Category Archives: M-Pesa

Posts covering M-Pesa.

In-Store Payments with M-Pesa: Uchumi Experience

M-Pesa Buy Goods Confirmation SMS

M-Pesa has a menu item that gets little use today: “Buy Goods.”   The Buy Goods functionality is meant to facilitate in-person, in-store payments.

Background: In-store payments in Kenya are dominated by cash, with credit/debit cards representing a very distant minority.  Card adoption and usage has been stifled by multiple factors, but chief among them are:

  • Fractured infrastructure: There is very little interoperability between the largest banks in Kenya and as a result each bank rolls out its own fleet of point of sale (POS) devices.  If you’ve ever paid attention while doing a card transaction at a large restaurant or hotel, you will have noticed that the merchant often has an array of bank-branded POS devices; these provide service for “non-branded” cards (cards that are Equity-only, without a Visa or MasterCard logo, for example) and/or enable the merchant to re-direct payments to the cheapest available option that month.  Downsides to this situation include inefficient deployment of POS devices (multiple per merchant) and fragmented merchant liquidity (due to their need to have merchant accounts at an array of banks).
  • Cost of infrastructure: POS devices are expensive, easily costing $300-500 for basic models.  Given the number of merchants in Kenya (easily over 100,000) and the high proportion of those that are informal or very small, this cost is not recoverable by either the merchant or the bank through transaction fees.
  • Low value transactions: Average transaction sizes for daily payments are very low, far lower than in developed markets.  These lower transaction values make the standard card association pricing (which includes a flat fee plus a percentage of the transaction) prohibitively expensive.

The consequence of these factors is that you will find card-processing POS devices only at merchants that process high-value transactions, largely for foreign tourists or wealthier Kenyans.  And those merchants will have an array of costly terminals.

M-Pesa’s Buy Goods: M-Pesa has attempted to address in-store payments with its Buy Goods functionality.  It’s currently very limited in its availability – the merchants that support it are 2 supermarket chains (Uchumi and Naivas) and a higher-end collection of retail stores (all owned and operated by Deacon’s).  These stores also already have card POS terminals, so it’s not exactly expanding their acceptance options in a revolutionary way.  But given that mobile phones are close to ubiquitous in Kenya, M-Pesa has the potential to become the standard for e-payments in those retail environments that do not have either the turn-over or high value transactions to support a full POS.

Buy Goods Experience: Given that potential, how does it work in practice?  Short answer: pretty well.

We don’t shop at the eligible stores that often and the stories I’ve heard were of cashiers pleading with customers not to use the slow Buy Goods system while the long line of impatient customers clamored for better service.  But on a recent trip to Uchumi to restock our Tusker and Alvaro supplies, I was determined to find out whether the stories were true.  In the beverages area, there was a free (and rather bored-looking) cashier – the perfect opportunity to try out Buy Goods without any pressure.

As I walked up, I asked “Can I pay with M-Pesa?”  The reply came back quickly if not confidently, “Yes, if it’s working.”

While I piled my sturdy glass bottles onto the counter, he made a quick phone call using his cell phone: “M-Pesa inafanya kazi?” – “Is M-Pesa working?”  He turned back to me, beaming with pride: “Yes, it’s working.”

After ringing up all of my items, he showed me the screen and walked me through the steps of paying through Buy Goods.  M-Pesa à Buy goods à Till # à Purchase Amount à M-Pesa PIN.  I received the confirmation SMS promptly, within 10 seconds or so.  The cashier then asked to see the confirmation # provided in the SMS and matched it against the only M-Pesa confirmation # on his screen; he clicked it and then asked to see my ID to see if my name matched.  Finally, he printed out a receipt and had me sign it.

And that was it.  I walked away without having dug into my pocket for cash and dealing with coins.  Uchumi had less cash to mess around with.  Success.

While it worked smoothly, there are several facets of the transaction that could be improved.  A sign could display the purchase process so that I wouldn’t depend on the cashier for instructions (and risk entering in the wrong till #).  I also don’t see the need for either the ID check or the signature – the M-Pesa confirmation # should suffice.

But overall an interesting experience with M-Pesa in-store payments.  The next time I’ll try it with a full line of hurried people in line behind me and see if it goes as smoothly… or if I get booed out of the queue.

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Converting Counterfeit

Fake Kenyan Shilling notes displayed on the wall of an M-Pesa cash merchant

Cash merchants provide a unique and excellent opportunity for counterfeiters to convert fake money into real cash.  While grocers and retail clerks have to remain on the watch for counterfeit currency, cash merchants must remain even more vigilant – imagine, as a counterfeiter, that instead of buying goods with fake money, you could instead buy real money.  In essence that is what occurs at a cash merchant – you hand over money (real or fake) and immediately it is replaced with electronic money of equal value; you can then go to a cash merchant later and withdraw it into real cash.

I saw these fake notes at an M-Pesa cash merchant recently – they were high quality, I certainly couldn’t tell that they were fake!

It was interesting to see that people would go to the expense and work of counterfeiting 200 Kenyan Shilling notes – that’s roughly the equivalent of USD $2 at current exchange rates.  That’s quite the contrast to the US where I understood $100 and $20 bills were the most counterfeited.

I wonder if the cash merchant networks train their staff on how to identify counterfeit notes – or,  is that left entirely to the cash merchant?

