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Where Africa and Technology Collide!

Will The Real Payment Disruptor Please Stand Up

Farhad Manjoo makes a compelling argument for why the real winners of the payments revolution are the same players we already know, the credit card companies and the banks, in his, “Don’t mess with credit: Why the future of payments is already in your pocket.

“Nearly every start-up working in payments is simply creating a new front end for your credit card. That’s not a small thing; we need new ways to use our credit cards. But we shouldn’t forget the true winners in this new marketplace—whatever innovations we see in payments over the next few years, there’s a very good chance that most of the rewards will flow to Visa and MasterCard.”

This is true… if you live in the US or Europe.

It’s also why Mpesa is so important, as it represents a new form as well as a new source.

Mpesa destroys the paradigm of payments as we knew it

It’s a good thing that Mpesa happened in Africa. It offered a new way of thinking about money and payments, without the legacy baggage of banks and regulations meant for another century. The powerful banking interest were held at bay, not by great power, but by indifference – this is Africa afterall, who cares about this market?

With Mpesa, and without a bank account:

  • People can send and receive money.
  • People can store up to $1000 in the system, creating a pseudo-savings account.
  • There are no credit card companies involved.
  • There are no banks involved.

Mpesa is big now too, big enough to garner a lot of attention from the the credit card companies and banks. M-PESA has over 14 million users in Kenya, 9 million in Tanzania, and hundreds of thousands in Afghanistan and South Africa now too. It now processes more transactions domestically in Kenya than Western Union does globally, somewhere in the range of 25% of Kenya’s GDP is transacted on it.

The banks actively lobby against mobile-based payment and money systems now, globally, as it constitutes a massive competitive threat that they are unable to compete with due to a multitude of reasons, one of which is simple transaction costs. The credit card companies are watching closely too, and moving. Mastercard and Visa both are working on mobile offerings, seeking to link with mobile operators in order to bypass a would be competitor.

Mpesa isn’t perfect – we need a payment system that works across mobile operators and can be synced (easily) with any bank, if needed. While it could improve, it’s still worth pointing out the really big missed opportunity here is by Vodafone. Like I’ve said before, if Mpesa was rolled out at as an independent company led by Michael Joseph, it could battle the credit card companies of the world and unseat them in many markets.

What’s interesting to me is that in the arguments in the US and Europe on “the future of payments” the real innovation, with real numbers, isn’t being mentioned.

Update. some new blog posts on this topic:
Could we live without cash?
Payments, the more things change…


  1. I made a long comment saying exactly the same thing you just said but curiously it did not appear at all. It made me so mad I posted something on Twitter about it. The very idea that all disruptions must come from Silicon Valley and not acknowledging Mpesa and others is ridiculous

  2. We’re with you, Erik. Mobile money’s a sustaining innovation in the West. In Kenya, it’s turned the banking and domestic remittance industries on their heads.

  3. Pablo Destefanis

    February 20, 2012 at 2:11 am

    Excellent point. Still for US/EU, you already can do this without MPesa, as most are banked. I can “park” money in, say, PayPal. Its huge impact in KE, TZ comes from fullfilling a (basic?) need.
    Maybe the post credit-crisis could be a good scenario to try leaving credit cards aside. The public has been made aware of their real charges and dangers, and retailers could do without their fees. So here’s an option for Google wallet, whic

  4. Pablo Destefanis

    February 20, 2012 at 2:14 am

    … or any other provider who wants to to for it. For purchases this is akin to a secured credit card, without the bank, and the card.
    Perhaps the real challenge comes from getting people used to actually *have* the money before going shopping.


  5. I think its only a matter of time until someone highlights the fact that mPesa does not segment out its market, but rather covers everybody from wealthiest urbanites to poorest villagers compared to the Silicon Valley payment innovations which are usually tier based and often leave out the bottom tiers which also happens to be largest in size.

  6. Credit (not cards) is the 900 gorilla of finance. M-PESA doesn’t allow for credit. The service that does will dwarf all current mMoney services. Just as a point of reference, the global bond market is 2x the size of all the stock markets.

  7. Credit is easy to layer on to something like Mpesa, if you’re Safaricom (or Vodafone). It’s just another feature for them.

  8. I agree that there shouldn’t be any mobile payments discussion without at least mentioning M-Pesa and nodding to its success. To that end, it was nice to see that Vinod Khosla did just that in his recent TC post: http://techcrunch.com/2012/02/19/unhyped-internet-and-mobile/. (Of course, he should know about Kenya’s mobile money what with Khosla’s investment in the outstanding team at Kopo Kopo…)

    Two questions though:
    ~M-Pesa is more of a money transfer service today, in all honesty, than a payments service, no? I’m guessing that the VAST majority of their transactions are P2P; I never did see many people at Uchumi or Deacon stores using M-Pesa… and with the TX cost (30/=) M-Pesa isn’t positioning itself for informal payments. At least not yet. That isn’t to diminish the amazing success it has been – it’s just that the success has been as a transfer service more than a payment service.
    ~Do you really think that M-Pesa could have been successful as an independent entity? It seems that its success owes a great deal to being embedded on the SIM cards of a dominant MNO…

    Great stuff as usual!

    • Good questions Matt.

      1. Mpesa is more of a transfer service than payment service, true. However, it is used for many types of payments, even if not in the very lucrative b2b or traditional b2c. Instead, those are more p2p payments.

      For instance, I bought 20,000 Ksh of goods from someone last week. He emailed me an invoice, I paid him via Mpesa, and neither of us wasted the fuel (and time) to meet in person. Most Kenyans pay for electricity and water via Mpesa, so that is a rather large monthly payment made by a lare percentage of the population.

      2. Yes, I do, but only AFTER it’s success in Kenya. That was proven by 2009 and as MJ left the helm in 2010, it was the perfect time for a pivot by Vodafone on making Mpesa an independent entity. It would be the right product and the right leader for it.

  9. Business Daily in Kenya reports that Visa has launched a cross-border mobile money transfer platform, available to all mobile users irrespective of their network – going after Safaricom’s M-Pesa? http://www.nation.co.ke/business/news/Visa+to+start+mobile+money+transfer+/-/1006/1330780/-/r7683rz/-/

  10. Hey Erik – Thanks for the response and the blog post link. You’re right – I had forgotten about utility payments which are probably substantial.

    I’m no longer working with Equity Bank and moved back to the States – I see that you’re actually in the Bay area as well at the moment. Let me know if you have any spare time while you’re here, I’d love to meet up and chat about E Africa tech, what’s going on here in the Valley and how I can stay involved.


  11. What is the future of M-PESA ? Is it really going to revolutionize? Maybe become an independent worldwide company offering mobile money transfer services? If then, what kind of servers will it use? 14 million users and beating Western Union’s worldwide transactions is really something that might need servers imported from another planet.

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