Mobile money has the potential to dramatically impact and improve the lives of those living at the “bottom of the pyramid” (BOP). Mobile money is considered safer and more convenient than carrying around idle cash and it also builds a financial record that can be incredibly valuable in obtaining credit for investment opportunities or to handle a crisis. However, mobile money’s promise isn’t being fulfilled today. The current tiered mobile money fees in Kenya make it cost-prohibitive for the BOP to conduct the vast, vast majority of their transactions using mobile money.
Let’s take a hypothetical day in the life of a Kenyan member of the BOP. That hypothetical working day may include a small payment for breakfast, 2 or more small payments for round trip of public transport (if they can afford it), purchase of the goods that they will sell during that day, and then 2 or 3 small purchases from different vendors for that evenings meal (e.g., spinach from one, flour from another, etc.). That’s 6-7 payments for a typical low income Kenyan. (Many people are surprised to hear that poor people conduct more transactions than wealthier people, but it’s true.)
Now, it’s safe to assume that those transactions are relatively small – say an average of $1. At those levels, M-Pesa and other mobile money platforms are simply way too expensive: the M-Pesa fee at $1 is $0.12 which is a 12% fee! It gets worse – any transactions between $1.25 and $437 is a flat fee of $0.37 which is fine if you’re making transfers above $20 (as the fee as a percentage is only 1.85%) but since the vast majority of transactions are far below that, the fee is painfully high. I’ve put together a graph (above) showing the 3 main mobile money platforms in Kenya with amounts and fees translated into US dollars (for ease of interpretation) and their associated transaction fee as a percentage.
To compare: in developed countries like the US, using an electronic form of payment has a transaction fee of between 1 and 2 percent; in Europe it can be even much less than that due to regulation.
All of this to say: M-Pesa and the other mobile money platforms are much too expensive currently for the BOP to use on a regular basis. These mobile money platforms serve an incredibly valuable service (long-distance money transfer). Before M-Pesa money transfer was an insecure, slow and expensive proposition (mostly people sent cash via bus drivers or some other informal means). However, for mobile money to make its next step, to replace cash in every-day life here in Kenya, the mobile money platforms are going to need to reduce their fees substantially.
In my mind transaction fees need to be 3% or below to begin to compete with cash in a meaningful way and unlock the full potential of mobile money – what do you think?
 The CIA Factbook estimates 2010 Kenyan GDP per capita of $1600 (in 2010 USD) which works out to $4.38 per person. This is going to be fairly skewed for the BOP who likely earns much less than the average, especially for a country like Kenya that has a relatively large income disparity. Given that it’s a per person number, however, it undercounts a bit given the relatively large size of Kenya’s non-working population (students don’t earn anything but are still included in the per capita denominator). For ease of the hypothetical, I avoid a specific amount but believe that $3 net per day is probably about right.