In 2016, 42% of Kenya’s GDP was transacted on the text-to-pay platform M-Pesa. So, without bank accounts, wifi, or credit cards. In this episode, we have the CEO and Global Managing Director at I-DEV International, Jason Spindler, to talk about how M-Pesa works.
- Jason’s background and how he got into the business in Kenya
- How M-Pesa works without internet
- How M-Pesa impacts the economy
- Strengths and weaknesses of mobile money
- Factors of the success of M-Pesa
- The timeline as M-Pesa scales
We talk about M-Pesa’s impact on Global Goal #9, innovation and infrastructure. Find out how simple solutions can transform an emerging market in this episode.
[02:30] “I’m the one of the Co-founders and the managing director of I-Dev International. We started about 10 years ago. The core of what we do is help high growth businesses in emerging markets grow and scale.”
I-Dev focuses on working with SMEs across their target markets. Our global headquarters are in San Francisco. Our Latin America headquarters is in Lima, Peru, and our Africa headquarters are in Nairobi, Kenya where Jason is based. The business landscape in Nairobi has only evolved in the past five, maybe 10 years in East Africa.
The Kenyan Ecosystem
[05:04] The Kenyan ecosystem is unique, Jason says, because almost everyone you meet here is starting something. But in Kenya, they are actually they’re immediately out rolling it out and they’ve got their first customer traction.
There’s very little that’s just in the idea stage for the people who do make the move out here. The locals who do decide to start something are actually getting it done.
[08:10] “Everyone in Kenya uses mobile money. I think it’s something like 90 percent of all adults use it. And that’s been the case for around 13 years now. ” Jason says.
“I saw a stat a while ago where one in five mobile money transactions globally happened in Kenya, and that’s in a world where WeChat is very pervasive. India is moving to mobile money, too. Now, we’re helping Peru launch their mobile money platform.”
So, so why is everyone using it and what’s it all about?
MPesa mobile money in general has a couple of different forms and versions. We’re not talking about digital wallets like Apple Pay or Google Wallet. Those are for people who already have online capital. They’ve already got their banking online, they’ve already got their money online. And that just consolidating your analog, your credit cards and your money into digital.
[09:27] “In this day and age it’s kind of silly for us to use cash or credit cards, the physical plastic. And if you think about it, the physical plastic that you use is just an analog representation of what you have in your digital account. So why do you need to go and take something from your digital bank account or digital credit card statement and use a piece of plastic, a physical thing, to just complete a transaction that will go into someone else’s digital account? It doesn’t really make a lot of sense.
So that’s where the world is moving – away from any physical forms of money and toward totally digital currency.
What is mobile money in the context of emerging markets?
[10:09] It’s a tool for people who don’t have accounts.
Two to 3 billion people on the planet or nearly half of the population don’t have access to digital currency, meaning digital bank accounts. They’re not online with their banking. So that means if I want to buy something or pay or something, I have to physically hand someone the cash to do it. Now, think about all of the transactions that you do every day, how often have you walked into the store to buy a microwave, a refrigerator, you know, almost anything and paid in cash?
That is a world that two to 3 billion people on the planet had been left out. They’ve had to physically walk in and hand someone cash. That means they can’t do long distance transactions.
“So if I’m a farmer and I’m trying to send my crop to Nairobi, the capital and I live several hours away I may or may not know the person that I’m sending my crop too. I have some hesitancy about putting that crop on a truck and shipping it. Let’s say it’s coffee and I’m shipping it to the merchant that I’m trying to sell to because I’ve got no way of making sure that they’ll actually pay me that crop needs to arrive. They need to inspect it. Then they need to give someone else the money to bring to me. It’s needing to be physically present for transactions that slows down these economies.”
Mobile money is really addressing that. It allows the people that don’t have access to credit, and don’t need access to a bank to make payments.
Tech Literacy and A World Online
Chandler says, “I think the part that really blew my mind the most, Jason, was that I learned that you could buy a “dumb phone” for 10 bucks and you can use MPesa to send money via text.”
Jason says, “I do believe that we need to add an extra dimension to literacy. I think that in this day and age if you don’t know how to get online and access things online, either through a smartphone or through a computer, most people in the emerging markets and at the base of the pyramid are leapfrogging laptops and computers and are actually going straight to smartphones. That’s how you have 3 billion people are getting onto the Internet for the first time and are staying on.
But if you’re, if you don’t know how to do that, I think that’s functionally illiterate.
So, not only do you need to be able to read, write and do basic math, but you also need to be able to access things online. So there is still a significant percentage of the population that doesn’t have access to the internet on a regularly recurring basis, which is a critical factor. If you don’t have access to the Internet, how are you going to do online transactions? E
Even if you do know how to get online, the mobile money that I’m speaking of enables you to send money using a text feature on the phone.
Disrupting Banking with Mobile Savings
[14:33] You’re able to send people money. People in Kenya use it for everything from buying one cigarette or buying a coca cola. Here, it’s also become the country’s largest savings account. So you can have loaded onto your account up to a thousand dollars.
I’d actually like to see that limit go up. I think the banks have probably been a big pressure on the government to put that in, that you can keep up to a thousand dollars in that account for most of the population in Kenya. I would say that for the majority of the population, that’s a decent chunk of savings. If they do hit that thousand dollars, MPesa has become their bank account or savings account. And this is where we’re seeing a ton of disruption. MPesa has become the largest banker in the country. It’s hosting more transactions and more volume than any of the other banks in the country.
