As M-Pesa Turns 10, New Regulations Are Challenging Its Dominance In Kenya's Mobile Money Sector

Game-changing mobile money service M-Pesa was launched by Safaricom on 6 March 2007, and is turning ten this year. The service has revolutionized the remittances and payments space in the country, expanding access to retail financial services in ten countries with an estimated 29.5 million active users processing up to 614 million transactions per month.

As of the end of December 2016, M-Pesa served almost 29.5 million active customers through a network of more than 287,400 agents. During 2016, the service processed around 6 billion transactions, peaking in December 2016 at 529 transactions every second.

The service is designed to enable customers safely send, receive and store money via a basic mobile phone and, more recently in some markets, using a Smartphone app. Customers visit an M-Pesa agent to top up their M-Pesa account and are then able to use their mobile phone to make purchases in shops and send money to other people who can then visit their nearest M-Pesa agent to withdraw their funds.

After its launch, M-Pesa attracted one million users in the first nine months, with the number subsequently rising to four million in 18 months. In 2009, M-Pesa savings accounts were introduced, and within three months 14 million accounts were set up.

For many M-Pesa users, the service isn't just a debit card equivalent, it's their bank. Perhaps the biggest contribution that the service has had is expanding financial inclusion in Kenya, and providing a model through which financial services could be delivered to the user rather than them having to visit financial institutions and accessing these services in person.

By 2010 M-Pesa hit ten million active users and the number has been on the rise as the service expands in African countries and beyond.

In March 2014, Vodafone M-Pesa launched in Romania, making it the first country in Europe to use the mobile money transfer technology. Since then, Vodafone has introduced the service to nine other countries - Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique and Tanzania.

The service has had varying degrees of success in the countries it has been introduced. Interestingly, in countries where banking services are well established, mobile payments have struggled to gain traction, with most people preferring physical charge cards or paper money. This was the reason why the service has failed to take off in South Africa, which has a higher formal banking access than other countries in Sub-Saharan Africa.

Over the last decade, M-Pesa has evolved far beyond its roots in person-to-person transfers, playing an increasingly important role in the broader economies of several countries.

M-Pesa is used for a wide variety of essential transactions including the payment of household bills and salaries, the distribution of pension payments and the disbursement of agricultural subsidies and government grants. Customers can pay for goods and services both at retail stores and online.

“M-Pesa is a revolution that has empowered tens of millions of people in some of the poorest communities in the world to start and grow businesses and gain greater financial resilience. All of us at Vodafone are very proud of how M-Pesa has enhanced our customers’ daily lives and helped them plan for the future with confidence.” Vodafone Group Managing Director of M-Pesa and former Safaricom CEO Michael Joseph, said.

According to a recent study conducted by MIT and published in the journal Science, M-Pesa has had a dramatic impact on the overall economy in Kenya – lifting some households above the poverty line and particularly benefiting families headed by women. In one notable example, poverty fell 22% within a kilometer of where six M-Pesa agents opened between 2008 and 2010.

Ten years on, M-Pesa is facing a new regulatory challenge in Kenya, with a draft amendment to the Kenya Information and Communications Act aiming to have telecommunication companies separate their businesses along lines of service provision. Safaricom would have to focus on the telco business, with M-Pesa operating as a separate entity.

M-Pesa accounts for more than 90% of the mobile money market in Kenya, and this has been attributed to a combination of the network effect, where a significant proportion of the Kenyan population uses it, and the first mover advantage, where they were the first to introduce mobile money services to Kenya.

Independence, some have argued, would lead to fairer rates. A report by research firm Analysys Mason has proposed for the introduction of seamless interoperability in Kenya's mobile money space before the end of 2017. For this to happen, the report proposes that M-Pesa be spun off from Safaricom and made independent so that users can send money to each other regardless of operator.

Kenya may be the world’s most advanced mobile financial services market thanks in part to M-Pesa, and the push to make the space competitive could have some interesting results for Safaricom and for M-Pesa as a whole. What's clear is the service has contributed significantly to financial inclusion and access to financial services in Kenya, and it will likely continue doing so for the next ten years to come, if not more.

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