M-Pesa’s Revised Tariffs

Yesterday I woke to exciting news: Safaricom had lowered the minimum size of an M-Pesa transaction and had lowered the tariffs on the smallest transaction tiers. I’m sure that M-Pesa users throughout the country will roundly welcome this news.

And it is exciting. As many on Twitter noted and Peter Gakure-Mwangi noted on thinkm-pesa.com, this opens up the potential for micro-payments at the low end. That’s something that M-Pesa has historically not appeared to be interested in – the addition of the 50 KSH to 100 KSH (about $0.60 to $1.20) tier originally included a tariff of 10 KSH ($0.12). That fee was ridiculous – 10-20% of the transaction amount. But these new fees are much more reasonable, ranging from 5% – 30% (and the higher end of that is a result of bringing the minimum transaction size down even further to a minute 10 KSH). Five percent, while not cheap, is at least in the right ballpark. I’ve argued that it needs to be closer to 2-3% – but this is at least a step in the right direction.

The biggest problem that I see with the fee structure more broadly is that it’s horribly complex. The Safaricom website shows 19 distinct pricing tiers representing various prices for various types of transactions – transfers to another M-Pesa user, transfers to a non-M-Pesa user, and cash withdrawals. Let’s focus on the M-Pesa-to-M-Pesa transfer – then it’s a bit simpler, but there are still 7 different pricing tiers:

Minimum

Maximum

Fee

10

49

3

50

100

5

101

500

25

501

5,000

30

5,001

20,000

50

20,001

45,000

75

45,001

70,000

100

So why maintain this level of complexity? Why should the cost of moving 4,999 KSH be so vastly different than moving 5,001 KSH? Who could possibly keep 7 pricing tiers straight, much less 19 when the other types of transactions are included? (Also, why did the new tier get rid of the convention wherein the minimum starts with X1 – shouldn’t it be 51 to 100 instead of 50?)

My proposal would be: make it simple. Make it so simple that everyone knows exactly what is being charged for every transaction. Get rid of tiers altogether. Here’s one idea:

  • In-network transfer fee: 1%
  • Out-network transfer fee: 2%
  • Cash-withdrawal fee: 3%

There are a bunch of ways this could be slightly modified[1], but I think that its elegance is in its simplicity.

Finally, will these new pricing moves lead to wholesale adoption of M-Pesa at the micro-payment levels? No. Three and five Kenyan shillings is still a huge fee to pay when you’re making numerous small-size purchases during the course of a day. I always think of the “matatu”[2]test – could I see someone paying for a matatu ride (generally 20-50 KSH) with this fee in place? I don’t see that happening – cash is too ingrained, it’s cheaper. But this is an important step to get people thinking about using M-Pesa for more of their transactions – and even if it only happens at the margin right now, it was smart of Safaricom to take a step down this path towards broader usage.


[1] You could add fee caps so that people aren’t paying 700 KSH on a 70,000 KSH TX if needed; you could continue to have a minimum transaction size so that you don’t go below a fee of .1 KSH.

[2] Matatus are the 14-passenger form of public transportation most commonly used to get around Nairobi and beyond. They are a force of nature, a bit dangerous and incredibly efficient.

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5 Comments

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5 responses to “M-Pesa’s Revised Tariffs

  1. one might want to avoid percentage based charging as it is much morr difficult to understand for the commoner. majority are used to round figures and not fractions that would result from percentage.

    • Thanks for the comment, John – that’s a very fair point. And it’s true that for many who are transacting with less than 5,000 KSH (a majority), they only have 4 tiers to remember for a P2P. But at some point the tier system feels like it becomes too cumbersome.

      And I do think that just about everyone would quickly catch on that 1% of 80 KSH is less than the current 5 KSH fee – even if it is a fraction – and that’s all anyone cares about…

  2. Alex Gabriel

    I like the new tariffs tiers as much as I am not a registered Mpesa user. I still believe in transacting through a bank and in this case Equity bank…My bad!!
    My only concern so far with Safaricom yet is the fact that as much as they are out to attract masses by lowering the tariffs, which in my view is hard to articulate they are still not scaling up the livelihood of Kenyans other than by proving convenience on moving money.
    I am still optimistic that one day an Mpesa customer will be able to use his/her transactions statement and acquire a loan with a local bank.
    Majority of the Mpesa users are still low income earners and hence the money they move out of their Mpesa accounts for either making payments for stock replenishment is still the same money that comes back to them from daily sales.
    Until at a point when Safaricom will collaborate with banks with an effort to assist the customers enjoy more than just convenience. In my view I think they still have a long way to go in creating a lasting impact in the society.
    Alex Gabriel

    • Thanks for the comments, Alex! Very fair points – I agree that it’s important to look at M-Pesa’s positive impact as well. Providing a convenient P2P is a positive thing but it’s true they can go even further.

  3. Festus kithinji lucas

    its a good idea of lowering the tarrif its makes it cheap and accessible to all bravo SAF !

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