In Kenya, financial institutions were scarce and the population largely unbanked in the early 2000s. So people began using the prepaid airtime minutes on their mobile phones as a form of currency: They traded minutes on calling cards for cash or goods and services. This was long before the idea of mobile banking had become mainstream, before services like Venmo and Alipay had defined a market. The Kenyan community simply hacked its own solution, out of the tools at hand.
That would be the spark. These informal exchanges caught the attention of Vodafone's then-head of global payments, Nick Hughes, who saw an opportunity to build a money transfer platform using mobile phones. M-Pesa, a partnership between Vodafone and Safaricom, would ultimately bring banking services to millions of people in Kenya and nine other developing markets, including Egypt, India and Romania, fundamentally altering their economies. It would become a signature example of leapfrogging: using next-gen technology to advance an emerging market.
Launched in 2007, M-Pesa allowed customers to use simple text messages to send money, make deposits and withdrawals, and purchase airtime minutes. In the first three years of service, users transferred more than US$600 billion, generating about US$100 million in revenue for Safaricom and Vodafone. By 2019, M-Pesa had 31.8 million active users in Kenya alone. “The customer base is growing every year along with the range of ways you can use M-Pesa,” says Chris Williamson, managing executive, M-Pesa, Vodacom Group, a subsidiary of Vodafone.
Hughes’ initial idea was narrow: The project plan would create a mobile platform to support microfinance loan disbursements and repayments. After his team secured a nearly £1 million grant from the U.K. Department for International Development (which Vodafone matched), Hughes met with the CEO of Safaricom, Michael Joseph, who enthusiastically signed on. But the two companies quickly learned the value of agility. An early pilot revealed greater consumer demand around money transfer than microloans. The team redesigned M-Pesa to focus on day-to-day transactions. “They did what any good agile project team does,” Williamson says. “They built something, learned by piloting it in the market, then made big changes.”
Customers could sign up with any identification card at an M-Pesa kiosk, where an agent could help them deposit currency to their account or exchange digital currency for notes or coins. Transactions were made via text, with SMS messages providing confirmation. Regulators required Safaricom to maintain currency on deposit equal to all currency circulating via the app, but the company otherwise had significant freedom to develop a new financial infrastructure.
“The Kenyan government and the Central Bank of Kenya understood the potential for M-Pesa to revolutionize access to financial services,” Williamson says. “Without that [regulatory flexibility], it would never have taken off.”
Number of countries using M-Pesa: Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Kenya, Lesotho, Mozambique, Romania and Tanzania
Portion of Kenyans who have bank accounts, up from 14 percent in 2006 before M-Pesa launched
Number of M-Pesa transactions per second
Number of active users in Kenya in 2019
Safaricom's most recent annual earnings
Sources: African Central Bank and FSD Kenya, Safaricom
Kenya has since become a leading tech hub in Africa, with annual GDP growth rates hovering above 5 percent. Beyond the tech, the M-Pesa project team also got the face-to-face model right: The agents who operate the spaces where customers can deposit or withdraw money were carefully selected and got early hands-on training and monitoring. “They are our most important brand ambassadors and customer educators and act as easily accessible bank branches for all of our customers,” Williamson explains.
Today, M-Pesa has evolved into a full financial services solution. Users can still make small payments and exchange cash, but they also pay bills, receive paychecks and social grants, and access loans and saving products offered in partnership with local banks. It now ranks as the dominant financial services app across Africa, processing 11 billion transactions last year.
“It was a great model that was the right fit for Kenya and other African markets,” Williamson says.