Seeking Fertile Grounds for Mobile Money
1Amrik Heyer and Ignacio Mas
DRAFT, 3 September 2009
The potential of mobile phones to revolutionize access to financial services in developing
countries is exemplified powerfully by the success of the M-Pesa mobile money service in Kenya. But the apparent difficulty of replicating M-Pesa’s success even in neighboring countries suggests that some contexts may be more receptive to such an innovation than others. In this
paper we seek to understand the environmental dynamics affecting the uptake of mobile
money. We demonstrate that, aside from strong strategy and good business models, the impact
of financial services in developing countries is dependent on the extent of market penetration
and the political environments in which they take root.
M-PESA is a huge success… and now what?
Safaricom’s M-Pesa success story has focused the global attention on Kenya as the leading edge
2of the mobile money revolution. M-Pesa is a mobile payments solution developed by Vodafone
in the UK, and currently available not only in Kenya but also in Tanzania and Afghanistan. M-
Pesa allows users to hold money in a virtual ‘stored value’ account maintained in a server by the telecoms provider and operated by users through their mobile phone. Users can deposit or
3withdraw cash with a local M-Pesa agent. Users can then use their available balance to send money to other mobile phone users, buy airtime (for themselves or for another prepaid phone),
or store money. In Kenya, subscribers now have the option of paying bills and premiums to a
1 Amrik Heyer is an independent consultant in social development working with the Bill & Melinda Gates
Foundation, and Ignacio Mas is Deputy Director at the Financial Services for the Poor team at the Bill &
Melinda Gates Foundation. The authors wish to thank Amolo Ng’weno for her encouragement and
support throughout this project, and for many insightful comments. We would also like to thank Claire
Alexander, Paul Makin, Olga Morawczynski,Dr. Cosmas Ochieng and Amina Tirana for their helpful
comments, and Daniel Laiser for his contribution to a comparative study of M-Pesa in Kenya and Tanzania,
which provided a background to the paper. 2 Mobile money involves three elements: (i) an electronic stored-value account (akin to a sight deposit
account) linked to each user’s mobile phone; (ii) a mobile phone application that allows users to manage their accounts and transfer value to other users; and (iii) a network of cash in/cash out outlets where
users can exchange cash and electronic value (i.e. deposit and withdraw money from their account). 3 A deposit entails the customer handing over cash to the agent, in exchange for an equivalent electronic
money transfer from the agent’s M-Pesa account to the customer’s account. The reverse applies for a
withdrawal. The transfer is authorized in real time by the M-Pesa system, and the agent’s and customer’s accounts are debited and credit instantaneously. Therefore, neither transacting party bears credit or
network of nearly 100 utilities companies, insurance brokers, corporates, NGOs, microfinance
institutions (MFIs) and others.
M-Pesa’s success in Kenya has been driven by mobile operator Safaricom’s ability to tap into a
large domestic remittance market through its popular slogan ‘send money home’. In just over
two years since launch, M-Pesa has attracted 7 million subscribers (over a third of the
population 15 years or older), and it is still growing. Users appreciate ease of access (anytime,
anywhere), reliability and affordability compared to other channels and the flexibility
(‘formal/informality’) of the service. More broadly, M-Pesa affords the scale and efficiencies of corporate capitalism, and the
flexibility and contextual appropriateness of informal markets. It demonstrates the volume and
profitability of low-income markets as expounded in Pralahad (2006). The Kenyan experience
suggests that the ability of the mobile money industry to leverage on economies of scale largely
depends on the provider’s capacity to leverage on the strength of the informal sector (e.g. in
relation to its distribution networks), the labor market profile (e.g. demand for remittances
generated by rural-urban migration), infrastructural development (including the penetration of
the formal financial markets), and the support from the banking regulator.
M-Pesa is not the first sustainable mobile money deployment –that honor falls to Smart Money
in the Philippines which launched in 2001—but the extent and speed of take-up of M-Pesa has been unprecedented. The M-Pesa story has instigated a wave of interest in mobile money, with
new entrants rushing to replicate its achievement all over the world: CGAP counts 120 mobile
money deployments, and Edgar, Dunn & Co forecasts that there will be 615M mobile wallets in
use by 2011.
