Out of app-rica

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Africa’s mobile money transfer service M-Pesa has led the world once – can it do it again? Vodacom’s Diego Gutierrez believes so

The M-Pesa story is legendary in the payments history of Africa – after Kenya entered the paytech pantheon as the first country to launch a mobile money transfer service back in 2007.

Fifteen years, more than 50 million monthly users and 52 million transactions-a-day later, M-Pesa is helping write the next chapter for financial services by building itself a super-app. It’s a logical next step for what is now the biggest financial services provider in Africa by transaction volume – bigger than all the continent’s banks combined – and it’s being propelled by a joint venture inked in 2020 between Kenya’s Safaricom and its parent group, Vodacom, based in South Africa.

The name of the joint venture, M-Pesa Africa, spells out a vision as much as a strategy; to build M-Pesa into a truly supranational brand.

THE EARLY YEARS

Originally launched by local mobile phone operator Safaricom (then controlled by UK telecoms giant Vodafone, which owned the M-Pesa brand until recently), the service that allowed users to send and receive money by a simple SMS on a feature phone was adopted with blistering speed in Kenya. Initially designed as a safe and easy way to transfer money between individuals, pretty soon, customers were using it to pay cashless for goods in supermarkets, transaction-fee-free, via what’s now the Lipa na M-Pesa channel. There was no need to waste hours queueing at Kenya Power centres where customers traditionally bought their electricity upfront, either. And employers began transferring earnings direct to casual workers’ M-Pesa wallets because it was safer and cheaper than dealing in cash.

By the time of its 10th birthday, 96 per cent of Kenyan households were using their Safaricom/M-Pesa account to store, save, transfer and receive money, giving millions of people access to secure financial services outside of a banking system that mostly excluded them. Today, it’s said that more than half of Kenya’s entire GDP is transacted over the app.

Expansion into other African countries with similar infrastructures and equally large numbers of people living in remote areas with no access to formal banking, also saw fast adoption. M-Pesa is frequently held up as a poster child for what can be achieved if you really understand the challenges customers face and build your model around them.

“Last year, we transacted a quarter of a trillion dollars over the platform – that’s the money moved between wallets, and it’s growing in gigantic steps,” says Diego Gutierrez, chief officer for international business at Vodacom, which manages the M-Pesa service in Tanzania, Lesotho, the Democratic Republic of Congo, Mozambique and Ghana. M-Pesa is also active in Egypt and is poised to enter Ethiopia, Africa’s second most populous country with 114 million people, where banking services are limited and appetite for mobile payments systems enormous.

As a telecoms operator, Safaricom hadn’t set out to replace cash back in 2007. Rather, it was just trying to find a safer, cheaper way of moving it on a non-banking rail, after realising that its users were exchanging Kenyan shillings for airtime anyway in an informal economy.

In launching the M-Pesa service, it used touchpoints that its customers were already familiar with: a feature phone and local storekeepers who sold Safaricom airtime and were recruited as M-Pesa agents to facilitate account top-ups and cash-outs. It was simple, effective and – if operated at scale by the provider that owned the infrastructure to deliver it – very profitable.

But, beyond that, is there anything it can teach the rest of the world? Had Africa’s mobile money revolution continued to be limited to simple digital wallets and peer-to-peer transactions, perhaps not. But the story has moved on considerably since 2020.

Mobile pathway:

As more people use smartphones, M-Pesa is maturing into a super-app

Under the new joint venture, the China’s Alipay, which has more than a ambition for M-Pesa is so much greater billion users back home, to take the same now. By 2021, neither Safaricom nor micro app marketplace approach, inviting Vodacom saw themselves principally as developers to use the M-Pesa Mini Program telecoms businesses. Rather, Safaricom Development Platform to help move describes itself as a ‘purpose-led technology it from being a mobile money app to company’ with financial services, including a ‘lifestyle companion’. It calls itself the wealth creation and insurance, singled out ‘Google Play store of Africa’. as future key revenue streams. Similarly, “Before, apps had their own payment Vodacom now frames itself not as a telco but interface; people went into them then paid as a techco. Indeed, the Vodacom Group, through M-Pesa. Now we’re embedding including Safaricom as a strategic partner, these apps into our super-app, they won’t now claims to be the biggest fintech have to leave our platform to access them,” platform in Africa by subscribers. says Gutierrez. “The beauty is, we create a

At the same time, both companies have link with these companies to offer additional been moving into new incentives – discounts, business areas, including loyalty solutions, even education, healthcare loans, because we have and agriculture – all key access to users’ scoring.” to Africa’s economic Customers can already and social improvement shop, book a restaurant, programme, and all food delivery, rail and needing finance, be bus tickets, and use it payments, loans, government services, insurance or investment, which M-Pesa now supports with localised products across Africa.

