How M-Pesa, Kenya’s mobile money banking, transformed the country’s financial structure

In a rural village in Kenya, a woman sets out to do her food shopping for the day. She needs cash before she heads to the market, but the nearest bank would be several days’ walk. Instead, she takes out her phone and texts a password and a request for money. A few minutes later, she meets a man with a cellphone and receives cash from him — the withdrawal that she made on her phone. She heads off, ready to do her errands.

Welcome to the world of mobile money banking.

In much of the world, people don’t live near banks or have bank accounts. In Senegal, for example, only 8 percent of the population has a bank account. In Uganda, it’s 11 percent. For a long time, that meant those people were locked out of the financial system — unable to straightforwardly send money, save it, buy things without cash, or get loans. But in the age of the cellphone, it has become possible to access the key functions of a financial system without getting a formal bank account.

First taking off in Kenya in the early 2000s, cellphone-based banking in the country has in many ways surpassed payments systems we have in the US. Research suggests that the fast spread of these mobile money systems led to significant economic growth in the areas affected. More than a decade later, it’s not always easy to pay for your groceries on your phone in the US, but in parts of Africa, mobile money systems are ubiquitous. In Uganda, 43 percent of people have a mobile money account. In Kenya, it’s 72 percent.

Customers make money transfers at an M-Pesa counter in Nairobi, Kenya in 2011.
Sayyid Abdul Azim/AP
In Kenya, 72 percent of people have a mobile money account.
Tony Karumba/AFP via Getty Images

Mobile money systems are pretty simple. In a lot of ways, you can think of the apps that are widely used for mobile transactions in some African countries as equivalent to a send-your-friends-money app like Venmo. But Venmo requires linking to a bank or a credit card, which means anyone who doesn’t have one of those is locked out.

Mobile money accounts work sort of like Venmo, but with a key difference: No bank account is required. To make a deposit or get cash from the app, mobile money systems use human agents, people who hang out at key locations throughout the country — including remote rural areas — with cash and a cellphone. You can also use mobile money for cashless transactions, including buying groceries or paying for services.

Agents function like an ATM: You go up to them and give them cash to get money deposited in your mobile money account, or transfer money out of your account to get cash. In countries where almost no one has a bank account or a bank branch, agents represent a huge step forward in the availability of cash when you need it and a safe place to deposit it when you don’t.

It turns out that this simple system — initially built off of text messaging, with no smartphones or apps required — makes a significant difference for poor families. A study found that if a family in Kenya happened to live closer to a mobile money agent close to the system’s launch in 2007, they ended up much less likely to be living in extreme poverty (under $1.25 a day) and less likely to be living in poverty (under $2 a day). While poor families ordinarily experience “consumption shocks” — having to go without basic needs when their income falls — poor families with access to mobile money have more stability. The ability to save money and get transfers from friends and family gives them something to fall back on.

In Kenya, which has led the world in the expansion of these services and where 96 percent of households have a mobile money account, you can find an agent almost anywhere.

But there’s plenty of room for mobile money to gain ground among Kenya’s neighbors, many of which still have a huge population with no access to mobile money or conventional banking. After Kenya’s success, many people expected that the same rapid uptake and gains in quality of life could be accomplished everywhere. It hasn’t turned out that way. Figuring out how to replicate Kenya’s success should be a higher priority for global development — and can teach us some things about how to expand financial services access in the US, too.

How mobile money works

Before cellphones became widespread, people in rural Kenya had very few options to manage money. Bank accounts were effectively impossible to access: The nearest banks were far away, and they weren’t meant to serve rural customers who had very little money. The main alternative was carrying cash, which left you vulnerable to theft. Family members who worked in the city wanted to send money home but had to either send it through couriers for high fees or make the long, sometimes hazardous trip themselves.

That’s how mobile money accounts first came about. Mobile money apps don’t require a brick-and-mortar bank, but they otherwise end up functioning a lot like a bank account and debit card would for an American — meaning your average person in Kenya with such an account now has access to most of the same financial services a person in the US does. Mobile money got off the ground early in the developing world, where people used texting-based services before smartphones became common. There were early attempts to set up such systems in the 2000s in South Africa and the Philippines.

But the breakthrough was the extraordinary early success of Kenya’s M-Pesa, which actually predates apps like Venmo. (“Pesa” is Swahili for money; the “M” stands for “mobile.”)

The project that became M-Pesa started in 2002 when phone companies noticed that they had unintentionally invented something that almost resembled a currency. Users in Kenya were purchasing and reselling “airtime” — phone data, or minutes — transferring it to relatives, and in some cases effectively using it as a savings account by putting most of their wealth into airtime they could resell later. It was safer than carrying cash around, and more convenient than a bank because airtime vendors were ubiquitous.

