M-Pesa
M-PESA (M for mobile, PESA is Swahili for money) is a mobile phone-based money transfer service, payments and micro-financing service, launched in 2007 by Vodafone and Safaricom, the largest mobile network operator in Kenya.[1] It has since expanded to Tanzania, Mozambique, DRC, Lesotho, Ghana, Egypt, Afghanistan,South Africa and Ethiopia . The rollouts in India, Romania, and Albania were terminated amid low market uptake. M-PESA allows users to deposit, withdraw, transfer money, pay for goods and services (Lipa na M-PESA, Swahili for "Pay with M-PESA"), access credit and savings, all with a mobile device.[2]
Operating area
The service allows users to deposit money into an account stored on their cell phones, to send balances using PIN-secured SMS text messages to other users, including sellers of goods and services, and to redeem deposits for regular money. Users are charged a fee for sending and withdrawing money using the service.[3]
M-PESA is a branchless banking service; M-PESA customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets acting as banking agents.
M-PESA spread quickly, and by 2010 had become the most successful mobile-phone-based financial service in the developing world.[4] By 2012, a stock of about 17 million M-PESA accounts had been registered in Kenya. By June 2016, a total of 7 million M-PESA accounts had been opened in Tanzania by Vodacom. The service has been lauded for giving millions of people access to the formal financial system and for reducing crime in otherwise largely cash-based societies.[5] However, the near-monopolistic providers of the M-PESA service are sometimes criticized for the high cost that the service imposes on its often poor users.
M-PESA is operated by Safaricom and Vodacom, mobile network operators (MNO) not classed as deposit-taking institutions, such as a bank. M-PESA customers can deposit and withdraw currency from a network of agents that includes airtime resellers and retail outlets acting as banking agents. The service enables its users to:
Partnerships with Kenyan banks offer expanded banking services like interest-bearing accounts, loans, and insurance.[22]
The user interface technology of M-PESA differs between Safaricom of Kenya and Vodacom of Tanzania, although the underlying platform is the same. While Safaricom uses SIM toolkit (STK) to provide handset menus for accessing the service, Vodacom relies mostly on USSD to provide users with menus, but also supports STK.[23]
Cost, transaction charges, statistics[edit]
Transaction charges depend on the amount of money being transferred and whether the payee is a registered user of the service. The actual cost is a fixed amount for a given range of transaction sizes; for example Safaricom charges up to KSh66 (US$0.6) for a transaction to an unregistered user for transactions between KSh10 and KSh500 (US$0.92–US$4.56). For registered users the charge is KSh27 (US$0.25) or 5.4% to 27% for the same amount. At the highest transfer bracket of KSh50,001–70,000, the fee for a transfer to a registered user is KSh110 (US$1) or 0.16–0.22 %. The maximum amount that can be transferred to a non-registered user of the system is KSh35,000 (US$319.23), with a fee of KSh275 (US$2.51) or 0.8%. Cash withdrawal fees are also charged. With a charge of KSh10 (US$0.09) for a withdrawal of KSh50–100 or 10% to 20%, and up to KSh330 (US$3.01) for a withdrawal of KSh50,001–70,000 or 0.47% to 0.66% .[24][25]
In an article published in 2015, Anja Bengelstorff cites the Central Bank of Kenya when she states that CHF 1 billion is moved in fiscal year 2014, with a profit of CHF 268 million, that is close to 27% of the moved money.[26] In 2016, M-PESA moved KSh15 billion (US$147776845.14) per day, with a revenue of KSh41 billion. In 2017 KSh6,869 billion were moved according to a figure in Safaricoms own annual report, with a revenue of KSh55 billion. This would put Safaricom's profit ratio at around <1 % of total money transferred.[27][28]
Effect on poverty in Kenya[edit]
With the support of Financial Sector Deepening Kenya and the Bill & Melinda Gates Foundation, Tavneet Suri from the Massachusetts Institute of Technology and William Jack from Georgetown University have produced a series of papers extolling the benefits of M-PESA. In particular, their 2016 article published in Science has been influential in the international development community. The much cited result of the paper was that "access to M-PESA increased per capita consumption levels and lifted 194,000 households, or 2 % of Kenyan households, out of poverty."[29] Global development institutions focusing on the development potential of financial technology frequently cite M-PESA as a major success story in this respect, citing the poverty-reduction claim and including a reference to Suri and Jack's 2016 signature article. In a report on "Financing for Development", the United Nations write: "The digitalization of finance offers new possibilities for greater financial inclusion and alignment with the 2030 Agenda for Sustainable Development and implementation of the Social Development Goals. In Kenya, the expansion of mobile money lifted two per cent of households in the country above the poverty line."[30]
