The story behind Kenya’s dominance in mobile money

The success of mobile money in Kenya has been covered extensively. The East African nation’s dominance in the field is unquestionable.

Kenya has more cell phone subscriptions than adult citizens and more than 80% of those with a cell phone also use mobile money. The world has approximately 60m mobile money users and almost one in every three is a Kenyan. Half of all mobile money transactions are taking place in Kenya where annual transfers have now scaled the US$10bn level.

The impact on the social and economic front has been equally remarkable. Of note is the impact to macroeconomic policy. Mobile money helped move cash from the mattresses into the formal market providing the central bank a better handle on the money in circulation, which is a major challenge especially in sub-Saharan Africa were a significant portion of economic activity is in the informal sector.

Brilliant as this may be, what baffles many is why mobile money has not yet taken off in other countries, especially those where money transfers from urban to rural areas are enormous even by Kenyan standards. Hillary Clinton for instance could all but wonder why such a “brilliant innovation” was not available in the USA.

Wolfgang Fengler et al in their forthcoming paper entitled “Scaling-up through disruptive business models – The inside story of mobile money in Kenya” provided some insight on what they believe sets Kenya apart, or put differently, why replication is proving more difficult when it is should be easier than innovation.

In their view, Kenya’s regulators were pivotal in enabling the mobile money takeoff. They believe that the Central Bank in particular played a very progressive role and allowed “regulation to follow innovation”, while reassuring the market of its oversight. The regulator agreed that mobile money agents needed only limited requirements to enter the business, as they were not providing banking services, while the operator behaved as if it was regulated and periodically reported financial and usage data as banks do.

Secondly, the strategy of the omnipresent operator, Safaricom, was also important. In 2007, the company already had more than 50% of the mobile telephone market share. Its strong position and national presence helped it to reach scale easily. Even more important was the company’s business philosophy to “build a brand rather than make quick return”. It took three years before M-Pesa could generate a net profit, but it created indirect benefits from the beginning because in Kenya’s increasingly competitive market, mobile money boosted loyalty and attracted new customers to its core business of voice and SMS.

Thirdly, Safaricom’s management understood that the success of M-Pesa was ultimately about people management, not technology. In many instances innovations are known to have failed because management focuses exclusively on designing and launching a product, and assume that the technology will take care of itself afterwards. M-Pesa’s experience showed that the opposite is true. One needs people to run machines and the interactions you get after product launch can generate even better products. The true secret of M-Pesa’s success is the management of the agent network, which grew from 300 initially to almost 30,000 today.

There is no doubt that mobile money will soon go global, and this process can be aided if countries consider the lessons from Kenya. Globally, there are still more than two billion people who have cell phones but no bank account: for these, mobile money is an extremely attractive proposition. The proposition is even more suited to Kenya’s peers in sub-Saharan Africa given that, according to FINDIX, only around 24% of adults in the region have a formal banking account.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.