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Withdrawing Mobile Money at Equity ATMs

How to withdraw from M-Pesa at an Equity ATM

Equity has been at the forefront of providing our customers and all Kenyans with opportunities to access and manage their money.  One of the things that I was reminded of in a recent visit to an Equity branch was the ability of mobile money users to utilize Equity ATMs to withdraw money from their stored value accounts (e.g., M-Pesa and yuCash).

Above and below are the posters that are on the wall in the ATM area.

The posters demonstrate how enabling this type of functionality requires collaboration and integration between the mobile network operator and Equity.  For both M-Pesa and yuCash, it’s 4 steps on the phone and 4 steps on the ATM.

Interestingly, it’s slightly more expensive to withdraw cash from M-Pesa via ATM than via agents at the lower value tiers and it’s slightly cheaper to withdraw via ATM than via agents at the higher value tiers.

Given that agents are often reported to have huge challenges with liquidity, Equity ATMs provide a compelling option for Kenyans looking to withdraw cash from both M-Pesa and yuCash.

How to withdraw yuCash at Equity ATM

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Cash Merchant Branding

One of the main differences from the US that you notice about Kenya (and other countries in Africa) immediately when driving around is the vigor with which building paint jobs are converted into advertising opportunities.  Driving along main roadways, one is treated to a colorful collection of brightly-painted and branded stores and shops.   It’s not that these shops are painting their own brand on their exterior – instead, the major national brands pay to paint the exteriors of local restaurants, shops, and hotels.

That provides a colorful backdrop for the growing proliferation of cash merchant[1] brands, painted walls and signage everywhere you turn.  It’s been a few months now, but a trip to Kisumu provided a great example of the many cash merchant brands and their varied executions.

Without further ado, the pictures:


[1] Moving forward, I will refer to any outlet that serves cash-in/cash-out services as cash merchants.  Recent legislation in Kenya has clarified that what we’ve all been calling agents (such as M-Pesa ‘agents’) are actually cash merchants.  Full agents are differentiated in that they can provide additional financial services such as loans, insurance, etc.

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Filed under Airtel Money, Equity, M-Pesa, Tangaza, yuCash

Cost of Mobile Money Transactions: Penalizing the Poor

M-Pesa, Orange Money & Yu Cash Fees

Current mobile money fees are too expensive for the low end.

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[1] 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[2].)

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?


[1] 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.

[2] Portfolios of the Poor, a highly recommended book, demonstrated that the poor tend to have a much larger cash turnover than richer people.

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Four Reasons M-Pesa Succeeded in Kenya

M-Pesa agent and customers

M-Pesa is rightfully held up as an incredible success in the world of mobile money.  Its uptake (13M and counting), usage (15M + transactions per month), and value of money transferred is really remarkable – and even more so given it has only been around for a bit over 3 years.  It has vastly improved the process of P2P money transfer: before M-Pesa, Kenyans would send money via bus driver or other informal means which was costly, slow and insecure; with M-Pesa, Kenyans can send money electronically for a smaller fee and it arrives instantly with great reliability.

However, despite massive growth in Kenya over a short period, M-Pesa has not found success in other countries despite several attempts by Vodafone.  There are efforts currently underway in Tanzania, South Africa and Afghanistan – all with nothing close to the results seen in Kenya.

So why is that?

Having spent a lot of time talking about this with my coworkers as well as visiting academics and researchers, I think these are 4 of the main reasons:

  1. MNO Monopoly: This one is probably the biggest by far.  Safaricom has somewhere between 75 – 85% of the mobile market in Kenya.  That enabled Safaricom to do many important things, including:
    • Create a huge closed-loop of mobile transfers, wherein the Safaricom-customer to Safaricom-customer transfers covered such a large proportion of existing subscribers that it could generate huge volume without having to be interoperable.
    • Roll out a huge network of M-Pesa agents.  We’ve heard customers say that “M-Pesa is like your shadow” – there’s always an M-Pesa agent nearby.  Having agents in every village meant that people were comforted by the easy accessibility of their M-Pesa money.  Now Safaricom has over 23,000 agents – a number so astounding that it’s not at all surprising to see 3 of them on the same side of the street next to each other and another few across the street.  They are the Starbucks of cash-in and cash-out.
  2. Regulatory Free Pass: The Central Bank of Kenya supervised but did not regulate M-Pesa until very recently (February to be exact).  That’s 3+ years of unregulated growth.
  3. Existing Money Flows: Domestic remittances represent a huge flow of money in Kenya.  In other places (like Mexico and much of Latin America or India) it’s international remittances which are much more difficult given multi-party and cross-border challenges.  Not so in Kenya – domestic remittances, largely sent from Nairobi “up-country” or to areas outside of Nairobi, are big business.  These domestic flows created a perfect usage scenario for a nation-wide closed loop like M-Pesa.
  4. High SIM Penetration: Not as unique to Kenya as the previous 3, but still important, is the high penetration of SIMs.  I specify SIMs because in order to receive M-Pesa money in, say, a rural area, one doesn’t even need to own a phone – a SIM that can be obtained for free and popped into a neighbor’s phone does the trick.  (Note: it’s also possible to receive money without having a registered SIM but that’s more costly for the sender.)

There are probably others as well – what are your thoughts?

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