M-Pesa is giving off major bank energy 💰

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Caleb here, and I'm networked-out after the last week of Africa Tech Summit - which is why our next event will be a virtual one.

And it will be with none other than GB, CEO and Co-Founder of Flutterwave. 

If you know African Tech, you've heard of Flutterwave - one of the continent's biggest startups tackling the fintech space. At 3pm WAT tomorrow, we're going deep into how GB started and scaled Flutterwave into one of Africa’s largest companies. Come along and join us by RSVPing here.

Alright - into the edition.

The world has been raving about M-Pesa for a minute.

What started as an experiment in Kenya to send money with nothing but a mobile phone number, became the first successful mobile money use case in the world.

After 16 short years, M-Pesa now processes at least 2,600 transactions every second, serving 50 million customers in eight African markets.

But M-Pesa’s feature stack isn’t limited to just sending and receiving money.

Besides the usual mobile transfers, M-Pesa has loans, a savings wallet, and investment products to offer.

They’ve even recently partnered with Visa to launch virtual card payments.

Linked to M-Pesa wallets, the cards allow users to shop online worldwide, thanks to Visa's massive network of merchants.

And soon, visitors who want to use M-Pesa will be able to link their Visa cards to the M-Pesa app.

M-Pesa’s expanding features are exciting.

And it makes us ask this about the world’s most successful mobile money company:

Is M-Pesa becoming a bank?

On paper, M-Pesa isn’t a bank. It’s a mobile money service owned by Safaricom - Kenya’s largest telco.

And it exists to help customers move money using their phones, taking a cut from the transactions.

But over time, M-Pesa has started to look more and more like a bank.

And it's got the three ingredients to become one of Africa’s biggest: The users. The services. The distribution.

1) User base

M-Pesa has over 50 million customers in eight African markets: Kenya, Tanzania, the Democratic Republic of Congo, Egypt, Ghana, Lesotho, Mozambique, and Ethiopia.

Kenya, with over 30 million active users, is their biggest market, while Ethiopia is their latest venture.

Just for comparison, the biggest bank in Kenya, Kenya Commercial Bank (KCB), has 32.4 million customers in total.

2) Services

Kenyan banks do the usual banking stuff – savings, loans, mortgages, foreign exchange, card payments, and investments.

But M-Pesa, mainly known for transfers and payments, is catching up. With:

• Mshwari - a savings product that also lends you money

• Mali - an investment product that earns interest

• Fuliza - An overdraft service that covers your M-Pesa transactions when your funds are running low.

Throw in their Visa card payment move, and suddenly M-Pesa is giving off major bank energy.

While you still can’t get a mortgage just yet, M-Pesa is piling on features that cover the everyday banking needs of both regular folks and businesses.

3) Distribution

Last year, Kenya counted up to 1,475 bank branches across the country.

While M-Pesa doesn’t have traditional bank branches, it has agents.

They have turned your everyday mom-and-pop shop into a bank branch where customers can make deposits and withdrawals - just like bank tellers do.

And guess how many of these agents M-Pesa has?

260,000 (and counting).

So, M-Pesa has all the ingredients to become a bank - and Africa’s biggest by number of customers.

But why would M-Pesa want to become a bank?

Right now, M-Pesa partners with banks to launch financial products.

For example - Fuliza, which lets customers transact more than they have in their wallets, is a joint effort between Safaricom, NCBA Bank, and KCB.

Since coming to market, NCBA Bank alone has sent out $9.12 billion worth of Fuliza loans.

It's a money-making machine for everyone.

But if M-Pesa becomes a bank, it won’t need to rely on partner banks to launch financial products.

Which also means it will keep all the money it makes from the product.

Fuliza users pay a one-time fee to access it, and daily fees on any unpaid loans. Safaricom and NCBA each pocket 40%, while KCB gets 20%.

But hey, turning into a bank isn't just about M-Pesa. There’s something in it for their customers too.

Today, M-Pesa users can only send or stash up to $1,580 (Sh 250,000) daily in their wallets.

But as a bank, that limit jumps to $6,319 (Sh1 million).

And don’t forget the 538,000 merchants who use M-Pesa to accept payments.

If they tapped into this merchant base, they could offer other business loan products they don’t have now.

Like asset financing, where you get loans to buy assets like machinery or cars.

Because M-Pesa isn’t a bank, its hands are tied when it comes to asset financing, which can only happen if you’re regulated by the Central Bank of Kenya.

Former Safaricom CEO, Michael Joseph, puts it this way:

‘’If you took M-Pesa from Safaricom and CBK regulated it, you could apply to CBK to have M-Pesa offer more services to its customers, which are not necessarily telco services.

We could lend you money to buy a car, but we can’t do it today. So there is a range of services to choose from.”

If M-Pesa can make more money by selling services like asset financing, it begs the question…

Why hasn't M-Pesa become a bank?

It turns out, not becoming a bank yet could actually be working in M-Pesa’s favour.

Because banking is a tough space, and becoming one is a tedious process with a bunch of paperwork and licensing fees.

But M-Pesa keeps things simple by focusing on growing its user base and agent network instead of dealing with the hassle of being a bank.

After piggybacking on their agent network to grow, they’re now going all out digitally with a super app - a move that many banks are hustling to catch up with.

It's a familiar story in banking: starting with physical branches and then diving into digital banking to stay relevant:

• NCBA Bank has Loop, a super app that operates as a digital-only bank

• And KCB’s got VOOMA, their mobile wallet to pay for stuff, borrow loans, and even save on your phone.

While banks are starting physical and going digital, digital is M-Pesa's entire playbook - and that's been its advantage.

So while M-Pesa gives off more major bank energy and steps deeper into bank territory, it turns out that not being a bank is its best advantage to move faster and grow revenue quickly.

What do you think of M-Pesa's banking moves? Do you think it should become a bank? 

Let me know here.

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