Mobile Money – a look at the landscapes in East Africa and India


If I had a choice I’d like to live in a world where payments are invisible and completely pushed to the background. That belief was re-enforced after using UBER in its earliest launch days in India. Apart from using UBER, the closest I’ve come to invisible payment is when I lived a cashless life in Nairobi. While I was in Kenya, I’ve not touched any cash (well, only one time while I test how I can withdraw cash from a roadside shop using M-Pesa).

Every transaction I’ve done was via mobile phone. Sending money or paying was so easy; it was just a SMS away, courtesy M-Pesa, the widely celebrated mobile payment system launched in 2007 by Safaricom. Currently, about 62% of the adult population in Kenya transacts through M-Pesa. One thing cool about M-Pesa is that it allows payments between private individuals which credit cards don't usually allow.

#MySelfieStory: Safaricom agent helping me set up my M-pesa account. It took only 5 min.

What is mobile Money?

Mobile Money Association of India & GSMA paper defines it(pdf): “Mobile Money is a transformational service that uses information and communication technologies (ICT) and non-bank retail channels to extend the delivery of financial service to clients who cannot be reached profitably with traditional branch-based financial services. Typical examples of mobile money services are e-wallets that are used to make peer-to-peer (p2p) transfer, or to receive salary and governments to person payments (g2p). The average value of the p2p2 transaction on a mobile money platform is USD 35 (Rs. 2191).”

If done right, it’s much easier to sell the idea of Mobile Money to the poor than selling the idea of banking and other complicated financial services. The poorest of the poor is accustomed with pre-paid mobile service over the last decade. Every time their airtime balance runs out they go to the nearest shop and recharge talk time.

They understand the system fully well, more than that they trust it. They know when they give their money to the agent (shop keeper) the money will be credited to them.

If there is one thing that East Africa showed to the world beyond a shadow of doubt is if done right, mobile money can be a real catalyst of a developing world economy ensuring financial inclusion of those at the bottom of the pyramid in a true sense.

Setting up M-Pesa on the most low end phone. Great example of UI & UX for the bottom of pyramid.

The state of mobile money in Kenya

Sounds unusual but it is true, a rural poor in Kenya who can’t even afford a basic mobile phone can afford a SIM card. That SIM card can be loaded with the small money there is. Whenever that person wants to transact, he borrows a handset from a family or a friend and voilà, the transaction is done.

I’ve heard cases where the poor in the old days used to hide money under mattresses, inside the book or a corner of a house. Now the unbanked, can buy a SIM card then load the money and hide the SIM card conveniently. I’ve heard, by transacting occasionally they keep the SIM card active.

Currenlty, over 20 billion dollars of yearly transaction is being done on M-Pesa. And one hot discussion goes like this: “What happens to some of the money in M-Pesa account when the person who deposits it dies?” Safaricom said in cases where the SIM card has not been active for 4 months (120 days), Safaricom will re-sell the number on the market. And if the line is connected to M-Pesa and has money in it, the cash will be transferred to a bank account for safety. Later, the company will only release the funds when certain required documents are submitted. Currently, millions of unclaimed money lies at the custody of Safaricom.

Another addon service is M-Pesa along with Commercial Bank of Africa came up with M-Shwari, a service aimed to connect M-Pesa account to a bank account and get a loan on it. People who has never been credit worthy have got a proxy metrics for creditworthiness. The banks just look at the history of how frequently they add a top-up on their M-Pesa balance.

Another area that Africa is leading the way is mobile money interoperability. Having one robust mobile money platform is one thing, but allowing one network provider to send in/out money to the other mobile network provider is a whole different thing and that is what is happening in Tanzania right now, where 44% of adults there used some form of mobile money.

Accumulated balance of all mobile money accounts was 1.2% of total bank deposits as of April 2013.

Mobile Money competition is becoming stiff not just along network providers, now banks are also trying to put their best foot forward.  Equity bank in Kenya is launching a chip embedded sticker that can overlay on their existing SIM card which makes them avail extra service. What that means is for Equity Bank without giving out other new SIM cards and spending huge effort to convince users to switch can ride on the back of existing networks. Safaricom, the provider of M-Pesa, has already approached the regulator to stop the bank from using the thin SIM technology. We’ll continue to see how the battle unfolds.

The other much anticipated time by developers is the opening of M-Pesa API. Veronica Ogeto, Head of Innovation at Safaricom, while at a Pivot East 2014 fireside chat commented, “Between March and April 2015 Safaricom will open up M-Pesa API.” It will be very interesting to see what magic developers could do with this when they develop for existing 23+ million customer base.

NFC payments in Africa

The success of M-Pesa recently led multiple players form the world to launch alternative payment solution in East Africa. One example is Bangalore based iKaaz NFC payment providers has launched its service in Kenya. Google has also launched a mobile payment solution called BebaPay. These NFC-based platforms lets commuters pay for bus fares and tap & pay at the shopping checkout counter.

