Mobile Money by M-Pesa: a need or a luxury?

In a recent post I noted the news about Safaricom’s profitability in the last year and exchanged some thoughts about the services, fair pricing and values provided by African mobile operators with Steve Song.

Eariler this week I came across the Round. The world. Connected. project of the Nokia Siemens Networks. In its Episode 2 finds Adrian Simpson visits Ethiopia and Kenya. Among the bonus features are an interview with Mr. Michael Joseph, CEO of Safaricom, interviews with users and providers of the M-Pesa service.

Mr. Michael Joseph introduces the needs and benefits of the M-Pesa service, emphasizing its value outside the main urban areas where banking infrastructure is rarely available. He recounts the origins of the M-Pesa service in 2006 within a microfinancing project and explains its current popularity. By saving users the hazards of carrying and transacting in cash M-Pesa allows its users greater degree of mobility and flexibility. Mr. Michael Joseph stresses that M-Pesa is a banking product. This complicates the service by imposing strict security requirements on the technology, five-year record keeping requirement, and customer rules.

Mr. Michael Joseph emphasises the importance of the distribution and support network for the M-Pesa service. He acknowledges that Safaricom’s ARPU is decreasing and explains Safaricom’s strategy to “lock-in” customers through the provision of a mobile banking service which can be perceived as a daily necessity. Furthermore, Safaricom counts 7500 franchises of M-Pesa stores where users of the service can receive personalised support and loyalty to Safaricom can develop as a result of the social capital exchanged in between the users and the representatives of the distribution network. Adrian Simpson gives faces to the M-Pesa distribution/ support network by interviewing an M-Pesa store owners.

In the video “The benefits of M-Pesa and mobile banking in Africa” Adrian Simpson shows documents used in the registration for use of the service and talks to an M-Pesa dealer who claims thousands of customers visiting his shop. The location seems fairly central and the customers appear “upmarket”. He mentions businesses and university students as his customers.

In “Interview with an M Pesa store owner in Africa” Adrian Simpson talks to Joseph, an M-Pesa agent working in somewhat more moderate surroundings. He emphasises customer service, technology assistance and personal attention as important considerations for keeping his customer base.

Towards the end of the interview with Mr. Michael Joseph the subject of regulation is brought up. Not surprisingly, Mr. Michael Josephs mentions that mobile operators in Africa are seen as “cash cows” and a reduced tax burden would help help their work. Still, I wonder how regulation can be used in order to provide mobile operators with the incentive to support, invest in and develop socially benefitial services. M-Pesa seems to facilitate the monetary transactions of socially excluded people and it appears to alleviate concerns related to security. As such, the service has required considerable investment in technology development and the set-up of a distribution network. With considerable set-up costs, the service has broken even only recently after subscribing 6 000 000 users in December 2008. Admittedly, Safaricom has invested in it with strategic self-interest, looking towards customer loyalty and “lock-in” opportunities. Still, I wonder how governments cound encourage mobile operators to behave in a similar way, rather than to follow more disruptive strategies. If we view mobile services like M-Pesa as social goods, rather than luxuries, how can regulation be used to have more of them?

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~ by mmd4d on May 29, 2009.

5 Responses to “Mobile Money by M-Pesa: a need or a luxury?”

  1. I think it is fairly simple. Customers ought to be able to choose their banker independently of choosing their mobile operator. It is really just an extension of the layer separation principle of Open Access. Vertical markets are not good for competition.

    • Hello Steve,
      I appreciate that you’re a stickler for competition :) And I am sufficiently indoctrinated with neo-classical economics to agreee.
      But when we are talking development, I can be persuaded by some vertical integration. I do think that access to banking, integrated with an operator is better than no access to banking. If it is not feasible to keep communication services independent of financial services, it would seem that there is room for a significant policy choice.

  2. [...] Slavova of the excellent mmd4d blog that deals with mobile services for emerging markets, reports extensively on the African episode and its additional footage.   Leave a [...]

  3. [...] dell’eccellente blog mmd4d che tratta dei servizi per cellulari nei mercati emergenti, scrive ampiamente sull’episodio Africano ed i filmati addizionali.   Scrivi un [...]

  4. [...] Directive on Mobile Subscribers Registration Having recently posted on mobile money and Safaricom’s M-Pesa and its current financial well-being I am convinced of the long term viability of services such as [...]

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