Payment firm that took Lipa Na M-Pesa to small traders

Kopo Kopo, a merchant payments company that launched in Kenya in 2012, says it creates a ‘world-class’ platform for small and medium businesses to use mobile payments.

This is how the firm started by three Americans approached Kenya’s leading telco Safaricom to expand the reach and scope of its Lipa Na M-Pesa service.

When Kopo Kopo —meaning money in the Sierra Leone’s national language Krio — approached Safaricom for the deal, it says the telco had signed only three firms on Lipa Na M-Pesa (then known as Nunua na M-Pesa). These were Woolworths, Deacons and Bata.

Today, buying goods and services is not the preserve of high-end businesses, but is found among small traders and artisans, commonly known in Kenya as jua kali. Restaurants, second-hand clothing (mitumba) dealers, chemists, butcheries, shopkeepers, barbershops, salons, and even grocery stores accept mobile payments. In one of its commercials, Safaricom uses a mitumba business to illustrate the ease of paying through Lipa Na M-Pesa.

In 2010, Tom Bostlemann, Dylan Higgins, and Ben Lyon registered Kopo Kopo in the US to enable small and medium businesses accept electronic payments, but they found out that the market was saturated. That is when they decided to move to Africa. However, Bostlemann opted to remain in the States.

Mr Lyon says the decision to set up in Kenya was partly informed by Safaricom’s M-Pesa success.

The service currently has more than 19 million subscribers and when the telco announced a net profit of Sh23 billion in March this year, most growth was registered in short message service (SMS), mobile Internet and money transfer service M-Pesa.

M-Pesa revenue went up by 22 per cent to Sh26.6 billion in the year ended March 31, with results showing the telco had reduced the voice component from 66 to 62 per cent of its revenues standing at Sh96.3 billion.

“The US is so boring right now in terms of technology; if you look at all the core areas, infrastructure and software have been laid so people are just building technology that marginally changes people’s lives,” he says.

While cashless payments have been the preserve of high-end stores that take credit cards, mobile payments have collapsed the boundary between small and big business.

The Lipa Na M-Pesa service launched in June last year, has over the last year recorded tremendous growth with more traders enlisting.

“As at March 31, 2014 the service (Lipa na M-Pesa) had 122,000 registered merchants, of which 20 per cent (24,137) were active on a 30 day basis,” said Safaricom CEO Bob Collymore when he released the results.

The Kopo Kopo duo came to Kenya with a mission of working with SMEs, but before embarking on the core business, they operated from iHub, an innovation hub in Nairobi.

This gave them an opportunity to scan the country’s business environment and test the right software to use.

At that time, Kopo Kopo says while six out of every 10 Kenyans were registered for mobile payments only one per cent of the businesses accepted e-payments, even though they lost cash.

Armed with these numbers, Kopo Kopo team enrolled for a business accelerator programme at mLab, whose course connected them to partnerships, including that with Safaricom.

At Safaricom, they told the business development manager to consider opening up the Lipa Na M-Pesa service to SMEs.

“In any payment ecosystem, one should be able to pay anywhere. M-Pesa had done better than anyone in the world on issuance but they had done practically no acquiring.

“So, we approached the business development head and proposed taking what they have chosen to do with Woolworths, Deacons and Bata to small businesses,” Mr Lyon says.

Kopo Kopo identifies businesses interested in cashless payment and signs them onto Lipa Na M-Pesa. Interested businesses register using a phone number and e-mail through a form available online.

Kopo Kopo and Safaricom share the one per cent fees per transaction. Kopo Kopo, which has 40 employees, has raised funds from American and European investors, including Javelin Venture Partners, Khosla Impact Fund, Accion Venture Lab and Bamboo Finance as it eyes a presence across East Africa.

“We have done pilots with merchants replicating what we do here. In Tanzania, we work with two operators Tigo Pesa and Vodacom’s M-Pesa and Tigo Cash for Rwanda; we are assessing whether this is the right model for us to venture into and how it could be adjusted to be country-specific,” says Mr Lyon.

The firm is also keen on closing deals with commercial banks to use their technology in its expansion plans.

Kopo Kopo Kenya’s country manager Francis Mugane, the company develops software that target business growth.

“We have software for providing market insight, reporting, creation of statements and other auxiliary services that we provide with such platforms. This also creates a separate revenue stream,” he explained.

In May this year Kopo Kopo started providing access to capital for businesses that qualify among their clients, the bulk of which are SMEs.

It has partnered with financial services company Afb that offers capital advances when Kopo Kopo identifies eligible companies and the amount of credit that they qualify for based on how they use its platform and turnover.

“Afb underwrites the loans and we advance the money on their behalf for refurbishing their business, buying inventory or to weather economic shocks,” he says.

While Kenya has been facing challenges with foreign investments due to the incidence of terrorist attacks that hit the tourism sector hard, Mr Lyon says the country’s economic future looks rosy.

“The investor climate keeps getting better even with some less desirable things happening, we see investors rushing to this market because when you do a line of best fit considering the few bumps, the direction is very positive,” he says.

“Again while there are other investment options you can see almost no return on a similar amount of capital because there is limited opportunity and that is why we are committed to working in the region in the long-term.”