Why has M-Pesa been so successful in Kenya, yet mobile money initiatives in other developing countries much less so? Recent Centre for Development Informatics research can help provide a systematic response.
M-money services have two core functionalities. Registered customers can convert between e-cash and real cash (typically at the physical premises of an m-money agent), and can transfer e-cash from their account to that of another account holder via SMS. They might use this to send money to family members or friends, or to pay a provider – anyone from a taxi driver to a local school – for goods and services.
M-Pesa was launched in Kenya in 2007. It has grown spectacularly: in mid-2012, there were 19.5 million m-money users in Kenya (83% of the adult population), transferring nearly US$8 billion per year (equivalent to 24% of GDP) – M-Pesa is responsible for more than 90% of these transfers. Transfers are growing at nearly 40% per year.
It’s not that m-money initiatives in other developing countries have failed: there are an estimated 250m users of m-money services in emerging markets. Just that they have not – yet – succeeded on anything like the scale of M-Pesa, with Kenya accounting for 30% of all emerging market m-money transactions in 2011. For example, a recent survey in South Africa found only 16% of respondents with a mobile money account. In Nigeria, only 3% of adults use mobile money. And Africa is the lead continent: outside the Phillipines, m-money has been very slow to catch on in Asia. In India, for example, Nokia quit the m-money business in 2012 after two years of failing to build a critical mass.
How do we explain the differences? University of Manchester research, based on six months of primary fieldwork conducted by Chris Foster, analysed the reasons M-Pesa has grown so fast in Kenya; reasons summarised in the model shown below:
Ongoing support from government – liberalisation of the mobile market; investment in infrastructure; light-touch regulation; facilitation of the initial pilot, etc – combined with strong consumer demand across all strata of society (itself partly fed by the instability and disruption following the disputed 2007 elections). These drove a virtuous circle:
- Competition between mobile sector firms pushed them to seek profits beyond the traditional middle-of-the-pyramid; answering the demand from the majority market of the country’s poor.
- The service was delivered via atomised distribution networks that reached right down into poor urban and rural communities; a network of nearly 50,000 agents by 2012.
- Those embedded intermediaries – essential in scaling any innovation to reach the base-of-the-pyramid – were given the flexibility to adapt business models, retailing patterns and service offerings so they met the specific and heterogeneous needs of their local customers. Effective knowledge channels allowed these innovations to filter back up to the lead firms, which then scaled those they found most useful; fuelling yet further growth.
Armed with this model, we can analyse the m-money weaknesses in other emerging markets. For example:
- Much lower levels of customer demand (put down to both culturo-institutional factors and more effective functioning of and access to existing financial services) combined with a more stringent regulatory regime are behind the slow growth rates in India.
- A much smaller number of intermediaries (agents) and a lack of innovation (e.g. to address cash float problems) is restricting growth of m-money in Uganda and Tanzania.
- Tighter regulation and the much small number of intermediaries has held back expansion of mobile money services in South Africa.
We are not the first to try to understand the different performance of M-Pesa vs. other countries (see e.g. Wolfgang Fengler, Amaka Okechukwu who both also note the value of Safaricom’s market domination). However, we hope that our model provides a clear and transferable framework for comparison, that can be used alongside more in-depth evidence from other countries to help understand their relative success or failure in mobile money.
If you see ways in which you think the model should be modified – based either on experiences in Kenya or elsewhere; then let us know . . .Follow @CDIManchester