Joseph’s M-Pesa dream that triggered Kenya’s mobile money revolution

Michael Joseph seemed like a daydreamer when on a bright Tuesday morning on March 6, 2007 he unveiled to Kenyans a service where users would transfer money via mobile phones.

Huddled in a room at the Grand Regency Hotel (now Laico) in Nairobi, the guests watched in awe as the then Safaricom chief executive officially launched M-Pesa, the revolutionary mobile money platform that later put Kenya on the global innovation map.

The service allowed users to send amounts of between Sh100 and Sh35,000 to any phone at a cost of between Sh55 and Sh175. It was also a mobile wallet that could hold a maximum of Sh50,000.

For many, including ex-ministers Mutahi Kagwe (Information and Communications) and Amos Kimunya (Finance), who were in attendance, it sounded like a fairy tale.

The coverage of the event by the Press was lukewarm, and was treated as a small story as seen in the page 34 story in the Daily Nation of March 7, 2007 titled “Safaricom unveils money service.”


On April 3, exactly four weeks after the birth of M-Pesa, Celtel Kenya (now Airtel) took on Safaricom when the telco introduced its own mobile money product dubbed Sokotele.

Transaction values were capped at Sh5,000 and a flat transaction fee of Sh120 was charged. The service was a partnership between Celtel, K-Rep Bank and local IT firm Packstream Systems.

It was a stillbirth and little was heard about it for year, and had to morph into Zap and finally Airtel Money.

Mr Joseph had termed M-Pesa as the “killer application” but it would then take Kenyans more than a year to understand what he exactly meant.

Safaricom had aimed at signing up 300,000 M-Pesa subscribers by the end of the first year, but what followed confounded corporate Kenya and Mr Joseph himself.

By the end of March the following year, M-Pesa signed up its two millionth subscriber, confounding Kenya’s financial industry fathers who saw it as a threat to the banking sector.

There were about 355 M-Pesa agents when the service was rolled out, but had gathered an army of 2,329 outlets by its first birthday in March 2008.

M-Pesa kept broadening the services under the platform, making it possible to pay water and electricity bills as well settling shopping bills through use of ‘Pay Bill’ numbers.

It is this dynamic nature of M-Pesa to adapt to user needs that helped keep its relevance and win more customers.

“M-Pesa has entrenched itself in the consumers’ psyche because it has proven that it is capable of adapting to suit our customers’ lifestyles,” said Safaricom CEO Bob Collymore in an interview with Business Daily.

“M-Pesa’s success story can largely be attributed to the service’s ability to connect with the customer in their day-to-day activities.”

In its first year of service, the mobile money transfer service grossed Sh3.12 billion in peer-to-peer transfers and contributed Sh370 million in revenue to Safaricom.

Banks argued that M-Pesa was financial product and were evidently worried that its use as a mobile wallet posed a threat to their business by denying them the deposits.

It was former Finance minister John Michuki who then ordered the Central Bank of Kenya (CBK) to audit the mobile money platform.

In January 2009, with 5.4 million subscriber base; M-Pesa was given a clean bill of health by the banking industry regulator.

Registered users

Nearly two thirds of Kenyans or 25.3 million users have subscribed to mobile money services.

The number of players has grown to six platforms — M-Pesa, Airtel Money, yuCash, Orange Money, MobiKash and Tangaza — backed by a network of about 113,130 agents.

Safaricom’s M-Pesa now has 18.2 million registered users who access the mobile money platform at 78,856 agents across Kenya.

This means M-Pesa accounts for 71.9 per cent of total mobile money users in Kenya.

Its peer-to-peer transfers have grossed Sh77.3 billion per month while person to business payments under the Lipa Na M-Pesa service, Lipa Kodi na M-Pesa and bill payments average Sh9.9 billion per month.

Data from CBK shows that the value of transactions moved through mobile money platforms has nearly doubled in the past two years to reach Sh1.9 trillion as at end of December last year.

Mobile money is no longer about sending money to the rural areas as earlier conceived, but is now a bank in a handset.

The 2013 FinAccess survey credits mobile money services for the more than doubling of Kenya’s banked population to 67 per cent from a low of 26.1 per cent in 2009.

Take the example of Mary Rugaita, an Irish potato farmer in Narok County who directly sells her harvest in Nairobi through a Twitter-based app dubbed SokoShambani and receives payments via mobile money from café owners.

“Once the potatoes are sold, the lorry driver sends me money via M-Pesa. It is very convenient,” she told Business Daily.

Kenyans now use mobile money transfer platforms to pay utility bills such as water and electricity, shopping, receiving diaspora remittances, airtime top-up, receive dividend and pay school fees.

More than half of Kenya’s 44 commercial banks as well as microfinance institutions have signed partnerships with M-Pesa to facilitate money transfer services for their customers through mobile banking offerings.

“M-banking aimed at creating convenience to their customers and lowering service delivery costs,” said CBK governor Njuguna Ndung’u in the 2012 Bank Supervision Annual Report.

Banks are now offering services such as transfer of funds between accounts, payments of utility bills, mobile airtime top ups, balance enquiries, loan applications, and cheque book requests through mobile platforms.

“Through these innovations institutions enhance convenience to their customers who are able to access their services anywhere at any time at reasonable costs,” says the report.

The regulator said it receives hundreds of applications every year from lenders seeking to introduce new products, mostly mobile-powered solutions.

“It is not only expected to improve service delivery but also enable easy and affordable access to banking services.”

Equity Bank CEO James Mwangi last week said that the lender rakes in an average of Sh40 million from M-Pesa and mobile banking commissions, accounting for 11.4 per cent of total annual revenue.

Its mobile banking customers more than doubled to 2.7 million users as at December 2013 from 1.2 million in 2011.

This is a pointer that mobile money apps are emerging as a steady income stream.

For Safaricom, earnings from M-Pesa topped Sh21.8 billion in the year to March 2013, accounting for almost a fifth of total revenues.

The insurance sector has also tapped into mobile money and firms now accept policy holders to pay premiums through platforms such as M-Pesa.

Firms such as Britam, APA, Pan Africa Life, Jubilee and CIC Insurance have developed micro-insurance products that allow premiums to be paid in instalments via mobile money.

A pension scheme dubbed Mbao Pension Plan’ was launched in Kenya in 2009 targeting informal sector workers to save at least Sh20 per day through mobile money to earn a pension.

CBK projects that lenders will continue to leverage on mobile telephony innovations to develop cost effective channels of offering financial services.

“Financial institutions will therefore continue to introduce technologically driven banking products that are expected to re-engineer the processes of providing banking services in Kenya,” said Prof Ndung’u.

The total agent network of M-Pesa outlets is 17 times the combined total of Postbank branches, post offices, bank branches, and automated teller machines (ATMs) in Kenya.

This offers huge opportunities for the government to use existing M-Pesa retail stores to offer public services — such as renewing driving licences, identity cards and police abstract forms — as well as lenders to use the network for agency banking.