An M-Pesa vendor in Talek, Kenya, in 2017.
Thomas Imo/Photothek via Getty Images

According to Tonny Omwansa’s book Money, Real Quick, a product team at Safaricom, the biggest phone company in Kenya and part of Vodafone, developed M-Pesa, a texting-based system for storing and sending money. Kenya was full of airtime distributors — small business owners who would sell people prepaid airtime. Some of them took up distributing M-Pesa as well.

For the initial launch, M-Pesa was meant to be used to repay microloans (very small loans made to extremely low-income people, often by NGOs and international charities). According to Omwansa, the creators of M-Pesa began seeing other uses “businesses using M-Pesa as an overnight safe because banks closed before agent shops,” “people journeying between pilot areas, depositing cash at one end, and withdrawing it a few hours later at the other,” “people sending airtime purchased by M-Pesa directly to their relatives in villages,” and other examples.

In other words, people were using it as a substitute for critical financial institutions they didn’t have access to: In these instances, an overnight safe, low friction and low-fee transfers of money, saving money for later, and avoiding a long trip with cash.

In communities where basic needs like these were going unmet, M-Pesa took off. By the end of 2009, the year Venmo launched in the US, M-Pesa had more than 8 million subscribers in Kenya. By 2012, it had 15 million and more than 30,000 agents.

How mobile money impacts poor people’s lives

Being able to send money to a family member without needing to make a potentially dangerous trip, or keep savings in a smartphone instead of under a mattress, is easy to take for granted. For billions of people around the world, however, having alternatives to carrying all your wealth in cash is new. Mobile money changed that, and the economic effects were profound.

Development economists Tavneet Suri and William Jack looked into such impacts in a series of research papers, including a 2016 Science paper. By 2016, they found, M-Pesa was everywhere in Kenya — 96 percent of households used it. But from 2008 to 2010, some of the households the researchers surveyed had several M-Pesa agents within walking distance and some did not, mostly by random chance.

That allowed the researchers to look into the question: Did having M-Pesa in a region sooner help families escape poverty? They found that it did.

“[B]asic financial services such as the ability to safely store, send, and transact money—taken for granted in most advanced economies, and which in the form of mobile money have reached millions of Kenyans at unprecedented speed over the past decade—appear to have the potential to directly boost economic well-being,” the 2016 paper concludes, estimating that M-Pesa’s sudden takeoff had lifted 194,000 households out of poverty. The actual effects were fairly small — maybe 10 cents a day in additional money. But even a small effect was enough to lift households over the extreme poverty line.

A Safaricom M-Pesa outlet in Ntulele, Kenya, in 2009.
Shashank Bengali/MCT/Tribune News Service via Getty Images

Researchers found similar effects in other countries. A 2016 paper by Ggombe Kasim Munyegera and Tomoya Matsumoto looked at households in rural Uganda and found a significant uptick in household consumption among households that had access to mobile money. The mechanism in that case was largely remittances — money sent home by family members living and working elsewhere. Mobile money makes it safer and easier to send money home, and fees are much lower than fees for wire-transfers or postal services — so more money makes it home, and people in rural communities are less likely to go hungry.

Another Ugandan study in 2019 randomized the rollout of mobile money systems and found that mobile money increased remittances and non-farm self-employment (that is, the rate of people starting small businesses), and “reduced the fraction of households with very low food security from 62.9 to 47.2 percent.”

A 2019 paper by Haseeb Ahmed and Benjamin W. Cowan found that mobile money also increases access to health care. Since people are more likely to save money when they have a convenient and safe way to do so, they’re more likely to have savings as a cushion if a household member gets sick. Greater ease of sending money also means that they’re likelier to be able to get help from friends and relatives in an emergency. Overall, the effect is that mobile money makes people likelier to be able to access medical care when they’re sick.

Add it all up and there’s a case to be made that the global development community needs to focus more attention on mobile money accounts as a poverty alleviation tool. For decades, Suri and Jack point out, the global development community has dedicated lots of effort and energy to programs like microfinance, which are meant to give poor people access to sophisticated financial instruments like long-term business loans.

The evidence base is pretty disappointing: It’s not clear that business loans pull many people out of poverty. Instead, the benefit it does have seems to be mostly that it gives people access to the financial system. Thanks to mobile banking, that benefit can be obtained without the overhead and debt burden of microloans.

The effort to get mobile money services into more countries

Over the last decade, M-Pesa and competitors have worked to replicate the formula that led to success in Kenya across dozens more countries in Asia and Africa. Today, M-Pesa says it has 42 million active customers and 400,000 agents across seven countries.

M-Pesa’s success has inspired others to follow suit. The Gates Foundation has funded mobile money projects and developed software for mobile money platforms. Private companies have created M-Pesa competitors. One such company is Wave, a sleeker low-fee mobile money app. (Disclosure: I know of it because many of my global-poverty-minded friends have worked there.) Wave was founded and is run by people who want to bring M-Pesa-like programs to unbanked people in other countries.