Many things have been said about factors behind M-Pesa’s success: Michael Joseph, the man who led the mobile money efforts highlights five points:

-        The distribution network: Mobile Money is like insurance. Nobody actually buys insurance, you have to sell it. It's like Starbucks - you need a mobile money agent on every corner.
-        Strength of brand: M-PESA will emotionally bind customers. In four years of number portability, 0.07 percent of customers have moved.
-        Technology: In mobile money every transaction has to be successful, when you are dealing with poor people's money.
-        Regulatory regime: In Kenya, regulators were very supportive of the effort from day one.
-        Management buy-in: If you want mobile money to be successful you have to keep your CFO in another room. Even better another country, said Michael.

The state of Mobile Money in India

Simply put we are not there yet. Thanks to the clash of the titans and friction between telcos & banks, on top of that the innovation stifling regulatory process, and non existence of consumer awareness. We have over 14 mobile money providers in India. (Mobile on Money by Calpain, M-Pesa, Airtel Money, Beam Money to mention a few.) But not enough takers in terms of of percentage of users. In that regards Bangladesh fares better. According to industry analysts, India is poised to see $350 billion annual mobile money transaction in the next two years.

Since the size of Indian market is 20 times that of Kenya, M-Pesa’s mobile money head Michael Joseph was quoted last year saying: “When India takes off it will eclipse anything we’ve done in Kenya.”

M-Pesa is designed to thrive in harsh market conditions in which banks would never survive: offering a secure means of payment for people who do not have easy access to banking services. Reportedly, in India more than 1m people have signed up for M-Pesa in Vodafone network. Telecom operators consider their billing systems as an alternative to credit/debit cards. If RBI allows telecos they would love to see operator billings integrated in every serive and they would like to put things on the bills and take a cut. (Imagine for a second how the e-commerce players will be happy if you can pay from your phone balance without requiring cards/netbanking.) But RBI allows only the balance to be used for voice & data and VAS.

On the other hand, banks don't like software eating their transaction fee they get from their traditional banking money transfer services. So they[banks] will resit and lobby against a payment solution that is fully telecom dependent. reports: India requires mobile operators to work with banks to provide the services. Mobile networks would like instead to have their own agents who can cash out the digital money into hard currency. Much of the infrastructure is already in place, because there are so many locations where customers can top up on airtime. But the mobile operators aren’t allowed to use those sales outlets as financial agents. “If you look at all the unsuccessful mobile money deployments that haven’t taken off around the world, it is almost always because mobile operators and banks half-went into it and didn’t spend enough to reach the scale they need,” says Wright.

According to a survey by InterMeida report (quoting from LiveMint), conducted between 15 October 2013 and 18 January 2014 on access and use of financial services, “Most respondents don’t know about mobile money. This is evident from the fact that while 48% respondents said they have accessed a bank account and 25% said they actively use a bank account, only 0.3% have accessed a mobile money account. Awareness about mobile money is low, only 6%, and that too mostly in the major cities. Of those who use mobile money, sending money to others and topping up airtime are the most common reasons for use. Based on both spontaneous and prompted recall, only 6% of the respondents were aware of any mobile money products. This awareness is significantly higher among those above the poverty line.

Every cloud has a silver lining

According to NPCI (National Payments Corporation of India), there are 900 million mobile phones and 450 million bank accounts in India but only 67 million phones are linked to bank accounts. Arun Jaitly, the Union Finance minster, seems to be too keen on the idea of financial inclusion. What other better way to do it than mobile money?

Under the new finance minster (NPCI) has come up with interoperable mobile banking solution by signing contracts with telecom companies on behalf of banks for providing phone agnostic service via USSD (unstructured supplementary service data) technology to provide banking on every dumb & smart phones.

Services offered: Balance enquiry, account-to-account money transfer
Who benefits? People who don't have smartphones or internet access
Cost involved: Rs 1.50 per transaction (to be deducted from the user's airtime)
Benefit for banks: Saves money on servicing customers at branches or ATMs
Technology used: USSD platform-based service offered on short code *99#
Compatible with: All telecom service providers, mobile handsets and banks

What’s mentioned above is the primary phase; the initiative is to ensure banking on every phone. The second phase is to enable money transfer without linking to the bank. But the real local commerce revolution starts when people stated to pay to merchants (for good & services) using mobile money.

Still the power balance indicates power is tilted towards banks than telecom. OTT(Over-the-top) applications have disrupted telecoms on voice & SMS, telecoms in-turn had a real chance of disrupting banks on providing financial services on steroids. I don’t think we can see that happen anytime soon in India. One of the reasons why M-Pesa succeeded is because incumbent banks had less say, in India, it is the opposite. But I’ve a dream, one day I’ll pay for pani puri on MG Road with my mobile then I’ll echo #IndiaShining.

What is your Mobile Money dream? I’d love to hear your dreams on the comment section below.