M-Pesa: Transforming Kenya with Mobile Money

M-Pesa has become the payment method of choice in Kenya. With a simple SMS text, those who traditionally lacked access to financial institutions can now easily send and receive money.

Context: Kenya in the 2000s

In 2007, just prior to the launch of the mobile payment service M-Pesa, less than 20% of Kenyans had access to any type of formal financial service. [1] Banking was largely limited to the wealthy, and 70% of the population lived in rural communities—putting further constraints on financial activity. [2] Around the same time, however, mobile penetration in Kenya had reached 30% and was expected to grow to 70% by 2013. [3] To address this lack of financial inclusion, Safaricom (a subsidiary of Vodafone and the largest mobile network operator in Kenya) launched the revolutionary mobile payment system—M-Pesa.


How M-Pesa Works 

M-Pesa is a system that utilizes mobile technology to convert cash into e-money, and vice versa. Three basic transaction types make up the service: [4]

  1. Deposits: A Safaricom user visits an authorized M-Pesa retail agent and makes a cash deposit. The agent then transfers the corresponding e-money amount to the user’s M-Pesa account (tied to a phone number).
  2. e-Money Transfers via Phone: A user can send e-money to individuals, pay bills, make store purchases, and buy airtime credits via SMS text messages.
  3. Withdrawals: A user can visit a M-Pesa retail agent and “cash out” part of his or her e-money balance.

Safaricom has monetized M-Pesa by implementing a tiered fee structure on money transfers and withdrawals. For an average transaction of $25 USD, Safaricom charges roughly a 2% fee. There are no fees on deposits.

Figure A: Overview of M-Pesa [A]

The Success of M-Pesa and Value Creation for Users

M-Pesa became the first mobile money transfer service in Kenya, and the lack of competition has led to rapid consumer adoption. While the banking community initially argued against the legality of M-Pesa due to regulatory issues, the Central Bank of Kenya ultimately ruled in favor of Safaricom. [2]

Fast forward to today, and M-Pesa is one of the major mobile payment success stories. Companies such as Zain Telecom have launched competing services, but are failing to keep up. Safaricom’s success can largely be attributed to the way in which it rapidly scaled its retail infrastructure—there are now over 40,000 M-Pesa agents nationwide. [5] In 2013, there were 20 million Kenyans using M-Pesa, and roughly 43% of the nation’s GDP flowed through the platform. [6]

By allowing users to transfer money easily, securely, and instantaneously, M-Pesa has improved the economic landscape and livelihoods of millions of Kenyans. Among rural households that adopted M-Pesa, studies indicate that incomes have risen by up to 30%. [7] This is partially driven by increased efficiencies in the allocation of human and physical capital, as households become more likely to send family members to high-paying jobs in distant locations. [8] M-Pesa has also impacted patterns of remittances, savings, and risk management across the nation.


Impact of M-Pesa on Safaricom

M-Pesa has drastically transformed Safaricom’s business. First, M-Pesa has allowed Safaricom to diversify and capture new value from customers. In fiscal year 2016, M-Pesa accounted for 21% of the company’s total revenue. [9] Additionally, M-Pesa has helped reduce subscriber churn and increase overall user engagement within the Safaricom network. Safaricom’s overall revenue per user for voice, message, and data services has increased over time as a result of M-Pesa.

Furthermore, M-Pesa has altered the way in which Safaricom operates with traditional airtime distributors. Now that M-Pesa enables consumers to purchase additional airtime (e.g., call minutes) directly from their phones, the company can reduce commission pay-outs and its dependency on these traditional partners. In fiscal year 2014, Safaricom sold roughly 38% of its total airtime through M-Pesa. [10] This translated into savings of $64 million USD in commission fees.


What’s next for M-Pesa? 

With the rapid commoditization of Android smartphones and increased broadband penetration, Safaricom must look to provide more sophisticated use case scenarios with M-Pesa going forward. To do so, the company must earnestly open up its APIs (application program interfaces) so that third-party developers can integrate their services with M-Pesa.

Some may argue that Safaricom has already started doing this. Available on Google Play, M-Ledger (originally created by Dynamic Data Systems) is an app that allows individuals and businesses to analyze their transaction histories. However, many remain skeptical of Safaricom’s willingness to give up control of its quasi-monopolistic platform, and one could argue that there are still some real limitations around API functionality and access. [11]

Finally, while M-Pesa has certainly been a huge success, there are still opportunities to capture new users in Kenya. For example, researchers estimate that only 25% of lower-income women send mobile money each week (compared to 49% of lower-income men). [12] Understanding this gender gap and adjusting fee structures, marketing tactics, and product offerings appropriately can both advance mobile engagement among rural women while also growing Safaricom’s bottom line.

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[1] International Finance Corporation, “M-Money Channel Distribution Case – Kenya: Safaricom M-Pesa,” (2010), accessed November 2016.

[2] Alliance for Financial Inclusion, “Enabling Mobile Money Transfer: The Central Bank of Kenya’s Treatment of M-Pesa,” (2010), accessed November 2016.

[3] Omae Malack Oteri, Langat Philip Kibet, and Ndung’u Edward N., “Mobile Subscription, Penetration, and Coverage Trends in Kenya’s Telecommunication Sector,” International Journal of Advanced Research in Artificial Intelligence, (2015), accessed November 2016.

