Cash-Minting Tech Juggernaut: The Rise and Rise of M-Pesa

Peter Ndegwa, CEO of Safaricom. [Wilberforce Okwiri, Standard]

One of the biggest fears of drivers in Nairobi is that M-Pesa service will be disrupted while they wait at a gas station to refuel their cars.

With many of them out of cash, they may spend the night in long lines stretching from the gas station to the main street, waiting for M-Pesa, a disruptive mobile money service from Safaricom, to resume.

M-Pesa is fast becoming the lifeblood of the Kenyan economy, with a wide variety of transactions – from paying a visa for South Africa to buying Pampers for the baby – relying on the service.

The latest financial data released by Safaricom shows that the value of transactions on M-Pesa rose 51.5 percent to 13.7 trillion shredders in the six months ended September 2021.

That is around 13 percent of Kenya’s gross domestic product (GDP) or total production in 2020. At the end of Safaricom’s reporting period in March next year, the number will certainly be much larger.

Peter Ndegwa, Safaricom’s chief executive, said M-Pesa now accounts for nearly two-fifths of the telecommunications company’s service revenue, which comes from digital financial services for residential and corporate customers.

“Innovation in digital financial services has been a major growth driver for M-Pesa,” said Ndegwa when the publicly traded company and the most profitable company in East and Central Africa released its results on November 10th.

Last year, Ndegwa said they are expanding their financial services portfolio and developing M-Pesa into a broader financial platform that is becoming a lifestyle choice, especially for our SMEs (small and medium-sized businesses) and MSMEs (small and medium-sized businesses). Products for everything to do with asset management, savings, insurance and credit products, among others. ”

As a result of these innovations, M-Pesa Voice has replaced Safaricom’s largest revenue generator and contributed almost 40 percent of the service revenue.

Voice contribution, once Safaricom’s main breadwinner, was 34.2 percent of service revenue.

One of M-Pesa’s biggest innovations is payments and betting, where the value of transactions rose 74.1 percent to Sh4.4 trillion in the six months to September.

During the same period last year the value of payments and bets was Sh2.54 trillion.

The biggest jump in the payment channels of the M-Pesa ecosystem was in the Customer to Business (C2B) segment, which grew by 85 percent to Sh2.13 trillion due to the fee waiver for transactions between the bank and mobile wallets.

Business with customers (B2C) also rose by 68.3 percent to Sh1.51 trillion in the reporting period.

Lipa Na M-Pesa, a payment platform that has enabled consumers to pay for almost anything by mobile phone, rose 61.3 percent to 653.2 billion Shillings.

Ndegwa said Safaricom’s earnings before interest and taxes will be in the range of Sh97 billion to Sh100 billion by the end of March next year, boosted by transactions on M-Pesa.

“We continue to leverage technological innovations to improve access to financial services for residential and corporate customers,” said the CEO, whose goal is to make Safaricom more agile in its transition from a telecommunications company to a technology company.

More specifically, Safaricom is trying to find the link between finance and technology, with the telecommunications company spreading its tentacles to include investments, insurance, healthcare, and banking, among others.

Kunal Ajmera, chief operating officer and international business center director for East Africa at accounting firm Grant Thornton Kenya, said that this is the direction other large corporations around the world are taking.

He cited Chinese mobile money platforms as an example. “Companies like Tencent and WeChat were so integrated that they are essential today,” said Ajmera.

“Having virtually conquered the payment side, Safaricom can do a lot more given its dominant position.”

It may simply be due to his ingenuity, strict regulations, or both, but M-Pesa has outgrown everyone’s expectations.

Today Safaricom is emerging as a global financial giant, with M-Pesa at the heart of the next chapter in the telecommunications industry.

According to Ndegwa, Safaricom’s new strategy is that the telecommunications company will expand its tentacles to include several areas besides telecommunications and finance. The company has already entered the health, education, e-commerce and agriculture sectors.

When it comes to banks that initially had limits to their growth, Safaricom has the option of either targeting the carotid artery or building bridges with them.

On its way to becoming a financial services provider, M-Pesa has gone beyond a mere platform for sending and receiving money that troubled banks over a decade ago.

As a payment solutions provider, Safaricom has added Lipa Na M-Pesa, which enables merchants to get paid through M-Pesa, which is becoming a major engine of the country’s cashless economy.

Safaricom has already used its 28.7 million customers on M-Pesa to offer credit and savings services through M-Shwari and KCB M-Pesa.