Yet, two years on, we remain uncertain as to where the next big mobile money success will
emerge. Operators across the globe are struggling to capture the mass market for payments,
and are now coming to grips with the operational complexity and marketing challenges
associated with new payment systems. One hears more and more industry insiders asking: Was
Kenya a fluke? What is the natural rate of development of a mobile money system? Where is it more likely to work?
One thing we are fairly sure of by now: we should look in developing countries for that mobile
money “garden of Eden”. That was not the general presumption prior to M-Pesa: why start in
places with a less wealthy, less technologically experienced population? Many schemes had
been tried in developed countries, but, with the exception of debit cards, they routinely failed to
4open up enough space within a crowded set of payment options for customers and merchants.
M-Pesa has shown the value of convenient electronic payments to people who have few
alternatives to cash.
4 This is true especially true in Europe and North America. Korea and Japan have seen more success with
mobile payments. For an account of experiences in developed countries, see Mas and Rotman (2009).
The apparent difficulty of replicating M-Pesa’s success even in neighboring developing countries indicates that some contexts may be more receptive to mobile money offers than others. But it
also speaks to the sheer difficulty of ‘pulling off’ a fairly sophisticated business model. As we
investigated successes and failures with mobile money schemes in various countries, it became
essential to try to disentangle country-level or market factors from the specific business choices
5and capacities of the mobile money scheme providers. That is not always so straight-forward: for instance, being in an unfavorable market situation may cause the provider to underinvest in
capacity development, or to take bigger gambles with bold pricing strategies.
In this paper we ask the question: ‘what would be the most fertile grounds for the next mobile
money success story?’ The focus is on the pre-existing or enabling country conditions, not the
6business model or service design aspects which are less likely to be country specific. The paper
provides insights into whether Kenya’s experience is likely to be unique, and indeed into how
inevitable was the success of M-Pesa itself. More broadly, it may help commercial players and
donors to target those markets which are a priori more conducive to the success of mobile money.
The need for scale
To appreciate what might be the grounds for the next mobile money success story, we need to
understand some basic characteristics of the mobile money business. First, the model depends
on volume: being able to capture a large number of relatively small transactions. Fixed costs at
the platform and branding level create significant economies of scale. Moreover, customers are
not likely to want to pay commissions exceeding a few percentage points on most transactions,
which caps the gross margins that can be secured. Low transaction sizes, fixed costs and low
margins need to be balanced by substantial volume in order to close the business case.
Second, the mobile money model requires speed: being able to generate momentum and trigger simultaneous interest among users and merchants. Fast growth creates a special buzz which can
help overcome people’s natural resistance to try out a technologically-enabled service they do
not quite understand. Knowledge of the service can spread by word-of-mouth, which cuts down
on required marketing expenditures. And if there is sufficient density of take-up in specific
communities, more experienced and sophisticated users are available to offer ‘delegated’ sales and customer care support to newer or less experienced customers.
Momentum is also necessary to defeat the natural chicken-and-egg problem between agents
and customers: why would stores want to sign up as agents while there are few customers, but
5 Two specific market comparisons the authors have undertaken are G-Cash in the Philippines and M-Pesa
in Tanzania, both against M-Pesa in Kenya. These are documented in Mas (2008) and Heyer (2009);
Camner and Sjöblom (2009) also compare the Kenyan and Tanzanian experience. 6 For an analysis of the service design factors that allowed M-Pesa to exploit the market opportunity so
effectively, see Mas and Morawczynski (2009). For discussion of design factors in other developing
country success stories, see Pralahad (2006)
then why would people be interested to become customers while there are few agents? The
longer this impasse is allowed to stand, the more difficult it is to overcome. Early market buzz
can prompt both customers and stores to sign up sooner and to try it out for longer than they
would otherwise consider.
Third, the mobile money model requires coverage: being able to use it anytime, wherever one
happens to be, and to send money to anyone, anywhere. Proximity and ubiquity: this after all is
the disruptive innovation that allows mobile money to penetrate a new payments market. But
that requires coordinated roll-out across the entire country.
