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What is Mpesa? How does it work? How did it start?

Before I started this trip a lot of people asked me to look into Mpesa.

I’ve spent a lot of time talking about it and learning about it. This is the first of a few blogs I’m planning to do about it. It is something of a braindump, so bear with me.

So what is Mpesa?

The Economist explains it concisely:

“IT IS like magic. By clicking a few keys on a mobile phone, money can be zapped from one part of Kenya to another in seconds. For urban migrants sending money home to their villages, and for people used to queuing at banks for hours to pay bills or school fees, the M-PESA money-transfer service, operated by Safaricom, Kenya’s largest mobile operator, is a godsend. No wonder it is used by 9.5m people, or 23% of the population, and transfers the equivalent of 11% of Kenya’s GDP each year; or that it has inspired more than 60 similar schemes across the world. ”

The UK’S Observer newspaper explained it well in July this year:

“Four years ago, in neighbouring Kenya, the mobile network Safaricom introduced a service called M-Pesa which allows users to store money on their mobiles. If you want to pay a utilities bill or send money to a friend, you simply dispatch the amount by text and the recipient converts it into cash at their local M-Pesa office. It is cheap, easy to use and, for millions of Africans unable to access a bank account or afford the hefty charges of using one, nothing short of revolutionary.

Safaricom didn’t invent mobile banking: it existed previously in countries such as Norway and Japan, but on a small scale and with nothing like the seismic effect it had in Kenya. The established banks weren’t happy at first – they tried to shut down M-Pesa soon after it started – but now they are getting in on the game, and it is estimated that by 2015 global mobile transactions will exceed one trillion dollars. According to California-based mobile-banking innovator Carol Realini, executive chairman of Obopay: "Africa is the Silicon Valley of banking. The future of banking is being defined here… It’s going to change the world.”“

MPesa is, in my opinion, the driving force behind the mobile revolution that is sweeping across Africa.

It works like this:


you register to join Mpesa at any Mpesa agent for free. This is quick to do and easy - because Mpesa agents ate everywhere in cities and they seem to be in every village (I’m tryng to get some stats on this). Once registration is done the network sends you an updated menu on your phone - so you’re ready go.

**load some money on**

- once registered you can load money on to your phone at any agent by just handing over your cash and they load it onto your phone.

- or a kind relative, friend, or employer can put money onto your account for you.

**send money**

It’s easy to send money too. You just go to the menu on your phone, enter the phone number of the recipient and amount and the money arrives near instantly - in the time it takes for an sms to arrive.

**pay bills**

You can also pay all sorts of bills, over 600, by mpesa. Through a very similar process to sending money to friends. You can buy a flight, pay your water bill and much more.

**take money out **

- to take your money out you just need to go to an Mpesa agent and basically you send them some money, which they then give to you there and then.

- or go to an atm. This is pretty new - you can also take your money out at some atms without a card. Unfortunately, no one would let me watch them do this so i can’t give details!

Mpesa, has shown that mobile phones are hugely flexible devices - phones that

before were just for text and calls are now completing complex financial transactions. That’s the important thing to remember here, you don’t need fancy, expensive smartphones with data hungry apps. All you need is a basic gsm phone. Your network sends you a menu and once you’ve registered you can send money anywhere across Kenya.

**why does it work**

I spent a lot of time talking to taxi drivers, street sellers, people on the bus, anyone I could to try and understand why it has been such a big success. Here are some of the reasons that kept on coming up:

- the unbanked now have a way to save money, to send money and to receive money. This is an important point, from what I understand the banks in Kenya were just not very interested in the huge number of unbanked people so Mpesa came in and gave them a great service.

- the price is right. Safaricom must be making a lot of cash out of Mpesa, but the fees are reasnoble. At first I thought they were quite high, but was put right by a taxi driver who pointed it that its all comparative. Before, when he wanted to send money up country to his family he had to either send it western union, which was an expensive hassle for everyone or put a bundle of cash on a bus and hope it got there. This is so much better.

- it works on (basically) any phone. So you can get on the system very easily.

- its simple. The system is simple enough that people are confident that when they send money to their patents and grandparents they will did it easy to get the money.

- it is safe. People are confident in the system.

- safaricom dominates the market, so there is not too much fragmentation. Other networks do try and compete and are a bit cheaper but safaricom has reached dominance - which makes life easier for consumers.

- businesses can do mass payments - so builders can send money to workers which is much easier than having bundles of cash. On a bigger scale companies can pay workers by uploading csv files which means it scales to some extent.

**a quick video**

Here’s a video by the guys at gcap all about Mpesa:

<iframe src=” “ width="550” height=“442” frameborder=“0” allowfullscreen></iframe>

**What about the tech? Who runs it?**

According to Wikipedia:

The service has now been transitioned to be operationally run by IBM Global Services on behalf of Vodafone, the initial 3 markets (Kenya, Tanzania & Afghanistan) are hosted between Rackspace and Vodafone.

**How did it start?**

Wikipedia helps me out again:

M-PESA (M for mobile, pesa is Swahili for money) is the product name of a mobile-phone based money transfer service for Safaricom, which is a Vodafone affiliate. It was entirely developed by Kenyans and was initially sponsored by the UK-based Department for International Development (DFID) in 2003–2007. [1][2]

The initial concept of M-PESA was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. [3] This would enable microfinance institutions (MFIs) to offer more competitive loan rates to their users, as there is a reduced cost of dealing in cash. The users of the service would gain through being able to track their finances more easily. But when the service was trialled, customers adopted the service for a variety of alternative uses; complications arose with Faulu, the partnering microfinance institution (MFI). M-PESA was re-focused and launched with a different value proposition: sending remittances home across the country and making payments. [3]

So that’s my first start. What do you think? What have I missed out? What would you like me to expand on?

I’ve also been taking photos of any Mpesa leaflets I could find to give a bit more background. They should be below:

Category: Bank

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