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The father of M-Pesa on being innovative in Africa

Nick Hughes speaking at The MasterCard Foundation Symposium on Financial Inclusion last week in Kigali, Rwanda.

Nick Hughes delivering a keynote address at The MasterCard Foundation Symposium on Financial Inclusion last week in Kigali, Rwanda.

Nick Hughes is known for being at the forefront of innovation in Africa. He is responsible for founding and developing the M-Pesa mobile payments service in the mid-2000s while working at Vodafone. Today the platform is hailed as one of Africa’s top success stories. Over 70% of the Kenyan population uses M-Pesa, and other markets – such as Tanzania – are showing strong adoption.

In 2012 Hughes also co-founded M-KOPA, a consumer finance company that has sold solar energy systems to over 425,000 customers in Kenya, Tanzania and Uganda in just four years. The company stands out for its success in targeting products and solutions at low-income consumers – who are often overlooked.

Speaking at The MasterCard Foundation Symposium on Financial Inclusion last week in Kigali, Rwanda, Hughes explained what it takes to introduce innovative solutions to African markets.

Let customers be the guide

Hughes noted that M-Pesa was actually adapted from a Vodafone micro-finance loan platform in Kenya. It was piloted near the industrial town Thika with several hundred customers, organised into groups – including people appointed as treasurers and secretaries.

“It was a very complex microfinance disbursement and recovery platform. Microfinance of course at that time was key… So we thought we were on a great thing in building this microfinance payments platform.”

But after a few weeks of piloting the service, Hughes and his team started to notice that their customers were loading more money onto their wallets than they needed to be able to pay their group’s treasurer.

“So we scratched our heads and followed the data a bit more and kept watching… The delta between the minimum loan repayment and the amount of money on the wallets was growing and growing and eventually we got into the field and started asking them what was happening.”

Hughes quickly discovered that the customers had not only found the mobile wallets convenient when it came to paying the microfinance group treasurers, but had also used it to pay friends and family within the test group.

“So of course a light went on – we cut out all that complexity in the microfinance loan system and went to market with a send-money-home, person-to-person payment platform… and the rest is history. We launched M-Pesa in 2007.”

So what is the lesson to be learned from this? “Put something into the market place, watch what your customers do with it, and then change your business model to that,” said Hughes.

Start simply and experiment

Hughes believes that part of M-Pesa’s initial success came from keeping the platform and its service offering uncomplicated. For example, it was launched with the simple slogan: “Send money home.”

Today, however, M-Pesa is successfully used by micro-finance institutions and banks, and much of the complexity that was stripped out in the beginning has been re-introduced to the service. Hughes argues that this is because consumers are now more comfortable and familiar with the platform –and mobile money in general.

“It is actually used now for the very thing we thought it should be used for. But we had to simplify it and gradually layer on the new features and functionalities.”

According to Hughes, M-KOPA’s model has also been adapted from lessons learned by testing the market and experimenting with different solutions. For starters, the company initially considered leasing their solar energy products to households, instead of selling them using payment plans.

“We made some mistakes in the early days and it’s important to make those mistakes and observe what customers do. For example, we started trying to charge for usage – hours of usage rather than single units of credit. Of course we switched after experimenting.”

The company has again introduced other products with time as it developed a better understanding of what customers want, and as the customers started to trust M-KOPA’s offering. Additional products include radios and TVs that can be powered by M-KOPA’s solar systems.

Build trust through data

“Data can shape the very proposition that you offer a customer. In fact if you don’t go in to offer a proposition based on real observations and data then I think you are going to get it wrong,” said Hughes.

One reason behind this, he noted, is that understanding what customers want and don’t want – and delivering on this – can build customer trust.

“Coming up with a scalable model is all about trust from that customer, especially when it comes to low-income people. They are very risk adverse… as they have a small amount of money that is disposable to them. So, we have got to build that trust – and data underpins that trust.”

Don’t forget the business basics

While new technology, ideas, and business models are important for innovative business, Hughes believes they make up only about 20% of the solution.

“The other 80% comes from good, old-fashioned, boots-on-the-ground business. It is managing the quality of your suppliers in China; it’s getting boxes onto boats and through warehouses in Mombasa… It’s incentivising and training sales teams and recruiting people all the time into the customer care centre.

“This is all hard operational work – and if you didn’t do that, you haven’t got a business anyway.”

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