These three features of the mobile money business –the need for volume, speed and
7coverage— together suggest that the business model needs to be highly scalable. Momentum
will build up as customers start to bring other customers into the system simply by sending
them money (inducing them to come into the shop and register); agents will start seeking to
sign up and add new tills and generally the system can grow very fast for at least some period,
creating a ‘viral effect’.
The Kenyan market presented a large enough opportunity, and Safaricom went about exploiting
it in a sufficiently scalable fashion. In fact, the growth of M-Pesa has surprised even Safaricom
since the first few months and continues to grow at a strong pace even as more than half of
Safaricom subscribers have already signed up for the service. How replicable is this? Some
markets may present too small an opportunity in the light of established competing services.
And piece-meal deployments may not work at all.
In the rest of this paper we consider five factors that determine the potential for scale of the
money market opportunity in a given market. Namely: latent demand, the quality of existing
alternative services, the regulatory environment, and the market landscape for both retail
channels and cellular services. To repeat, we focus here on the environmental factors which
determine how scalable a mobile money proposition may be, not on the business design and
operational management factors which would need to be brought to bear to exploit it.
Extent of Latent Demand for Transactions
Demand-side metrics underpin the scalability of a mobile money solution. Do the volumes and
profile of transactions and savings among the general population indicate a scalable opportunity?
Any payment and store-of-value system ultimately serves a number of purposes for its users,
but identifying a principal product application with strong mass market appeal is the
cornerstone for a mobile money launch. A ready market of ‘early adopters’ through which to
kick-start the product and gain momentum is also significant to propel the service towards a
7 For a fuller explanation of the economics of branchless banking systems, including mobile banking, see
Safaricom based the initial launch of its M-Pesa service on the ‘send money home’ proposition,
even though it also allows the user to buy and send airtime, store value and, more recently, to
pay bills. Remittance services are primarily targeted to the urban migrant population who seek better employment options and send money regularly to rural kin. The opportunity will be larger
where migration results in splitting of families, with the bread-winner heading to urban centers
and the rest of the family staying back home. This is the case in Kenya and Tanzania, where 17
and 28 percent (respectively) of households depend on remittances as their primary income
source (FSD-Kenya  and FSD-Tanzania ).
Where entire nuclear families move, remittances will be stronger where there is cultural
pressure to retain connection with one’s ancestral village. In Kenya, migrants’ ties with rural
homes are reinforced by an ethnically-based rendition of citizenship and the need to hedge
insecure livelihood options. These links are expressed among other things through burial,
inheritance and cross-generational ties, even in cases where migrants reside more or less
8permanently in the cities. In other settings, a greater emphasis on national as opposed to local identity may have diminished the significance of the rural ‘home’.
In her study of M-Pesa, Ratan (2008) suggests that the potential market size for domestic
remittances is related to urbanization ratios. More propitious markets will be those where the
process of rural-urban migration is sufficiently rooted to produce large migration flows, but not
so advanced that rural communities are hollowed out and lose socioeconomic significance.
Countries with mid-range urbanization ratios, especially those that are urbanizing at a rapid rate,
are likely to exhibit strong rural-urban ties requiring transfer of value between them. This is the
case in many African countries like Kenya and Tanzania;in the Philippines and Latin America,
where urbanization ratios exceed 50 percent, remittances are more likely to be triggered by
international rather than domestic migration patterns.
Domestic remittances might also be driven by students schooling away from home. This
reverses the flow of money, from rural households to dependents in larger urban centers. Young
people may be schooled away from home due to a lack of schools in rural areas (such as in
Uganda and Tanzania) or due to the better quality of educational choices available in larger
towns (such as in the Philippines and Latin America).
