M-Pesa- An Innovation Story

M-PESA (M for mobile, pesa is Swahili for money) is the product name of a mobile-phone based money transfer service that was developed by Sagentia (later transferring to IBM in September 2009) for Vodafone. Safaricom, the leading mobile communications provider in Kenya, is pleased to announce the launch of M-PESA, an innovative new mobile payment solution that enables customers to complete simple financial transactions by mobile phone. M-PESA has been developed by Vodafone, the world’s leading mobile telecommunications group, with the pilot in Kenya operated by Safaricom.

M-PESA is aimed at mobile customers who do not have a bank account, typically because they do not have access to a bank or because they do not have sufficient income to justify a bank account. All they need to do is register at an authorised M-PESA Agent by providing their Safaricom mobile number and their identification card. Once registered, customers can:

The initial concept of M-PESA was to create a service which allowed microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers. This would enablemicrofinance institutions (MFIs) to offer more competitive loan rates to their users, as there is a reduced cost of dealing in cash. The users of the service would gain through being able to track their finances more easily. But when the service was trialled, customers adopted the service for a variety of alternative uses; complications arose with Faulu, the partnering microfinance institution (MFI). M-PESA was re-focused and launched with a different value proposition: sending remittances home across the country and making payments.

M-PESA is a branchless banking service, meaning that it is designed to enable users to complete basic banking transactions without the need to visit a bank branch. The continuing success of M-PESA, inKenya, has been due to the creation of a highly popular, affordable payment service with only limited involvement of a bank. The system was developed and ran by Sagentia from initial development to the 6 million customer mark. The service has now been transitioned to be operationally run by IBM Global Services on behalf of Vodafone, the initial 3 markets (Kenya, Tanzania & Afghanistan) are hosted by Rackspace. The technology platform for the service is provided by Microsoft and was highlighted as a key philanthropic initiative from Vodafone by Melinda Gates of the Bill & Melinda Gates Foundation at DAVOS in 2009.

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