3. Product simplicity \u2013 as the Kenyan financial services market was immature, the typical consumer was uneducated about what we might consider to be \u2018core\u2019 banking products in western markets and also lacked trust in the financial system. Simple, standardized products were required to bypass these barriers in the first instance.<\/p>\n

Operating model<\/span><\/p>\n

To meet its strategic objectives, M-Pesa employed the following key differentiating components in its operating model:
\n\u2022 Low infrastructure costs through use of 3rd-party agents: M-Pesa was able to forego high capital expenditure and management of infrastructure by having 3rd-party agents serve as its \u201cbranch network\u201d
\no These agents would facilitate the disbursement\/ collection of funds, sign up new users and offer basic customer service
\no In return, agents received a portion of the transaction costs from users
\no In practice, agent \u201cbranches\u201d are often ancillary stands that are part of the Agent\u2019s core business (e.g. retail store, gas station)
\n\u2022 Leveraging of existing mobile phone channel: In order to start using the service, all a customer needed was a mobile phone. Given Safaricom\u2019s dominant share in the market, they were therefore able to leverage this extensive network to effectively achieve incrementally free distribution of the banking technology (an app download was required).
\n\u2022 Co-management of customer service across mobile and banking products: M-Pesa achieved additional operational synergies by leveraging the customer service infrastructure (e.g. call centers) Safaricom had already set up for its mobile business.<\/p>\n

\"\"
M-Pesa agent<\/figcaption><\/figure>\n

M-Pesa Today<\/span><\/p>\n

After a stellar launch, the company has continued to be incredibly successful and has shown no signs of slowing down. In 2014:
\n\u2022 42% of Kenya\u2019s GDP passed through M-Pesa
\n\u2022 50% of all Safaricom customers held M-Pesa accounts; total subscribers are ~20 million
\n\u2022 An agreement with the South African telecom MTN facilitated the expansion of the services to seven East-African countries; similar joint-ventures have pushed M-Pesa\u2019s presence to central Asia and Europe<\/p>\n","protected":false},"excerpt":{"rendered":"

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