Payments also play an important role in enabling informal economic activity, and the degree of
informal sector entrepreneurship may fuel the growth of mobile money. This was initially the
case with traders in Tanzania, where early uptake of the service was in high demand by rural
retailers sending payments to urban wholesalers, thereby contributing to a strong rural-urban
flow. In Kenya, informal sector employers are increasingly using the service as a salary payment
8 For fuller analyses of the use of mobile money for domestic remittances in Kenya, see Ratan (2008) and
Safaricom took on the domestic remittance opportunity by launching a nationwide service, with
agents scattered around the country. This might be too risky and costly a proposition for smaller
operators or in larger countries such as India. In this case, being able to identify corridors for
remittances would permit a more targeted, phased roll-out of agent networks and customer
acquisition campaigns. This is the approach Eko is taking in India, using customer call records
from partner telco Airtel to precisely identify potentially ‘thick’ remittance corridors.
Focusing on remittance corridors as opposed to broad national markets could also yield
significant returns in the African context, where cross-border regional remittance corridors represent a potentially strong market opportunity. Of Africa’s 16 million international labor
migrants, 63 percent are regional as opposed to trans-continental, with major corridors in West
Africa (Isaacs, 2008). Some international or regionally-based mobile operator groups (such as
MTN, Orange, Orascom and Zain in Africa) may be able to create regional remittance networks
linking their operations in neighboring countries, thereby harnessing this lucrative market.
Tapping international remittances is generally much harder than domestic remittances because
a mobile money scheme operator would have to rely on foreign partners to address one leg of
the transaction. Smart Money and G-Cash in the Philippines are partnering with Western Union
to effectively extend the reach of their mobile money service to the sizable overseas Filipino
While remittance markets have so far afforded the most lucractive mobile money opportunities,
large-scale institutional payments may also comprise significant markets. Bill payments
constitute an important and easily reachable niche application for mobile money, especially in
countries where basic infrastructure is reasonably well developed. This may be the case, for
example, in Nigeria, where a substantial share of the population pays utility bills and relies on
cumbersome bureaucracies to do so. Government is also a major collector (payee) for services
such as market fees, land rates/rental and other fees, licenses and services, as well as for
contributions into government national health and social security funds. Microcredit repayments and micro-insurance premium collections can be a third driver of volume of
institutional payments. But tapping into these payment sources requires a certain degree of
sophistication on the part of the IT systems of microfinance institutions, which may not always
be the case.
Mobile money schemes can provide substantial convenience to bill payers by: (i) linking the
payment to an account from which the payment can be triggered instantaneously at any time,
and (ii) expanding the reach of payment outlets to include any available cash in/cash out agent,
for those wanting to pay in cash. For institutional billers, promoting real-time electronic
payments through mobile money reduces credit risk, unremunerated float and channel
management costs. So they are often willing to bear the cost of the transaction, making it free
to the customer.
In addition to being a collector, government is often the single largest payer in a country, with
millions of small payments on a monthly basis for salaries, pensions and social welfare transfers.
Thus, government payments are likely to be particularly suited to the efficiencies offered by mobile money solutions. Brazil is a prime example, where a bank-led payment model operated
through cards and point-of-sale (POS) devices is now the main vehicle for government social
welfare payments to 11 million recipients. South Africa also has a nation-wide social transfers
system covering one-third of households.
Mobile money schemes would be best placed to tap into bill payments and government
payments if they were nationally interoperable. Billers and government payers are naturally
resistant to pursue payment options that only reach a portion of the population and to overly
fragment their payment channels.
Mobile money schemes can also tap into the payment needs of larger commercial players.
Smart Money in the Philippines and Wizzit in South Africa serve as a platform for airtime top-ups.
In Zambia, Celtel uses its mobile money service to support payments between major distributors
and their retail store networks. In Cambodia, WING launched a mobile money service in
partnership with the garment industry to deliver salaries for workers, who then constituted an
‘early adopter’ segment that propagated the service more widely. Where an ‘early adopter’ niche is not easily identifiable, partnering with large-scale institutions to roll out a mobile offer
can deliver the initial momentum needed to stimulate viral propagation.
Lastly, global evidence shows that the demand for safe savings products is very large (Collins et
al., 2009). Yet only about 10 percent of the world’s poor have access to formal bank accounts.