It also unveiled an overdraft facility, Fuliza, which allows M-Pesa users to spend more than the amount in their mobile wallets.

Fuliza loans rose to Sh1.34 billion daily for the six months ended September this year as economic hardships pushed 700,000 new users to overdraft service.

The telecommunications company announced in its financial results that the value of disbursements through Fuliza reached Sh242.6 billion in the six months, compared to Sh149.4 billion disbursed in a similar period last year.

It also targets asset management and insurance, low-penetration financial services. The company is testing a new collective investment scheme in which M-Pesa subscribers invest in stocks, time deposits and government bonds.

It already has M-Akiba, a partnership between it, the National Treasury and the Nairobi Securities Exchange that enables Kenyans to buy government bonds for as little as Sh3,000.

Though its low-cost health insurance plan collapsed with Britam, the telecommunications company has since developed a new one called the Home Insurance Plan.

For Sh250 per month, M-Pesa subscribers can insure household goods such as furniture, clothing, cutlery and electronics worth up to Sh250,000.

As part of the development of a financial service provider, Safaricom also introduced a “super app” earlier this year, which enables SMEs to create their business applications within the M-Pesa ecosystem for mobile money.

This gives SMEs access to Safaricom’s 25 million mobile money customers.

When the Kenyan National Bureau of Statistics (KNBS) checked the shopping cart for compiling the consumer price index (CPI) – also known as the cost of living index – early last year, mobile money transfer was one of the new features.

Cash is still king in Kenya, but as the country increasingly relies on a cashless economy, mobile money is seen as a crucial cog in this new business environment.

Banks are not left in the lurch. While most have merged with Safaricom’s M-Pesa in one form or another, others like Equity Bank want to go it alone.

With a customer base of more than 10 million, Equity decided to search for more clients via mobile financial services and introduced Equitel.

Equitel is a SIM card that you can use to make calls, pay, and transfer and receive money using the EazzyPay cellular service.

However, most banks have chosen to get started with mobile financial services by partnering with M-Pesa.

KCB, the country’s largest bank by asset size, has a savings and loan platform with Safaricom and another loan service via its mobile app.

Third largest bank by assets, CBA (now NCBA) was the first to partner with Safaricom through M-Shwari. The partnership helped boost NCBA’s customer base as many M-Pesa customers opened credit and deposit accounts with the lender.

Today there is practically no bank without a mobile banking wing. If anything, most of them have vigorously migrated their services from stationary branches to digital platforms.

The possible outcomes of this can be deduced from the net effect Fuliza had on KCB M-Pesa and M-Shwari.

While the disbursements of Fuliza increased by more than a third in the half-year to September, the value of the loans through KCB M-Pesa shrank by 60 percent and through M-Shwari by 14 percent.

NCBA has also moved all loans less than Sh2,000 to Fuliza to deter people from borrowing for consumption.

Safaricom is also awaiting regulatory approval from the Central Bank of Kenya (CBK) to launch its Mali investment platform.

It will enable subscribers to start investing in mutual funds with interest rates of up to 10 percent annually for as little as Sh100.

The combination of Mali, Fuliza and the revamped M-Pesa business app means that both individual users and those who keep SME accounts on Safaricom have little incentive to leave the telecommunications companies digital financial ecosystem for commercial banks.

The deep foray into the financial services industry, where the company already controls key aspects, could rekindle the debate about whether the company is too big to the detriment of other industry players, consumers and even new entrants.

This comes at a time when Safaricom’s competitors, led by Airtel Kenya, have rekindled the telecommunications company’s dominance debate that has made it difficult for other players to compete in the market.

In the past, critics have argued that Safaricom should be shared; B. the spin-off of M-Pesa to form a new unit.

Safaricom’s lead in mobile money is greater than Voice as the telecommunications company has nearly 30 million mobile money subscribers out of a registered 30.52 million.

Airtel Money has 310,359 subscribers while Telkom Kenya’s T-Kash had around 14,000 users.

The dominance debate was anchored in a report by the UK consultancy Analysys Mason, which recommended stronger regulation of ICT players, which due to their size could stifle competition and prevent the entry of new players.

The report has drawn emotional arguments from various actors in the past. Some industry players say it will level the playing field while others, including ICT and Youth Secretary Joe Mucheru, argue against it, arguing that it would amount to a punishment for success.

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