A Blog Post by Matthew Cole: Mobile Money

M-Pesa

The year is 2020. Mobile money is becoming less and less of a  fad and more ingrained into our society. With apps like Venmo and Ca$hApp, as well as Apple Pay and Samsung Pay for their respective devices, going to the supermarket and buying groceries or paying your friend back for the movie you just saw can be quicker and simpler than sending an email. You don’t even have to take your wallet out of your pocket. To do this, the users need to have a smartphone and the service or goods providers need to have the necessary hardware to facilitate the transaction. In the US, the whole process of mobile money has really come onto the scene in the last 5 years, with more and more people buying smartphones and with more and more service providers upgrading themselves to be able to use this technology.

But, what if I told you that there is a country which has been using a form of mobile money for almost 15 years, and all you need is a cellphone and a cell phone connection. No smartphone. No special hardware. And you guessed it, that country is Kenya. Kenya’s largest cell phone provider, Safaricom, introduced its mobile money system, called M-Pesa (m for mobile, pesa means “money” in Swahili) in 2007. What makes M-Pesa different and more powerful than the mobile money applications that we are used to in America, is that is completely SMS based. That means that anyone, anywhere, as long as they have a cellphone and a Safaricom connection, can participate. So how does M-Pesa work you might ask? Well buckle up and I can explain!

When I arrived in Nairobi in July, one of the first things I did was head over to an official Safaricom shop to set up my phone with a line and an M-Pesa account. It was pretty easy after I got everything set up, I withdrew 10k Ksh (about $100) from a nearby ATM and returned to the Safaricom shop to deposit it into my M-Pesa account. But, you might ask me, is there an official Safaricom shop in Wamba to set up my account if I wanted one there? And the answer is no, the nearest shop is about a 2+ hour drive away in a place called Isiolo. BUT, what makes M-Pesa so powerful is the fact that you do not need to use an official Safaricom shop to set up an account or to facilitate a transaction. Safaricom has thousands (an estimated 150k to be precise) of “agents” scattered across Kenya. And what these agents are, are regular business owners who are not affiliated with Safaricom but can run M-Pesa services on the side. You can set up a phone line and an M-Pesa account at most of these agents and use M-Pesa services. So, if I wanted to put 1500 Ksh into my M-Pesa account, I would walk across the street to the nearest M-Pesa agent, give them the money and through the M-,  they send the money straight to my M-Pesa account via SMS. The same works in reverse, if I want to get 1500 Ksh in cash, I go to the agent, type in their agent number, send the money from my account, and the agent gives me cash. All without needing a bank, an ATM or a check. Mobile money.

What the menu of M-Pesa looks like on an iPhone. You can see options to send money to other people, withdraw money as well as other options

If I go to a restaurant or a bar, many of them in Kenya have what is called a “Paybill number.” This 6 digit number is unique to whatever shop or restaurant you are at, and to use it, you simply input the number into the “buy goods and services” menu option under M-Pesa. Thirty seconds after you confirm the transaction (every user has a 4 digit PIN # for security), the money is subtracted from your account and deposited into the pay bill account.

Every restaurant that uses M-Pesa has a unique 6 digit till number displayed throughout the restaurant on sheets like this

You can also send money person to person if each person has a Safaricom line). There are also third party applications that allow money to be sent from a bank account/debit card in the US, UK and other countries directly to a Kenyan Safaricom M-Pesa account. This is in fact, how I refill my M-Pesa account as opposed to using an agent and how TSP pays its employees.

But it doesn’t stop there; many Kenyans pay their bills and take out loans through their M-Pesa. It truly is in fact a form of mobile banking. All through the power of SMS. It is so powerfully simple that people including Mark Zuckerburg and Bill Gates have come to Kenya to study it and its effectiveness.

It is not, however, without fault. While using the paybill feature inquires no extra fee, if you want to withdraw money or send someone money directly over M-Pesa there is a fee associated with it that is relative to how large the transaction is. I recently withdrew 1500 Ksh at an agent in town and incurred a fee of 28 Ksh. This nearly 2% transaction fee, while it doesn’t seem like much, can add up very quickly, especially as so many M-Pesa exchanges aren’t for a pack of cigarettes, but for a single cigarette itself. So while it can be argued that Safaricom should lower the fees associated with these types of transactions, it is undeniable that M-Pesa has made life all over Kenya, from the densest part of Nairobi, to out here in the rural North, easier and more accessible for people.

You may be wondering how this hasn’t exploded over the world, and to be honest, it is a bit of a confounding question. M-Pesa and similar programs have been attempted in other parts of Africa, India, and even Eastern Europe. And in none of these places, has it been as successful as it has been here in Kenya. I am not sure what the reason for that may be – perhaps pressure from the respective banking industries or something Safaricom did not cave to when it launched M-Pesa.

Regardless, M-Pesa is the perfect example of the power of technology and how it can shape every life on the planet. As we grapple with the issues of our time, programs like this should be considered and how we tackle them.

Mpaka wakati mwingine.r

Until another time,

Matt