Mobile Money is Among the Most Successful Examples of Mobile Operators "Moving up the Stack"

Since its commercial launch in March 2007, M-PESA, the mobile money service created by Vodafone and Safaricom, has provided one of the more stunning successes of the “move up the value chain” strategy in the whole mobile business.

Keep in mind, text messaging exists as a service because it is a byproduct of network signaling. Text messaging itself was the transformation of a network signaling feature into a popular retail product.

Mobile money services using the text messaging channel are an example of adding new value to what might otherwise be viewed as a commodity messaging service (a dumb pipe).            

For customers, the benefits are even greater. The income of rural Kenya recipients increased by up to 30 percent since they started using M-PESA one study found.

In 2013, 43 percent of Kenya’s GDP flowed through M-Pesa, with over 237 million person-to-person transactions.

The percentage of adults with access to formal financial services since 2009 was about 41 percent of adults had access. Now 67 percent of Kenyans use formal financial services.

According to one study sponsored by the World Bank, 77 percent of rural residents reported an increase of household income after they started using M-Pesa between five and 30 percent of income, in large part because urban wage earners sent more money back to their home villages.

Also, in part the boosts might have happened because villagers no longer needed to travel to urban areas to get their money.

M-Pesa resulted in lower costs to use banking services as well. Sending 1,000 Ksh (US$13.06) through M-Pesa cost US$0.39, which is 27 percent cheaper than the post office’s PostaPay (US$0.52) and 68 percent cheaper than sending it via a bus company (US$1.16).

Urban users say they prefer M-Pesa because it is faster (the transfer occurs almost instantaneously), easier to access (there is a wide agent network), and safer (they don’t have to travel with money).

For Safaricom, M-Pesa also has been a marketing tool. Relatives in urban areas asked rural villagers to sign up and use M-Pesa, since it is cheaper to send money to a registered user.

For example, it costs 30 Ksh (US$0.39) to transfer 1,000 Ksh (US$ 13.04) if the user is registered. If the recipient is not registered, Safaricom charges a higher total fee of 75 Ksh (US$0.98) to the sender.

About 20 percent of the unbanked interviewees in Kibera use M-Pesa as a substitute for informal methods of savings, especially keeping money at home.

Most say they prefer to store money with M-PESA because it is safer. They do not need to worry about household members finding, and stealing, their money.

Many of the unbanked further note that they keep money in M-PESA because they trust Safaricom, whereas they feel that money stored in a bank is at a high risk of being lost.

The point is that mobile money has emerged, in some markets, as a prime example of how mobile operators have “moved up the stack.”
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