M-PESA

03.09.2015

Mobile payments instead of credit cards in Kenya

Image | Ken Banks

Mobile devices and new technologies combine to offer a range of solutions in the day-to-day lives of users across a great variety of sectors. A few years ago these types of innovations reached the world of financial transactions, making it possible to make payments, purchases, reservations, and even to ask for loans, using smartphones.

The use of mobile services for banking transactions is widespread in Africa, a region that has already exhibited a great application of technology to the education and health sectors. In addition, smart payments, that is, the making of payments and other transactions using smartphones, has made steady inroads in Africa. Through M-PESA, a mobile telephone product by Safaricom, users are able to complete different banking procedures, from payments and money transfers to cash withdrawals and hotel reservations.

The main reason for the mobile’s rise as a financial instrument is that it constitutes more than a tool to make payments; it also allows access to advanced services that are essential in those countries, while in Europe, on the other hand, citizens have no interest in them. For example, by means of a mobile phone individuals can transfer small amounts of money to each other. Kenya, specifically, the most industrially developed country in Eastern Africa, is where M-PESA has enjoyed the most success. In fact, thanks to mobiles 34% of the Kenyan population has access to services that would otherwise be unthinkable.

Let’s explain this situation employing data: in 2010 only 40% of the population of Kenya had access to some kind of formal financial service. By 2014 three out of four Kenyans had access to those services, according to World Bank data. Today 45% of the population uses mobile banking accounts exclusively.

How does it work? M-PESA is a branchless banking service that is organised through a structured network of authorised agents. The method to make a transfer via M-PESA is simple: the user goes to an authorised agent, who takes his cash and provides the client with a code. The client then sends the code through an SMS to the receiver of the transfer, who visits another authorised agent, who verifies the data and gives him the corresponding amount of money.

Not only citizens, but also microcredit companies have found this instrument to be extremely useful. Although their interest rates when providing loans are higher than those of traditional banks, they send them directly to users’ mobile electronic accounts. In this way the mobile becomes a system furnishing easy access to credit, one more efficient than traditional cards.

The rise of this phenomenon is also due to the affordable prices of the devices and these advanced services, which only function through text messages. The surge in the use of mobiles, moreover, bolsters local communications systems, and even the economy.

MP2

Image | Reuters

The conclusion is that Africa’s adult population is using smart payments more and more, and that there is also a generation of young people that has been growing up with mobiles as their primary (and sometimes only) payment system, for more than ten years now. This represents a resource that has come to form part of these people’s lives, and that offers accessible possibilities and simple solutions to which they lack access by any other means.