M-Pesa: A Wildfire in Africa

A ‘PayPal’ of Africa emerged in the continent in the year 2008. M-Pesa dates back to an era when most of the people in Africa were a victim of slow banking process and underlying money laundering criminals. There was a lack of smooth functioning of the banks and the corporates never looked at Africa as a money-making land. A merger between the telecom giant, Vodafone, and Safaricom (Nairobi’s mobile network operator) resulted in M-Pesa. Before digging into it, let’s understand the role of Vodafone in the making of M-Pesa.

Financial Deepening Challenge Fund (FDCF), was a fund-raising competition organised in the United Kingdom. It brought together financial services providers for taking part in procuring a huge fund to expand and to make themselves available for South Asian and African countries. Vodafone had an eye of a goldsmith who saw a gold mine in Africa. Unlike big corporates chasing glamorous countries to invest and struggling to thrive in the cut-throat competition, the Netherland giant went on to colonise the tropical continent.

With due Merger and Acquisition with a home organisation, Safaricom, Keynesian by nature, set up M-Pesa. It is a money transfer service through mobile networks. M-Pesa reportedly enabled local business and meagre class people who lacked having as common as a bank account to simply make transactions irrespective of the place they are situated in. This could only happen due to the boom of the telecom industry. The widespread of having a mobile phone amplified the then start-up service now into a full-fledged money transfer service.

A deep survey conducted by Vodafone showed people were longing for a better and faster money management system which was scanty under the prevailing banking functions. The inefficiency of the banks restricted the local business owners who required immediate cash liquidity from expanding their operations and business further. Moreover, M-Pesa launched its pilot program on a test run basis to see whether such a business model can survive in the practical domain. The results were quite successful and waved the green flag towards the operation ability of this business model. M-Pesa today is catering to over 41.5 Billion transactions and it has been the ultimate choice of the people of Africa since its inception, it proved to be the fastest and safest way of transferring money.

Digging into M-Pesa, this business model revolves around the idea that a mobile can do functions of a bank such as making payments, withdrawal of money, payment of bills, fees, and all the possible money transactions. Vodafone came up with an ongoing scheme that allowed users to avail a 5% discount on the phone services if they made necessary payments through M-Pesa. This scheme made M-Pesa echo across the continent, and picking up the pace dramatically. The more people made their accounts on M-Pesa the more it encouraged other people to make their accounts as well. This followed a widespread utilisation of this service in most countries of Africa. According to an MIT study, close to 2 lakh households were pushed out of poverty in Kenya, which constituted 2% of people. Per Capita Consumption among people increased drastically which contributed to the overall development of Kenya.

(Credits: News18)

M-Pesa proved to be successful in the rural banking sector and made the financial transactions more streamlined; although this was not the case in places where the banking sector was more fluid and regulated. The most successful business model in Kenya, Egypt, Tanzania, Mozambique, and Ghana took a 180 degree turn when it was implemented in South Africa, the third biggest economy in the continent. The reason for the same is assumed to be a well-regulated banking sector in rural as well as urban establishments.

Secondly, if the foundation of  M-Pesa is considered, it can be acknowledged that it is more of a rural-centric model; which is why it thrived more in a country like Kenya where the rural population stood at an odd 72.49% but wasn’t welcomed in South Africa where the rural population was comparatively lesser at 33.14%. According to a 2019 report, South Africa was not the only land where M-Pesa was on slippery ground, countries like India, Romania, and Albania have delineated that country demographics can turn the coin upside down.

Speaking of the Indian market, the direct competitor of M-Pesa is Paytm, which was more successful and had already captured the market. M-Pesa was targeting people who were not having access to bank services (which was a lot in number back in Africa). Meanwhile, in India, their rival Paytm was partnering with other companies like Alibaba and Uber for e-wallet money payments and UPI payments, making it even harder for M-Pesa to penetrate the Indian market. Further, RBI saw M-Pesa as a banking service rather than as a digital payments service provider, therefore subjecting it to various regulation standards imposed by RBI. So, opening an account on their service platform was as tedious and time-consuming as opening an account with a bank; which defeated its very purpose of existence. So, after a six-year-long journey, M-Pesa discontinued its India operations in July 2019.

Although M-Pesa was successful in Kenya and spread among people residing in Africa swiftly, the same business model turned out to be disastrous in other countries due to different demographic conditions, regulations, smartphone penetration, rural settlements, and income groups. 

Aryan Manwani

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