Cashless Transactions and Data Collection
Next, Jason talks about the 85%+ of the commerce in Africa that happens offline via vendor transactions. Companies like Twigga are simplefying the transactions in that market by placing them all on their app/
[19:33] “There has been no data on that population at all, but they’re representing 85 percent of the volume of the very large market. So Twigga Foods recognized is that they can control a small part of that market. They started with bananas and in nine months they became the largest buyer and seller of bananas with a few thousand customers. They basically buy from the farmer and sell to the kiosk owner right to their doorstep. They built a hub and spoke model. They own the entire logistics network from farmer to kiosk retailer.
So now those kiosk owners open their app and they say, I want five kilos of tomatoes, five kilos of bananas, six kilos of onions. The next day the order gets delivered to their doorstep at a significant discount to what they can buy in the traditional market. They’ve been able to do this because they’ve cut out a ton of waste and loss, product damage, etc. Throughout the supply chain. Now here’s where it really gets interesting and where mobile money comes in because all of that’s happening online. Twigga is a completely cashless business.
They pay the farmers with mobile money for the product. They have access to an entire two to 3 billion people that have lived almost entirely off the grid, around the planet.
One of the really interesting things about mobile money is that it allows businesses to leverage the data that they can collect in realtime, not static data. Survey-based data. So I call and ask you questions, you give me answers that you think I want to hear and we all go away and say good job.
So for example, within Twigga’s network, one of the areas that they can move into with this data is to start saying, ‘Hey, you’ve been a great customer for six months. Why don’t we automatically provides you with working capital financing? You want to expand your store, we’ll give you a small loan to be able to do that.’
Lending and Insurance
[24:26] Then, you’ve got the customer automatically on the system, you’ve got credit analysis and history that’s pretty accurate for that customer. And you can automate the lending process. So your cost of customer acquisition, your risk profile for acquiring customers has come down dramatically. Your default rate is coming down because they don’t want to default on their payment. That means they’re defaulting on their distributor. So you essentially completely disrupted the lending on the street for these small businesses. And that’s just one area. Now you’re starting to develop much more accurate data on these populations that can then be turned into insurance product for them as well.
Expanding to more emerging markets: How long will it take?
[34:37] “I think we can actually take the 12 to 13 year time frame that it took to get Kenya to where it is and shorten it to five or six years to build a similar ecosystem,” Jason says.
[34:46] I think there’s a couple of factors at play. it’s regulatory environment. So the banks either don’t want it to happen or they wanted to control it. There’s a big push and lobby for that from the banking side to want to roll it out. Similarly, telecom companies want to have the monopoly on MPesa too.
[35:50] So there’s two large political factions that are also large industries. They have strong political networks and inputs that are battling it out. That’s caused a lot of the issues.
MPesa’s use case is for someone who’s not online right now, who is not doing online banking. MPesa will really be relevant to them and really, really change their life. They’re not a first adapter. So they need a real reason to use mobile money. They need it. It needs to make their life better or they won’t use it. So use cases, whether it’s energy, whether it’s you’re paying through mobile money, whether it’s your customer and you’re on it because your distributor requires you to use it for transparency… The use cases are really critical to driving volume and driving consumer adoption.
[37:06]So to drive adoption in a new ecosystem, you need to go into a market when you can build out those use cases in the ecosystem that makes it relevant for the local population. Those companies are being developed just now, here in Kenya. They’re getting ready to start scaling in a massive way. Then the Kenya model will work in Nigeria. It will work in Mexico City and in Lima. But it’s just in the early days of development. It’s the early adoption, like when Google was just getting started and it took five, 10, 15 years for that to get going.
Facebook and the future of mobile money
Chandler talks through his takeaways:
[43:32] My biggest takeaway was thinking about the role that mobile money plays in an emerging market. If we were to take a look at global goal number nine and talk about creating resilient infrastructure is for our economies. I believe that mobile money is a vital role in an economy to have a secure, fast and cheap way to transfer money for goods and services.
If someone is looking to start saving for the first time ever, you don’t need credit, you don’t need a bank account. It is location independent and you can start saving in a financial first step. This provides reliability and efficiency in life and in business in general.
It allows you to start planning for the future ahead so you’re not just surviving from day to day. You can start surviving and thriving from week to week, month to month, et cetera. I believe if we’re going to have amazing innovations coming into emerging countries like drones or self-driving vehicles, we need to be able to have the basics for people to transact, which is exactly what MPesa has proven out.
[44:50] “What happens when Google or Facebook really tries to roll out their own mobile money and does it in emerging countries? They already have the trust. They have the global network. They could reach billions. I believe this is a super interesting landscape for those that are looking to enter into the mobile money game and if your business is looking to expand globally.
- Wow, the role of mobile money in an emerging market is huge!
- Global Goal #9: It’s vital in an economy to have a secure, fast, and cheap way to transfer money for goods/services. Not to mention a safe way to save money.
- And loved the challenge from Jason here… What happens when Google or Facebook really tries to roll this out mobile money?
- The Mobile Money Landscape: If your business is looking to expand globally, you’ll need to ask:
- How are we willing to take payments?
- How do we plan to take payments depending on the country we go to?
- Are we flexible?
- Is it easy to integrate?
- Can we adapt as this landscape changes?
Those are the top takeaways. Want more? check out resources at idevinternational.com