Launched in 2007 by Vodafone for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania, M-Pesa has spread quickly, and by 2010 had become the most successful mobile-phone-based financial service in the developing world. By 2012, it had about 17 million M-Pesa accounts registered in Kenya alone.
M-Pesa's key advantage is that it does not need a 'smartphone'. Apart from being relatively expensive, smartphone tend to be battery guzzlers which need to be charged frequently, quite unlike the older mobiles which are cheap and far more durable.
In India, 61% of Indians own a basic mobile phone while only 17% of own a smartphone. Why, then, has M-Pesa not caught on in India?
Perhaps the answer to this question lies in a closer look at the Kenyan mPesa model.
The idea behind M-Pesa has its origins in 2002 when researchers found that the Kenyans had been using talk-time on pre-paid mobiles to make small payments across the country. People were purchasing everyday necessities - provisions and services - and paying for it by adding talk-time to the service provider's mobile phone. Thanks to code written by a student, this was expanded into a payment-transfer service.
Vodafone was the first to spot a big opportunity here and purchased the code. It then improved upon the model and created a wide network of agents across Kenya, selling this as a service. Within 10 years, M-Pesa transactions have grown so fast that they account for 20% of Kenya's gross domestic product.
Yet, when Vodafone tried to replicate the same M-Pesa model in neighboring Tanzania, it bombed. What was so different between Kenya and Tanzania? An IFC report suggests the following reasons:
- Demand - urban migrants sending money back to family is not as prevalent in Tanzania and since there is less crime and insecurity in Tanzania
- Access to Financial Services - Only 9% of the population has access to formal financial services and 54% don’t use any form of financial services. When compared to Kenya, we see that 19% of the population there has access to formal financial services and only 38% don’t have access to any form of financial service
- Strength of Economy and Banking System - Kenya also has a stronger economy, a higher GDP (USD 890 per capita in Kenya versus USD 520 in Tanzania). 1.38 bank branches per 100,000 inhabitants in Kenya versus 0.57 in Tanzania
- Geography and distances - Tanzania is a large country with a dispersed population so quickly reaching dealers in rural areas was difficult
- Competition - Tanzania as Zantel’s competing service - ZPesa -- Tanzania also faces competition from informal money transfer channels such as the use of airtime as a currency
- Business Model - Vodafone decided that the service would be offered to local subsidiaries on a license fee model instead of the shared revenue model that was agreed with Safaricom in Kenya.
- Population and Customer Base - Tanzania has a population of 40 million - dispersed across Vodacom’s market share in Tanzania (41%) is significantly less than Safaricom’s in Kenya (79%) which translates into a base of 13 million customers for Safaricom as opposed to only 5.9 million for Vodacom
- Technology - M-Pesa is delivered in Tanzania using USSD which does not require any application to be stored on the SIM card. The user dials a short number to receive a set of menu options.
- Laws & Regulations - no national id in Tanzania -- cumbersome Anti-Money Laundering procedures --
- Lack of preparation - no market survey -- pilot test only covered one aspect: The main focus of the pilot was to test the USSD gateway since the USSD channel was not used in the Kenyan implementation.
So the key factors that prevented this useful technology from crossing borders were - population dispersion, crime rates, financial literacy and mobile penetration.
In 2013, mPesa was launched by Vodafone India, in collaboration with ICICI Bank. From the look of it, this seems to be based on the menu-driven USSD model that was used in Tanzania, and not the faster, more efficient SIM-based model that was a huge success in Kenya. Over and above the challenges faced by Vodafone in Tanzania, the Indian market was already groaning under severe competition by the time Vodafone stepped in.
Perhaps the biggest advantage it still retains is the fact that unlike other leading e-wallet services like PayTM and Oxigen, M-Pesa users do not need to have a smartphone or 3G/4G internet connectivity, to use the service.
Howver, this advantage has also been diluted with the launch of the national Universal Payment Interface (UPI now renamed BHIM). ICICI Bank too is offering this as a service independent of Vodafone.
So, is it just a matter of time before M-Pesa turns belly-up in India?
REFERENCES & LINKS
* mPesa India FAQs - https://www.mpesa.in/portal/customer/FAQ.jsp
* Smartphone penetration in India (2014-2019) - https://www.statista.com/statistics/257048/smartphone-user-penetration-in-india/
* mPesa launch in India - 2013 - http://gadgets.ndtv.com/telecom/news/vodafone-india-launches-m-pesa-mobile-wallet-with-icici-bank-355406
* IFC Case Study mPESA in Tanzania - http://www.ifc.org/wps/wcm/connect/3aa8588049586050a27ab719583b6d16/Tool%2B6.8.%2BCase%2BStudy%2B-%2BM-PESA%252C%2BTanzania.pdf?MOD=AJPERES
* Padmanabhan, Vishnu (2016) - http://www.livemint.com/Opinion/GOqw0yvSZqFbIB5Oxd1J2O/Transforming-the-digital-payment-infrastructure.html