However, these findings on the role of M-PESA in reducing poverty have been contested in a 2019 paper, arguing that "Suri and Jack’s work contains so many serious errors, omissions, logical inconsistencies and flawed methodologies that it is actually correct to say that they have helped to catalyse into existence a largely false narrative surrounding the power of the fin-tech industry to advance the cause of poverty reduction and sustainable development in Africa (and elsewhere)".[31]
Regulation and KYC rules[edit]
M-PESA sought to engage Kenyan regulators and keep them updated on the development process. M-PESA also reached out to international regulators, such as the UK's Financial Conduct Authority (FCA) and the payment card industry to understand how best to protect client information and adhere to internationally recognized best practices.[60]
Know your customer (KYC) requirements impose obligations on prospective clients and on banks to collect identification documents of clients and then to have those documents verified by banks.[61] The Kenyan government issues national identity cards that M-PESA leveraged in their business processes to satisfy their KYC requirements.[62]
M-PESA obtained a "special" license from regulators, despite concerns by regulators about non-branch banking adding to the current state of financial instability.
Third-party integration[edit]
Safaricom released the new M-PESA platform dubbed M-PESA G2 to offer versatile integration capabilities for development partners.
Client-to-business and business-to-client disbursements are some of features available through the API.
Criticism[edit]
The near-monopolistic providers of the M-PESA service are sometimes criticized for the high cost that the service imposes on its often poor users. The Bill and Melinda Gates Foundation warned in 2013 that lack of competition could drive up prices for customers of mobile money services and used M-PESA in Kenya as a negative example. According to the Foundation, a transfer of $1.50 cost $0.30 at the time, while the same provider charged only a tenth of this in neighboring Tanzania, where it was exposed to more competition.[63] A study sponsored by USAID found that poor uneducated customers, who often had bad vision, were a target of unfair practices within M-PESA. They had expensive subscriptions for ring-tones and similar unnecessary services pushed on them, with opaque pricing, and thus did not understand why their M-PESA deposits depleted so quickly. If they did, they were often unable to unsubscribe from those services without help. The authors concluded that it is not the marginalized people in Kenya who benefit from M-PESA, but mostly Safaricom.[64] A similar conclusion was reached by development economist Alan Gibson in a study commissioned by Financial Sector Deepening Trust Kenya (FSD Kenya) on the occasion of the 10th anniversary of FSD Kenya in 2016.[65] He wrote that credit to business did not improve due to M-PESA and that credit to the agricultural sector even declined. He concluded in his otherwise very friendly survey that the financial sector benefitted handsomely from the expansion of M-PESA, while the living conditions of the people were not noticeably improved.
Milford Bateman et al. even conclude that M-PESA's expansion resulted in holding back economic development in Kenya. They diagnose serious weaknesses in the much cited paper by Suri and Jack, which had found positive effects on poverty, as M-PESA enabled female clients to move out of subsistence agriculture into micro-enterprise or small-scale trading activities. Alleged weaknesses include a failure to incorporate business failures and crowding out of competitors in the analysis. Bateman et al. call M-Pesa an extractive activity, by which large profits are created from taxing small-scale payments, which would be free if cash was used instead. As a large part of these profits are sent abroad to foreign shareholders of Safaricom, local spending power and demand are reduced, and with it the development potential for local enterprise.[66]
Kenya does not have a data protection law, which enables Safaricom to use sensitive data of its subscribers rather freely. A data scandal surfaced in 2019 when Safaricom was sued in court for the alleged breach of data privacy of an estimated 11.5 million subscribers who had used their Safaricom numbers for sports betting. The data was allegedly offered on the black market.[67]