M-Pesa is one of the biggest success stories in the history of serving customers at the economic bottom of the pyramid–the world’s poorest. Launched in 2007 by Safaricom, it quickly dominated the cash transfer market, and grew at an astounding rate, capturing more than two-thirds of Kenya’s adult population as customers.
Users who subscribe to the service can send and store money on their mobile phones, and convert that money to cash through a nationwide network of agents. It now stands as the most developed mobile payment system in the world, and it is expanding to other countries in Africa and beyond–and branching out into other forms of financial services.
The editors of Global Envision and Next Billion Financial Inclusion interviewed Sitoyo Lopokoiyit, head of Strategy for Financial Services at Safaricom, as part of “Mobile Money: Technology to Transform Transactions,” a conference hosted by the University of California’s Center for Effective Global Action.
Global Envision: Financial inclusion is an issue you work with every day. What does that buzzword mean to you?
Sitoyo Lopokoiyit: Just to give you an example, financial inclusion is reported to be at 80 percent in Kenya. When you remove mobile money, it drops to 23 percent. So you can see what mobile money does for financial inclusion in Kenya.
For me, financial inclusion allows the “unbanked” to access basic financial services–not necessarily a formal bank account, but to be able to receive money or make payments via the mobile phone. That makes a fundamental difference in the lives of the unbanked population.
GE: How many people have bank accounts in Kenya?
SL: About 40 percent of the country has a bank account. That means there are about 8-10 million unique bank accounts in the country. Yet we’ve got about 20-21 million mobile phone users, of which 18 million are now on the M-Pesa system.
If you look at how M-Pesa has evolved in terms of growing financial inclusion, 43 percent of the GDP is flowing through M-PESA. So you can see how a mobile money platform can drive financial inclusion.
GE: How do you learn about the needs of base of the pyramid consumers, like rural farmers or women in small villages? How do you learn what their daily financial lives are like to inform the products your team creates?
SL: There’s formal research, informal research, and lots of feedback from staff, communities, and the government. But it’s what you do with that information that’s important. How do you collate it and how do you develop a product to suit different needs from different parts of the country?
GE: How do you do that? Do you have an example of using that information and turning it into a product as a direct response?
SL: A good example is M-Shwari, which is a partnership with the Commercial Bank of Africa. It’s the first truly virtual bank account. You opt in via your mobile phone. You get a formal bank account and can save and borrow from it.
The Central Bank actually shared this statistic: There are over 200 billion Kenyan shillings (about $2.3 billion USD) out there in informal savings, like under the mattress. Those are unsafe places. For example, when a slum burns in Kenya, people run inside to save the property but also the money they have hidden. M-Shwari moves the money into a formal system, in which you can earn interest. It’s in a safe place. And additionally you can borrow when the need arises.
GE: How do you market products like that? M-Pesa is known around the world and known very well in Kenya, of course. When you launched M-Shwari, how did you teach customers about this new product offering?
SL: This is the first time we’re really marketing a banking product. For us, it was a learning process. It was learning how to train people on how to use a new product. But it was also training on how to use a new menu, educate on the importance of savings and credit, how to get credit, how to improve your credit score, what’s the interest you can earn, the most and least you can borrow. there’s a lot of information for a very simple product. We’ve been trying for about nine months and have about 4 million customers. But we’re still investing heavily on customer education because it’s not a simple product to educate on.
GE: How do you do that customer education? Is it largely through agents?
SL: No, we use a lot of different methods. We go “above the line marketing” like TV and radio.
We also go “below the line marketing” through targeted groups, education on market days, and through informal women’s groups. We work with about 30,000 women groups across the country. We educate them on the product and they educate others in their community. It’s a one-on-one engagement. It’s very personal about your credit and your savings and what your goals are. It’s more involved than how we marketed or educated about M-Pesa.
What we realized was that in Kenya the woman is the heart of the household. She controls the house. If we’re able to get to the women’s groups and if they can understand it better, they will educate others on it.
When M-Pesa started, 27 percent who opted in were women. Today they make up 51 percent.
GE: M-Pesa is sometimes put on a pedestal. It works really well in Kenya, but there are reasons it doesn’t replicate to neighboring countries. Are there any facets you think would replicate well, or reasons it doesn’t replicate easily in other markets?
SL: I think each market is unique. You can’t take M-Pesa the way it is and put it in Afghanistan or Tanzania directly. Every market is very unique, and the circumstances are very unique.
Kenya had a huge rural to urban migration, so there was always a need to send money back home. That need was already there.
The other thing is the regulator. The regulator allowed M-Pesa to start operating before the regulation was there. But they gave oversight over the service. We had a very progressive regulator who allowed mobile money, the innovation, to precede regulation.
Secondly, there was the management commitment. There was a lot of investment to get this right. Mobile money isn’t like any other product where you try it for six months and leave it. M-Pesa first started making money after three years. The first three years are just investment, investment, investment. There’s no quick win to make it a success. It takes a lot of effort and determination.