Savings propositions which allow poor people to save money as and when they earn it,
conveniently near where they live or work, in small sizes, can mobilize a very large number of
Range and quality of existing alternatives
In order to assess the market opportunity for a new mobile money scheme, demand-side
indicators must be looked at in the context of the accessibility and quality of the alternatives. If
there are many good alternatives (as is typically the case in developed countries), it will be
difficult to convince users to switch to the new mechanism. At the other extreme, if there are no
current alternatives, the mobile operator will need to create an entirely new service category in
people’s minds and will have few market references on which to base their marketing campaign,
which may be a slow process. For example, the use of airtime transfers as an informal way of
sending money in Tanzania provided initial competition for mobile money offers, but also
established the idea of electronic value transfer in people’s minds, facilitating popular
acceptance of mobile products in the long-run.
Mobile money schemes can gain traction through identifying specific weaknesses of existing
alternatives, and crafting their service proposition to demonstrate advantages over those
attributes. At the same time, there is likely to be high inertia about switching to a new system, which will not necessarily be addressed through a convincing service proposition. Brand value and market share may be more significant to speed of uptake (see section on cellular market landscape).
We can distinguish payments and store-of-value alternatives by whether they are formal (licensed and regulated), semi-formal (legally constituted but not regulated) or informal. In all these contexts, attributes which are important to consumers include direct costs (fees, interest rates), safety (what is the probability that I may lose my money?), reliability (is it available for me to use whenever I need it? is there going to be sufficient liquidity when I need to get money out?), and convenience (is it easy to use? how long does it take and how far do I need to travel to access it?). For low income groups, the most significant of these factors is often the last: the opportunity costs relating to accessibility and convenience. Semi-formal and informal options generally have a strong advantage in relation to convenience, while formal services tend to be more secure and reliable.
In general, mobile money should help in three key ways. First, the ubiquity of mobile money services should increase convenience and reduce opportunity costs (such as travel and queuing times), especially with respect to formal alternatives which tend to be more concentrated. Second, the electronic nature of transactions should increase safety, especially with respect to semi-formal and informal alternatives which are unsupervised and often even unrecorded. While customers may not be in a good position to understand the intrinsic security afforded by electronic channels, the fact that transactions happen in real time should help them to quickly gain trust in the system experientially (since the sender of funds can immediately call the recipient to confirm the success of the transaction). Third, mobile money schemes, with their greater range of agents, give greater control to users on where to transact, which helps protect privacy and reduce corruption. In the analysis below, we concentrate on three specific drivers of transactions from the list reviewed in the previous section: domestic remittances, bill payment and savings.
Formal remittance services are dominated by banks and postal services. In Tanzania, bank
transfers are particularly attractive since inter-bank transfers are free. However, only a small
share of the population has access to a bank account, and the geographic footprint of banks is very limited: even market-leading NMB Bank only has 128 branches across Tanzania’s main
towns. Thus, opportunity costs are high, as senders and recipients must queue sometimes for a whole day to transact at bank branches, and those living in more remote locations must travel to branches in bigger, distant towns. In other markets such as in Kenya, the absence of inter-bank payments infrastructure makes it very expensive, and bank branch presence cannot compete with mobile services. Market-leading Equity Bank has only 300 branches and ATMs across Kenya against M-Pesa’s 7000 shops and Safaricom’s 100,000 airtime sellers.
For poor people, the more common form of formal domestic remittance services is through post
offices. India Post, with over 150,000 outlets mainly in rural areas, is the largest postal network
9in the world. Sending money costs 5-15 percent depending on the size of the transaction and
typically takes 5-7 days to process. The cost of a transfer may in practice be higher; it is not
uncommon for postmen, particularly in rural areas, to charge an informal fee to the recipient.
Semi-formal remittance services, where they exist, probably present the most formidable competitor for mobile money offers. They form around networks of businesses in another
sector. They are systematized and efficient, leveraging high volume markets to offer a
competitive service. In the Philippines, pawnshops form networks of various sizes that offer a cheap domestic remittance service. In Tanzania, people can send money through bus companies,
at a commission of 10 percent and with a significant risk of theft. This method may not be
convenient if the sender and recipient must travel to the company office to collect the money.
