Nairobi/Johannesburg: To 28-year-old Kenyan Mary Wanjiku, her cellphone is not just a cellphone. It is also a cheap, safe and easy way of sending her mother $40.
But by using it to ping cash to friends and family, she and millions of Africans are joining Japan in breaking a technology barrier that remains in Europe and the US, and paving the way to what could be the cash of the future.
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“Before, I would be forced to make the journey home to deliver the money,” Wanjiku said outside a Nairobi shop that doubles as an agent for M-PESA, the virtual cash network that means mobile money in Swahili, Kenya’s lingua franca. “M-PESA has revolutionized my life.”
The network, owned by Kenya’s biggest mobile phone firm Safaricom Ltd, has its roots in Africa’s lack of infrastructure and the enthusiasm with which people have taken to mobile phones.
Only one in five people have bank accounts, mainly because of the prohibitive cost to the banks of operating branches in far-flung parts of a continent where many of the population of one billion live on a few dollars a day or less.
Customer connect: A man leaves an M-PESA booth after a money transaction in Nairobi. M-PESA, which has teamed up with Kenya Commercial Bank, has attracted one in six Kenyans in just over two years. Reuters
But mobile phones are spreading extremely fast: to 270 million in 2007 from just 50 million in 2003, according to industry association GSMA.
Teaming up with Kenya Commercial Bank to let phone users who do not have bank accounts send each other money, M-PESA hit on a formula that has attracted 6.5 million customers, or one in six Kenyans, in just over two years.
In Japan, which has pioneered the technology and business models toward wallet phones, about 55 million cellphones have an e-money function, so about half of Japanese users carry them.
The global market for mobile money is growing at 70% a year and should attain mainstream status by 2012 with at least 190 million customers, or at least 3% of mobile users, IT consultancy Gartner said in a May report.
Other phone companies such as South Africa’s MTN Group Ltd—the continent’s biggest operator—and Kuwait’s Zain are piling in with similar services in a slew of countries including South Africa and Nigeria, and have pilot schemes stretching from West Asia to Afghanistan.
The scope of the African systems has grown quickly from simple cash transfers by text message to payments for everything from a taxi ride to a utility bill, and it is possible to spend a day in Nairobi without carrying any cash.
“This is just the beginning,” Safaricom chief executive Michael Joseph said. “What you are moving towards is a person going out without cash in his pocket.”
The cost of building and administering a network of 9,000 trustworthy agents to carry the cash that must be paid at the end of the chain means it has yet to make a profit, Joseph said.
But beyond simple profit, Zain Africa chief executive Chris Gabriel said the real value of mobile cash to phone firms lies in securing a long-term connection with customers as cut-throat competition in the mobile market eats into revenues. “We see it as a tool to create stickiness,” Gabriel said. “Yes, it’s a revenue service but at the cost of an SMS, you’re not going to get rich quickly.”
Zain and Safaricom, part-owned by Britain’s Vodafone Group Plc., can also handle cross-border transfers, allowing them to tilt for a slice of global remittance flows, worth at least $380 billion in 2008, according to the International Association of Money Transfer Networks.
Cellphone cash has already gone deep into Kenya. Companies such as tea or coffee plantation owners are finding they can pay staff salaries via mobile phone and charities can receive and distribute aid.
Although the phenomenon is young, the World Bank in Africa has labelled it a “cornerstone for development” for its potential to mobilize remote rural economies.
University of Edinburgh researcher Olga Morawczynski said villages were getting up to 30% more in remittances due to M-PESA, allowing farmers to diversify out of subsistence agriculture into small businesses such as furniture making or running a small roadside kiosk.
Despite occasional tensions with the phone firms, most banks know they cannot compete on their own and so are happy to provide the cash float for the systems in the belief that in the long term they are opening up a channel to potential customers.
“It’s partly a question of education,” said Ravind Ramanah, head of marketing, emerging markets, at BNP Paribas SA, France Telecom SA’s partner in its Orange Money service now piloting in Ivory Coast. “We believe a portion of clients will start with the basic banking service via mobile, and once they are used to that they will move to a normal bank account,” Ramanah said.
There is no question, however, who is in charge.
“We’re treading ground that’s never been trodden before,” Safaricom’s Joseph said. “It’s going to be introduced into other countries in the years ahead, and banks may have to change their working model in order to work with us.”
Tarmo Virki in Helsinki and Sachi Izumi in Tokyo contributed to this story.