M-Pesa shows why mobile money is yet to realize its true potential in Africa

A kiosk for mobile money platform M-Pesa in Kibera, a slum in Nairobi.
A kiosk for mobile money platform M-Pesa in Kibera, a slum in Nairobi.
Image: Reuters/Noor Khamis
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Last November, “60 Minutes”, the flagship news magazine show on US television network CBS, ran a whole segment on M-Pesa, the mobile money service which was started in Kenya nine years ago by Safaricom, the country’s largest mobile phone company. It was a great moment for Kenyan innovation, being featured on prime time television for millions of Americans who were likely hearing about M-Pesa for the first time.

The segment pointed out that years before Google, Apple, PayPal and the rest began experimenting with digital financial services, Kenyans have been using it every day in their millions. Mobile money transactions in Sub-Saharan Africa hit $656 million in 2014, and could more than double to $1.3 billion in the next four years.

The consensus is that mobile money is transforming the way unbanked populations are gaining access to financial services, with Africa leading the charge. But amidst all the excitement, may we in fact be starting to see the limitations of mobile money?


The impact of mobile money, for one, has not been uniform across the continent. M-Pesa has been a resounding success in Kenya, where over half of adult consumers have an account and a huge share of the country’s GDP passes through the system. Yet it was slower to take off in Tanzania, and an outright failure in South Africa.

“The primary issue here is really the question of whether it meets a specific need and serves a specific purpose,” says Gilles Ubaghs, senior analyst for financial services technology at Ovum. “Where bank accounts are more common it becomes inherently less useful and will struggle to get off the ground if it doesn’t have that clear use case.”

Closed systems and a lack of interoperability do not help with this. Interoperability between services and countries is only just beginning to become a reality. Vahid Monadjem, chief executive of South African enterprise payments provider Nomanini, believes this has hampered the concept. The industry body GSMA’s Mobile Money Deployment Tracker finds that of 300 mobile deployments across the world, the vast majority have failed

Monadjem says making a payments system sustainable means getting past the “chicken-and-egg” trap of matching consumer uptake and merchant acceptance. Few manage to achieve this.

“The mobile money ecosystem has to consolidate much like the credit card ecosystem did 40 years ago. The credit card industry moved from a fragmented landscape of closed, proprietary systems to an open, consolidated one,” says Monadjem.

Walled gardens

There must also be concerns about how accessible mobile money is to those at the bottom of the pyramid. Large parts of Africa’s population remain without access to mobile services at all. Industry body  GSMA says subscriber growth will decline as operators struggle to reach rural populations. Even those that do have access to the likes of M-Pesa face challenges.

The agent model that Safaricom has pursued so successfully also has its limitations in this respect, though cheaper than maintaining a formal bank branch or ATM.

Agents must process a certain volume of transactions each day to make a profit, which has kept the average M-Pesa transaction as high as $27. This means serving low-income rural areas is just not economical for them, and they go where the money is. Not great news if you’re living on on a few dollars a day and wish to make sub-$2 transactions.

“The agent model can’t get all the way down to this level as agents derive almost all of their income from transactions and need a pretty high turnover to maintain their income,” Monadjem says.

Let’s say, for a dedicated agent, who earns 100% of his income from transactions, the fixed monthly cost is between 150 and $250. Taking a percentage of each transaction, that agent would have to process over $20,000 in transactions just to break even. Doing that on single dollar transactions, he would be required to process two transactions a minute, eight hours a day, seven days a week.

This is, of course, highly unlikely. Average transaction values remain high, and sub-$2 transactions remain uneconomical. The bottom of the pyramid remains on the other side of the wall.

All this is not to say that mobile money hasn’t been a resounding success in Africa, an innovation that has brought millions of people within the reach of formal financial services. It undoubtedly has been. But it has evident limitations, which mean the true potential of mobile money remains as yet unfulfilled.

Safaricom’s launch of M-Pesa was an African innovation to solve an African problem. But the job remains half done. While the last mile of payments is uncovered, the people that would really benefit the most from mobile money services are denied. It might be that a whole new level of innovation is required for the true potential impact of M-Pesa to be felt by all.