Informal remittance services develop in a more opportunistic way. The most popular
remittance mechanism in Tanzania is through airtime transfers, which can be construed as a prototype of mobile money, though it is not legal. The sender buys prepaid airtime and transfers
it electronically (instantaneously) to the intended recipient. The recipient then locates a ‘cash out’ agent (available on every street corner), who exchanges the airtime value for cash at a
discount (commission) of 15-25 percent of the face value of the airtime redeemed. The agent is
then able to resell the airtime to network users. The service is expensive, but it is convenient,
relatively reliable and available on all networks. Airtime transfers are not legal, but they have
provided strong competition for recent mobile money launches in Tanzania.
In the Middle East and Asia, Hawalla networks are well developed along major labor migrant or
diaspora corridors, and some have even been formalized (for example Dahabshil bank in
Somaliland). While these networks are not necessarily competitive with formal offers in relation
to price, they are substantially more convenient, with few barriers to access, and have
developed high levels of trust among their clientele. Given the regulatory hurdles for formal
options in delivering low cost international remittances, Hawalla networks are likely to remain
competitive in the context of international markets, at least in the medium term.
The most basic form of remittances, though, involves human carriage of the funds. Many people
opt to deliver the money personally or through friends or family members who are travelling.
This presents safety, reliability and privacy issues, and often entails hidden ‘costs’ which must be
repaid at a later date.
Utility bill payments, to the extent that utility services are available to poor people, are typically
made in four locations: at the offices of the utility company, at bank branches (and possibly
ATMs), at the outlets of specialized payments networks, and at retail shops that have an agency
agreement with the utility company. The first two typically have limited geographic reach and
9 India Post, Annual Report 2007-2008.
entail long queues on bill payment days. Specialized payment networks are developing fast
through Latin America (such as Pago Fácil in Argentina and Pago Express in Paraguay), and offer
quicker and friendlier service. Mobile money services present an opportunity to lower the cost
and broaden the geographic reach of bill payments. On the other hand, mobile bill payments
require the customer to enter long strings of billing account data on a small mobile keypad,
which may cause a big customer service burden in dealing with wrong entries. This can be
solved by automatically linking biller account numbers with users’ phone numbers, or by
combining bill payment with electronic bill presentment services. Mobile offers are thus
potentially competitive for this market niche.
In relation to savings— the other element of the value proposition for mobile money along with electronic payments— are another potential driver of mobile money. Access to formal bank
accounts may be very limited in emerging markets, where banks are often not able to compete
directly with non-bank providers due to higher fixed and operating costs and much more limited
physical presence. Postal banks offer more accessible services, but the quality of their service is
Informal savings options are quite widespread but they may not always be reliable. Deposit collectors in places like India and West Africa also offer savings services for a fee. The service
they offer is a combination of temporary safe-keeping of funds as well as discipline (through
their daily visits to peoples’ homes or stalls in the market). Informal savings groups exist in many
low-income countries, especially among women. They entail nil or minimal fees (for record
keeping and group formation services), but participants need to invest significant time in
building group solidarity and monitoring performance. Other popular savings options are
entirely intra-household (typically in the form of hidden cash, jewels, livestock or building materials), between friends and family (typically in the form of loans) or within the community
(through savings-led groups). Given the lack of reliability and/or high opportunity costs of
informal savings options, a low-cost, widely available formal option would be very attractive.
Generally speaking, mobile money offers for remittances, savings and bill payments are strongly
competitive in relation to formal options for the mass market. For mobile money providers, the
areas to watch out for are semi formal services, and, in some cases informal services. These
have developed highly efficient networks, especially in relation to remittances.
Meanwhile it is interesting to note that, in Kenya, mobile services have been taken up initially by
formal service users (70 percent of M-Pesa users are banked as opposed to 40 percent of non-
users (Pulver et al, 2009). Thus, M-Pesa did not acquire its initial critical mass through
competition with the formal sector, but rather as a complement to formal services, for a
clientele who were wealthier, more exposed to formal financial service options and less risk-
averse. However, as services move deeper into the market, volumes of unbanked will be likely
to drive expansion, due to the competitive advantages of formal mobile offers over other