In 2007 Kenya became the launching pad of MPESA, an innovative mobile phone-based platform for money transfer and financial services.
AS of 2013, a stunning 43 percent of Kenya’s GDP surged through M-Pesa, with over 237 million person-to-person transactions. M-Pesa is almost ever-present in the daily lives of Kenyans due to a range of services that include cash withdrawal and deposit, remittance delivery, bill payment, and microcredit provision.
M-Pesa as an idea was born after researchers funded by the UK’s Department for International Development (DFID), the foreign aid arm of the British government, observed that Kenyans were transferring mobile airtime as a proxy for money. DFID researchers saw potential in this idea, and facilitated a connection with mobile service provider Vodafone . Vodafone had been considering ways to support microfinance through its mobile platform, as access to banking and credit was limited in Kenya and transporting cash was both risky and slow. Nick Hughes, Vodafone’s Head of Global Payments, developed the M-Pesa idea and applied for funding through a DFID challenge fund. Vodafone and DFID ultimately made matching investments of £1 million.
Almost a decade after its launch, M-Pesa has transformed economic relations in Kenya. Its success reformed Kenya’s banking and telecom sectors, extended financial inclusion for nearly 20 million Kenyans, and helped the creation of thousands of small businesses. M-Pesa has been particularly successful in reaching low-income Kenyans. New data shows that the percentage of people living on less than $1.25 a day who use M-Pesa rose from less than 20 percent in 2008 to 72 percent by 2011.
Groups that typically have limited access to formal financial services have benefited from the financial products offered through M-Pesa. In particular, its short-term Pay Bill Account service allows users to fundraise for a variety of purposes, including expenses relating to medical needs, education, and disaster relief. M-Pesa has also empowered business creation—many small companies rely on M-Pesa for nearly all transactions, or provide a service that is a imitative of the platform itself.
In Kenya, M-Pesa has been so successful that traditional banks have come to see it as a serious competitor. At first, these banks sought to limit M-Pesa by seeking regulations from the Kenyan government, but increasingly they have begun to offer mobile banking services that attempt to disrupt M-Pesa’s monopoly of the mobile money market. To compete, many of these services are offered with transaction fees that are even lower than M-Pesa’s. As more players enter the system, the mobile money market may become even more widely accessible.
M-Pesa’s success is derived of the explosive growth in access to mobile phones in the developing world. In the first quarter of 2015, there were over 900 million mobile subscribers in Africa, and 3.7 billion in Asia. The number of mobile lines in service is predicted to surpass the global population at some point this year, and developing markets will continue to drive growth in mobile subscriptions for the anticipatable future.