[4] Safaricom, “Get Started with M-Pesa,” accessed November 2016, http://www.safaricom.co.ke/personal/m-pesa/get-started-with-m-pesa.

[5] T.S., “Why Does Kenya Lead the World in Mobile Money?” The Economist, (May 2013), accessed November 2016, http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18.

[6] Daniel Runde, “M-Pesa and the Rise of the Global Money Market,” Forbes, (August 2015), accessed November 2016, http://www.forbes.com/sites/danielrunde/2015/08/12/m-pesa-and-the-rise-of-the-global-mobile-money-market/#1c205bad23f5.

[7] Consultative Group to Assist the Poor, “Poor People Using Mobile Financial Services: Observations on Customer Usage and Impact from M-Pesa,” (August 2009), accessed November 2016.

[8] Consortium on Financial Systems and Poverty, “The Rise and Impact of M-Pesa,” (January 2013), accessed November 2016.

[9] Safaricom, “Safaricom Limited Annual Report: 2016,” (August 2016), accessed November 2016.

[10] Groupe Spécial Mobile Association, “2015 State of the Industry Report: Mobile Money,” (2015), accessed November 2016.

[11] Olga Morawczynski, “Just How Open is Safaricom’s Open API?” Consultative Group to Assist the Poor, (October 2015), accessed November 2016, https://www.cgap.org/blog/just-how-open-safaricom%E2%80%99s-open-api.

[12] Georgia Barrie, Jamal Khadar, and Stephanie Gaydon, “Women and Mobile Money: Insights from Kenya,” Groupe Spécial Mobile Association, (November 2015), accessed November 2016.



[A] Consultative Group to Assist the Poor, “M-Pesa Mobile Money,” (July 2010), accessed November 2016, https://www.youtube.com/watch?v=ewJ-lpvWDEU.


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Student comments on M-Pesa: Transforming Kenya with Mobile Money

  1. I’m curious how the folks that use M-Pesa feel about the 2% transaction fee. While this seems low at first, if nearly everything is transacted using M-Pesa, somebody (either the consumer or the vendor) is losing that 2% to Safaricom. I understand that the system is easy to use, especially with such widespread mobile phone access, but 2% on all transactions can add up. This is great for Safaricom as it sounds like a lot of Kenya uses M-Pesa. But if credit cards (or maybe debit cards?) gained popularity in Kenya and didn’t charge 2%, would Kenyans switch? Also are there any security risks to having money be tied to phone numbers? My instinct says this is not a system that can easily be “hacked” but with little physical currency and so much of the economy transacting via the internet, are there any other security risks?

    I am a huge fan of money transfer apps Venmo and Paypal in the States. While this system is slightly different, the concept is similar and definitely creates value for all customers. The fact that I don’t need to carry cash and that the money is tied to my phone number (which hasn’t and probably won’t change) makes sending and receiving money very easy.

  2. Great read Kevin! I’m curious about what the future hols for M-PESA, especially around the API access you mentioned. The Kenyan government has been boasting and heavily pushing the idea of a “Silicon Savannah” around Nairobi, to tap into and build the country’s start-up and technology ecosystem. My suspicion is that much of the innovation in the country will likely be off the back of M-PESA and related digital services that have sufficient broad uptake, awareness, and trust. It’ll be interesting to see how willing Safaricom is to support that, though I suspect the stake that the Kenyan government owns may compel it to play somewhat of a supporting role as well!

  3. Ksong, thank you for this. I’m a big admirer of M-Pesa. A few years ago, I did some research to figure out why mobile money has struggled to catch on in Nigeria, where I’m from, and many other emerging markets. Kenya is somewhat unique.

    Regulation favored mobile in Kenya. The regulation has lagged this sort of innovation with regulators trying not to impede on progress. In Nigeria, there is a big debate on whether mobile money is a banking service or telco service. The Nigerian regulators believe it’s a banking service. For this reason, they has forced mobile money firms to partner with banks. Essentially, in Nigeria, only banks are allowed to offer mobile money services. Compare this to Kenya’s case where Safaricom, a telco with close to a monopoly, was allowed to offer mobile money.

    There are other factors that made Kenya right for mobile money compared to other markets such as Nigeria. Kenya, unlike Nigeria, had a national identification system. In fact, Nigeria, until a few years ago, did not even register sim cards. The mobile money alternatives in Nigeria are quite cheap, unlike those in Kenya.

    Further reading:

  4. Interesting technology that provides a unique solution to an everyday problem – thanks for sharing Kevin! Technology is so often only adapted by the upper class due to its often high monetary cost, so it’s amazing that M-PESA was able to roll this technology out to all people all across Kenya. I agree with the comment above – the 2% fee did stand out to me as being high. In the U.S., there was a massive amount of consumer pushback on bank checking fees and transparency. While this technology is inclusive, charging a 2% fee on sending money in a country where the average GDP per capita is ~$1,300, compared to ~$55,800 in the United States as per data from the world bank (http://data.worldbank.org/indicator/NY.GDP.PCAP.CD), it feels unfair. I hope M-PESA is able to adapt to new technologies with the smart phone and find a way to drive down fees!

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