Where mobile payments are set for take-off

mobile paymentsAs many western countries battle with troubled economies and polarized governments, economic progress is marching ever east. The latest sign came from Mastercard. It has a new report out showing which countries are the most ready for a monumental change in how we do commerce: mobile payments. One of the countries topping the list may surprise you.

Why Kenya?

Mastercard considered 6 criteria for its list. Almost all of these factors focused on the strength of political and business institutions: a robust legal system, a credible yet flexible regulatory system, an up-to-date technical infrastructure. I.e. all the things you would expect a rich country to have.

Kenya is not rich, certainly not in comparison to these titans. But it does have one thing that makes it stand head and shoulders above the rest. And it’s the kind of advantage that money can’t necessarily buy.

Source: Mastercard

Kenya punches way above its weight in the mobile payments space for the simple fact that, more than everywhere else, its citizens are already doing it. 

OK. Kenya. So how did it get there?

One word: M-Pesa. Ashok V. Desai describes it best:

The way M-Pesa works is as follows. Suppose someone wants to send money to his wife in some other town or village. He goes to any M-Pesa counter, pays cash, and tells the girl to deliver equivalent cash to his wife. The girl takes the money plus a certain commission, rings up her correspondent in the wife’s village on her mobile phone, and tells her to pay the money to the designated person. The sender, in the meanwhile, rings up his wife and asks her to go and collect the money. The wife goes to the counter in her village and receives the money. The entire transaction can get over in a few minutes; the only red tape is a few entries and signatures for record.

Kenya has a population of 40 million. Roughly a half of them would be adults; of those 20 million, some 15 million, or three-quarters, use M-Pesa. M-Pesa has 30,000 branches — 25 times as many as Kenya’s biggest bank. Each does roughly 80 transactions a day; it comes to about 900 million transactions a year, or 60 per adult.

My first reaction upon reading the preceding was kinda like, “Hang on a minute — that’s not really my definition of mobile payments. It just sounds like Western Union 2.0.” This impression was also confirmed by a 2010 article in the Economist which mentions that “individual agents still handle the ‘last mile’ ”.

So in Kenya mobile payment is most definitely driven by the need for P2P money transfers due to lack of infrastructure. This is in contrast to developed countries, which are more driven by commerce and consumers’ desire for convenience.

It will be interesting to see how Kenya’s mobile payments industry evolves, how innovative it becomes and whether developed countries will start taking a page of its playbook. (Which would mark yet another significant shift in global business history.) The country i’s now getting ready to sell its bonds to retail investors via the M-Pesa system. I can think of a few western countries who might want to look into a scheme like this.