Unfortunately, replicating that early success has proven difficult. “When mobile money succeeded in Kenya, it lifted about a million people out of poverty. And yet, over 10 years later, most Africans still lack access to affordable ways to save, transfer or borrow the money they need to build businesses or provide for their families,” Wave’s splash page points out.

M-Pesa was exactly what Kenya needed, and it took off there. But no two countries are the same, and convincing an entire society to adopt a new way of doing financial transactions isn’t an easy thing.

In some countries, mobile money has failed to take off, maybe because of a chicken-and-egg problem: Agents need to be widespread for the service to be useful, but putting agents everywhere isn’t viable until the service is widespread. That’s the reason mobile money didn’t take off in Niger, according to a 2020 paper. Despite the country having lots of unbanked people and lots of interest in a better money transfer system, M-Pesa and competitors have failed to get a foothold. In other countries, mobile money systems have been shut down by the government at the behest of central banks or competitors.

“In terms of mobile money deployment, every country is different,” Lincoln Quirk, a co-founder and head of product at Wave, told me. In Kenya and some neighboring countries, it’s overwhelmingly common for people working in the city to send much of their salary back to support their rural family, which is a huge driver of mobile money adoption — and not necessarily common everywhere. And lots of other factors vary, too. “Only some kinds of business require rapid cross-country money transfer, only some countries have huge cash availability problems.”

That means that, more than a decade after mobile money took Kenya by storm, many of Kenya’s neighbors are still in a frustrating position.

“Kenya and China and Bangladesh [other countries that saw mobile money take off] are outliers, rather than normative,” Tim Ogden, director of the Financial Access Initiative at NYU, told me. Initially, he said, some people imagined that they could straightforwardly transfer Kenya’s success to every other country without bank account access. “The way we thought about this was we’d had no idea mobile money could do this, and it did it in these places, so it can do it everywhere, right?” But it’s not that simple.

One country Wave operates in is Senegal. In Senegal, only 8 percent of the population has access to banks, and only about 8 percent has a mobile money account. But that doesn’t mean the two are viewed similarly.

“Most people do not have bank accounts. They don’t trust banks. They would rather have mobile accounts than deal with banks. There’s a lot of interest [charged by banks for loans]. They’re always trying to increase the fees,” Tariq, a mobile money user in Senegal who sends money through Wave, told me.

Mobile money, on the other hand? “More and more people are actually starting to use it, and everyone knows about the services.” Indeed, despite being relatively new and relatively small, the sheer volume of transactions on Wave makes up 3 percent of Senegal’s GDP, according to Wave.

It seems possible that, in three years, Senegal’s trajectory will look like Kenya’s. It’s also possible the effort will end in bitter disappointment. In many countries, initially successful mobile money programs have been brought to a grinding halt by new laws once they got too big, or taxed so heavily that they were unusable for casual transactions.

M-Pesa’s seemingly magical success wasn’t a product of M-Pesa alone. It was a combination of the right technology, at the right time, rolled out in the right way, with the right decisions from the Kenyan government to allow the system without applying onerous regulations or high government fees on every transaction.

An advertisement for M-Pesa in Lamu Town, Kenya, in 2017.
Eric Lafforgue/Art In All Of Us/Corbis via Getty Images

In the US, it’s much rarer to be wholly unbanked. But it’s still worth thinking about which lessons we can take away from witnessing the birth of a new, phone-based financial system. First, there’s the conclusion of the many studies of M-Pesa: When people don’t have access to banking, getting them that access helps lift them out of poverty. It makes saving attainable, reduces their risk of being victims of crime, lets them take risks and move around for work while sending money home, and can be a key element of a household’s rise out of poverty.

Second, there’s the idea that the most promising 21st-century technologies are ones that meet users where they are: on their phones, which nearly every American has. There are already banks in the US that are online-only, trying to take advantage of the change in how we do transactions to avoid the high costs of physical branch locations. Maybe that’s the right approach — or maybe it’s still thinking too small.

Too many people in the US are still unbanked for a variety of reasons: They don’t have access to a brick-and-mortar bank, they don’t have government ID, they may not have a fixed address. If we want to get more people access to financial services, maybe we shouldn’t be focusing on signing them up for bank accounts at all, but on giving them the flexibility to make payments, save money, and get loans without one.

Mobile money isn’t the one easy fix to global poverty — there’s no such thing — but it is an extraordinarily simple tool that works remarkably well. And yet, a decade after it first took off, it remains in many places underutilized. The evidence base for it is significantly stronger than the evidence base for popular financial access interventions like microloans.

And there’s a great deal the global development community could do to make it more possible in the countries where it hasn’t taken off, from helping governments develop fair and limited regulation and taxation frameworks to directly dispersing money to people through mobile money systems. That sort of work isn’t flashy, but it lays the groundwork for a world where everyone can save, send, and spend money from their phones — and that, the evidence suggests, can make a really big difference.

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