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Kenya Case Study Part II: M-PESA vs The Market

So about competition with the star of our previous article — M-PESA. There should be some, right? Safaricom is by far the largest mobile operator in Kenya, with even calls by other operators to declare it dominant. The other telco players are Airtel and Telkom Kenya.

See the interview about Kenya — M-PESA story:

Across the African markets, there are other players like MTN, Tigo, Orange, Airtel and the likes. Many of whom followed M-PESA into the mobile money bandwagon encouraged by Safaricom’s success. The trick for mobile money is that if you control the last mile, the distribution that is, you win no matter the price of the other products. Safaricom’s large subscriber base and heavy investment into an agent network factually left little space for competition in Kenya to level up.

To catch up with Safaricom, Airtel and Telkom Kenya have to not only get way more subscribers (read — persuade subscribers to buy an additional SIM-card and promote their services and that is mobile money in this case), they also have to put in great effort into building their agent network. To their advantage, they have been able to simply re-use non-exclusive, already trained and ready-to-work agents to quickly get at par. They have tried to reach out to the government and regulator several times to push to have Safaricom declared dominant so that the market can be tipped in their favor but with little success.

The banks were worried too all along. They have objected and argued that Safaricom’s M-PESA should be regulated just as banks are. Their points of interaction with the customers are nowhere near the number of agents Safaricom has — one and a half ATMs per 100 000 people. Increasing volumes of money have been bypassing bank accounts. Also the number of registered mobile money accounts surpassed the number of registered bank accounts(which is still the case if you take out the likes of M-SHWARI). To partly combat this reality, banks got the greenlight to roll out agency banking then later launched a real-time interbank money transfers service called PesaLink (main M-PESA scenario).

One bank stood out, Equity bank, one of the largest retail banks in Kenya long known for thinking outside the box (or maybe beyond the box). After a failed attempt in partnering with Safaricom on M-KESHO, they decided to drive innovation the best way they knew how to. They launched an MVNO Finserve initially rolled out with the name Equitel. This happened in 2014 and they offered an ultra-thin SIM that one could put on top of an existing SIM-card. This was highly innovative and controversial at the same time as Safaricom raised concerns about infringement of customer data privacy due to the overlay SIM card.

Equitel provided a financial service driven by a full bank account with endless possibilities and also levied fees on internal money transfers. Great thing for them is that they also had a good enough agency network. Its strategy and boldness reminds me of the Russian Tinkoff bank and the Indian mobile operator Jio. Finserve recently launched mKey that allows a customer to access financial and lifestyle services via their keyboard. This continual innovation has helped it grow its share and became one of the most inspiring and watched players on the Kenyan market.

from KBC

In 2017, following pressure from the Kenyan market players, the regulators made the first real attempt to encourage mobile wallet interoperability by pushing mobile operators to set up and test the service. Unlike Tanzania that by then had led the way in mobile wallet interoperability, Kenya was still lagging behind on that front. It was finally launched in early 2018 at the wallet to wallet level. The market shifts from M-PESA have not been as substantive and the key reason for this is believed to be that interoperability is limited to the wallet level. We wait to see if this will be extended to other levels like at the agent and merchant.

Consciously the Kenyan regulating authorities deployed a China-like approach of ‘let it grow enough to regulate’. The rules and regulations in not being stringent have really helped in driving mobile money. No bank-like capital requirements, no KYC limitations, easy setup of agents and such have helped mobile money thrive. Safaricom has enjoyed its dominant position for years on end and at this point is as good as the biggest bank in the country despite not being a bank. Insurmountable volumes are processed through it and enormous values are stored in it. It has had a great impact on the daily lives of the millions of Kenyans.

from Kirui K. Kennedy

Safaricom has done a tremendous job of banking the unbanked, creating opportunities, introducing new business models for SMEs, digitizing Kenyans and empowering them in so many other ways. In turn Kenya changed for the better too. It is now an emerging leader in innovation and the start-up scene. It has become one of the most inviting destinations for foreign investment into tech hubs. This enabling environment has led to booming sports betting and micro lending businesses just to mention a few. All of them are integral to financial services growth, driven by mobile.

At the same time there are several hurdles to face or opportunities for M-PESA and Safaricom:

a) Cash — even after years of a more so mature mobile financial services ecosystem, there are still people who simply have no incentive to use mobile money. There needs to be a big economic shift to boost the mobile economy from a cash-based one.

b) Services being more expensive than what competitors offer.

c) Pressure from the market about being dominant and a push to have regulators to put them in check.

Regardless of attempts to reproduce M-PESA’s success in India, Tanzania, Romania, Lesotho and South Africa, Kenya remains the main market. M-PESA’s challenge, as it seems to me, lies in its long-term strategy. It is much easier to be at the early stages of any business life cycle: a pioneer pushing through the unknown, a start-up duplicating somebody else’s model with newer technologies and less mistakes, even a number two player biting bits away from its rival. The toughest part is when you are the leader and much ahead with grand responsibilities, customers to answer to, regulators to please, and competitors baying for your blood. With all this happening, you still have to continue innovating, setting the pace and looking for new business to keep growing.

It has been 11 years running. M-PESA not only completely revamped the Kenyan market, it also sparked changes in other African markets. It helped bring the digital future several steps closer. I am excited to watch how M-PESA will keep itself ahead in the years to come.


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Anna Kuzmina

Anna Kuzmina



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21 Jan 2019



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