The company that changed Kenya forever

Bitcoin is cool - but have you heard of M-Pesa?

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The company that changed Kenya forever

Bitcoin, WePay and Apple Pay may all be the hype now. But long before digital wallets or blockchain, mobile money started in Kenya back in 2005.

Meet M-Pesa - the company that changed Kenya forever.

It’s back in 2000 and the British telecom giant Vodafone Group has just bought a 40% share in a growing telecom company out of Kenya called Safaricom.

Things were going well for Safaricom, but in 2005 they made a slight deviation from letting users send texts and make calls.

Safaricom won a grant from the UK Department for International Development (DFID) to help deepen financial inclusion in rural Kenya.

And they had a great idea.

Outside of city centres, bank branches were few and far between.

Rural and regional-living Kenyans travelled hours to get to the bank.

So they thought - ‘what if we could put the bank teller on your phone?’

Safaricom’s idea was to create a loan service for rural Kenyans to borrow money and pay it back from their phones with a SIM Card - by sending a text.

Safaricom and DFID rolled out in 2005 and they discovered something.

Most of the money being borrowed was being sent to other people through the app..

They didn’t realise it then, but they had created the fintech equivalent of penicillin.

Michael Joseph, who was Safaricom’s CEO at the time, reflected that M-Pesa’s ‘true’ discovery ten years later.

M-Pesa wasn’t just solving access to loans.

In Kenya (and across Africa) people would travel for days to send money to family and friends.

Sometimes, they would give money to a bus driver to deliver to their relatives on the other side of the country.

There was limited access to banking infrastructure to send money. And when there was, it would eat right into their wages.

M-Pesa solved the hairy issue of sending money by building a cheap, easy way to send money thousands of kilometres away.

Sending money to others, paying bills and buying services became as easy as sending a text.

And as loans and savings accounts were layered into M-Pesa, anyone with a phone in Kenya could have a bank account.

With 57% of Africans unbanked, and cash still reigning king in Africa (estimated to be 90% transactions) today, they were onto something big.

They had what’s on every African Venture Capitalist and fintech startup’s slide deck.

They (actually) banked the unbanked.

Just like that, mobile money was born.

And M-Pesa spread like wildfire. Safaricom aimed to reach 350,000 M-Pesa users in its launch year of 2007.

They ended up with 1.2 million users.

Fast forward to today, and they have hit 52.4 million users across the world.

M-Pesa’s explosive user growth wasn’t just a game-changing product.

They had a secret.. agent.

M-Pesa’s secret.. agent

While banks have branches, M-Pesa pioneered an agent model - taking Mom and Pop shops and roadside kiosks and turning them into mini M-Pesa embassies.

Store owners became M-Pesa ambassadors, showing customers the new world of mobile money.

In return, they got a commission every time someone loaded up their digital M-Pesa wallet with cash or made a cash withdrawal.

M-Pesa was careful to grow its agent network in pace with their customer base.

Towing the fine line between the number of customers and agents helped them balance the demand for mobile money while making sure that agents always had enough business and wouldn’t leave.

And being close enough to agents was also important.

McKinsey found that M-Pesa’s strategy was hinged on the proximity of customers to agents.

They found that when a cash agent was more than 15 minutes away, mobile money had relatively little appeal and customers might use mobile money once or twice.

When an agent is less than 10 minutes away, the usage grew to 10 times a month.

But two minutes away? Bingo! 30 transactions a month.

M-Pesa’s agent model dominated Kenyan coverage.

Their tentacles went far deeper than any traditional banks - which did not have physical branches outside of cities.

And they were an obvious choice for Kenyans who wanted better, cheaper and easier financial services.

Today, there are over 160,000 M-Pesa agents. That’s 68 times the number of ATMs in Kenya.

M-Pesa is embedded into Kenya’s economy, used in 96% of Kenyan households. And it’s for the better.

A study by Georgetown University found that M-Pesa lifted 194,000 Kenyan households (or 2% of households) out of poverty.

The biggest use case? The transition of 185,000 women from subsistence farming jobs to business or retail businesses through M-Pesa.

Kenya has been transformed into one of the most tech-enabled societies in the world, and M-Pesa was the MVP of that transformation.

And now M-Pesa has gone abroad - to African countries like Egypt, Ghana, Lesotho, Mozambique, and Tanzania, and outside of the continent in Afghanistan.

Going global 

As M-Pesa is in talks with integrating with e-commerce giant Amazon, commentators think that M-Pesa is eyeing its next feast: the tasty, global remittance cake.

In 2022, $794 billion was sent back home to countries across the world. And the United Nations thinks this will rise to $5.4 trillion by 2030.

If M-Pesa is up for the challenge, it will be going up against remittance platforms like Moneygram, Western Union and WorldRemit - billion-dollar companies that dominate the space.

But they have a few great advantages up their sleeve.

Firstly, making money transfers across long distances is M-Pesa’s bread and butter. With 18 years in the game, M-Pesa has the expertise needed to build a great remittance company across the world.

Second is their distribution. Remember who owns 40% of Safaricom?

Vodafone - the British telecom giant with over 300 million users between Europe, Asia, The Americas and Africa. Embedding into a phone provider like that is an enormous competitive advantage over other remittance players.

And finally is their product. Even with platforms like WorldRemit and Moneygram, creating an account, getting specific bank information and clearing transactions is time-consuming and complicated.

And if M-Pesa can make remittances as simple as a text for their users, they’re onto something big.

It’s always exciting to see technology start in Africa and then spread to the rest of the world.

M-Pesa is one of those stories, and I’m excited to see how the company grows globally.

What do you think of M-Pesa’s story? Let me know on LinkedIn here.

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👋🏾 Caleb