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A Global Success from Kenya

M-Pesa, a money transfer system using mobile devices, has fundamentally changed the lives of many Kenyans. Much of the population has leaped from the agricultural age straight into the digital tomorrow.

Tires squeal as the Matatu stops in front of the Mutua Butcher Shop in Nairobi. The deep tones of reggae music from the shared taxi drown out the young customer, who wants to buy 200 Kenyan shillings (about two Swiss francs) worth of beef. Raising her voice, she repeats her request. The butcher passes the wrapped meat to the cashier. The customer reaches into her handbag – and pulls out her cell phone. The cashier does the same. Each woman taps on her phone. Then the customer puts the beef and her phone back in her bag. Next, please? 

"M" Stands for Mobile

A green sign hangs on the wall behind the cashier. What it says is something Kenyans have come to take for granted, though the rest of the world still considers it revolutionary: the shop offers the cashless M-Pesa service, a money transfer system that works from one mobile device to another and is operated by Safaricom, the leading cell phone company in Kenya. "M" stands for "mobile," while "pesa" means "money" in Swahili, the country's second national language.

Thanks to M-Pesa, paying for purchases, a ride or a service using a cell phone is easier today in an East African village than in major cities such as New York, Rio, Hong Kong or Zurich. M-Pesa is the world's most successful electronic payment system. A global success, from Africa.

From City to Countryside

It all started eight years ago – because of the family members who stayed home. As in most countries in sub-Saharan Africa, most of Kenya's population are farmers who live on the land. Young people in search of an education and jobs are drawn to the cities. If those earning money in the city wanted to support their parents financially, they long had to rely on uncertain and risky methods. They could send cash with a neighbor or a bus driver who happened to be driving through their village. Or they could send a postal money order, but that could take weeks, often failed to arrive, and in any case was possible only if the recipient had a post office box. This was about as unlikely as having a bank account.

At the time, in 2007, several million Kenyans owned a cell phone with a Safaricom number. Then this phone number essentially became a virtual bank account number. Starting in March of that year, Safaricom customers could upload money to their cell phone and send it to other Safaricom customers. It arrived within minutes, and the recipient was informed with a text message. The money could be forwarded or received as cash from an M-Pesa agent.

Two weeks after introducing the service, Safaricom had nearly 20,000 active M-Pesa users. After seven months, there were one million. Today,  20 million customers in Kenya are registered. More than 83,000 agents in cities and rural areas assist customers in uploading, sending and receiving money. Rural Kenyans with no banking options leaped from the agricultural age straight into the digital tomorrow.

And transferring money from one cell phone to another was only the start. Today, users can pay their electricity and water bills, get cash from an ATM, buy airline tickets, add phone time, buy concert tickets, pay the taxi driver or butcher and take out a small loan, perhaps to purchase a solar panel that brings electricity to their home for the first time. 

Now Earning Interest

Not least, M-Pesa encourages saving. In cooperation with Safaricom, the Commercial Bank of Africa offers savings accounts, paying 2 percent interest for amounts up to the equivalent of 100 Swiss francs. Accounts equivalent to more than 500 Swiss francs even earn 5 percent. Many people are earning interest for the first time in their lives.

It is no exaggeration to say that Kenya's economy depends on M-Pesa. According to the Central Bank of Kenya, the value of all transactions between June 2013 and June 2014 represented 39 percent of the country's GDP. M-Pesa moves more than one billion Swiss francs per year, and in fiscal year 2014 it earned the parent company 268 million francs, an increase of 21.6 percent over the previous year.

This success is swiftly going global. M-Pesa has already been introduced in Tanzania, Egypt, Afghanistan and India, with Uganda, Zambia, Mozambique, Rwanda and the Democratic Republic of Congo soon to follow. The system has even arrived on the "old continent;" in April of 2014, Vodafone exported M-Pesa to Romania – as a test market for Europe. Safaricom estimates the user rate there as "in the hundreds of thousands," without volunteering details. Vodafone, a British firm, owns 40 percent of Safaricom, and the Kenyan government owns 35 percent. As a strategy for the future, the company envisions cashless transactions for business customers as well.

Winners of the Revolution

"I never go to the bank anymore," declares Billy Warero. The 32-year-old works at a telecommunications company in Nairobi. Electric bill, cable TV, rent, online purchases and supermarket shopping – he does it all with M-Pesa. His paycheck still goes to his bank account, but he can also transfer that to his M-Pesa account using his cell phone.

Even so, the banks are among the winners of this revolution. It took them a while to recognize the new business opportunities it afforded. At first, they fought the competition. Now they have come on board. After all, it is the banks that allow people to transfer money to an M-Pesa account, and the system's savings and loan functions would also be impossible without the banks.