By 2021, revenue from M-Pesa overtook that of Safaricom’s traditional core telecom services and financial services accounted Getting a life: for nearly 10 per cent of Vodacom Group’s M-Pesa’s app is service revenue. a gateway to all manner of services

The M-Pesa super-apps went live in June of that year – one for retail customers and inside the M-Pesa environment. And, another for M-Pesa’s large constituency of with 42,000 external developers creating micro and small business users. Importantly, additional services, the aim is to have in a low-income environment that still several hundred mini apps active and hit 10 suffers from poor connectivity, they have an million downloads by the end of this year. offline mode so customers can continue to Safaricom isn’t the only one with use them and complete transactions even super-app ambitions. But, in Kenya at without data bundles or when totally offline. least, says Gutierrez, M-Pesa has a natural Over the first nine months, the super-apps competitive advantage over rivals like would be downloaded by nine million video-on-demand platform Viusasa and customers and 320,000 businesses. ridehailing firm Little Cab: it’s everywhere

“Payments and financial services and used to pay for almost everything. through solutions like our super-app and “Before M-Pesa arrived, only 10-15 per M-Pesa will drive the continent’s growth cent of people were banked; today almost for the next decade,” says Gutierrez. 70 per cent are inside the financial system. “Our job is to continue to innovate, and It’s massive,” says Gutierrez. “These people enlarge the ecosystem of customers, can make payments, send peer-to-peer, merchants and agents, and of third-party pay for services, get loans, save money, solutions that embed into our app.” buy products through our network of merchants that take payments in M-Pesa. IN GIANTS’ FOOTSTEPS People are happy to receive their salaries M-Pesa took inspiration from the world’s in M-Pesa because they can use them to super-app cradle when it came to deciding pay other people … you create a circle on its own model. It collaborated with and it evolves into enterprise solutions.

Payments and financial services through solutions like our super-app will drive the continent’s growth for the next decade

Fast-moving consumer goods companies, for example, have huge distribution fleets that move across Africa. They’re not carrying cash anymore, they distribute products and shop owners pay them in M-Pesa. That’s integrated into a system we enable, with our enterprise solutions.”

The super-app is, so far, ‘just scratching the surface’ of what can be achieved, he says.

STILL SOME GROWING ROOM

The regulatory environment has been sympathetic to Safaricom as it went about building the M-Pesa service in Kenya – although its market dominance has attracted criticism and challenge from some quarters. Rolling out mobile money across African borders hasn’t been plain sailing, largely due to different regulatory approaches. Rules around data sharing, which is crucial to any super-app, may yet prove an obstacle.

A 2021 white paper from Mastercard and The Economist, called From Online Bazaar To One-Stop-Shop: The Rise Of Super-apps In The Middle East And Africa, identified three ‘promising players’ in Sub-Saharan Africa, aside from M-Pesa: Nigerian courier service Gokada, whose super-app allows users to send packages, order food and hail cabs on one platform; SafeBoda, a Ugandan-based ridehailing firm; and MTN Group, another telecoms provider headquartered in South Africa, which is bundling instant messaging with m-commerce and entertainment. Indeed, Vodacom itself launched a ‘digital shopping, lifestyle and financial platform’ called VodaPay, also backed by Alipay, in South Africa, in 2021. For any one of these to become a supranational player, there will need to be better harmonisation between existing industrial strategies and policies, the report said. Thanks to M-Pesa’s underlying payments platform, it probably stands a better chance than many because, as the white paper observed: “A super-app without a strong payment infrastructure is almost impossible to imagine.”

Gutierrez is confident that M-Pesa will be laying down many more historic markers.

“We think everything is going to be integrated into our super-app,” he says.

“Telcos are going to become banks; banks are going to become telcos. We see ourselves at the centre of this journey.”

And that is the new lesson that M-Pesa can teach the world.