Agent management tools
In rural areas, the only suitable outlets to become M-PESA agents are often small family-run stores. While it is not commercially feasible for M-PESA to have a direct business relationship with thousands of “Mom-and-Pop” shops across Kenya, a partnership of some kind would be advantageous to all parties. To resolve this conundrum, M-PESA created the aggregator model in which a distributor is appointed to recruit and manage agents in these small stores and in return gets a share of the M-PESA commission earned by that store. To further accommodate the growing system, M-PESA had to
address the issue that when an agent runs out of “float”—either e-money or cash—they cannot service their customers. With the huge expansion, getting more e-money into the system was a requirement and, oftentimes, a challenge since conventional banking takes some time to clear deposits before new e-money can be issued, during which time an agent who has run out cannot offer M-PESA. To reduce this problem, larger agents rich in cash or e-money were given the ability to act as agents to smaller shops. Thus, a smaller outlet can now buy or sell e-money from one of these larger, richer “super agents.” Float management is a particular problem in rural areas where agents tend to net more withdrawals than deposits, or, in other words, they tend to be e-money rich but cash poor. The capability of these super agents has helped speed up the turnaround of e-money and cash, allowing small agents to have less money tied up in M-PESA and yet still have more float available. Bank branches that were reluctant to become regular M-PESA
agents for customers conducting small transactions have been happy to act as super agents for businesses operating with larger sums. This also gives these banks the opportunity to promote and sell their banking services to more businesses. Many small business owners acting as M-PESA agents now have their first ever bank account.
Banking services
M-PESA is now giving cell-phone users access to formal banking services. In May 2010 Safaricom and Equity Bank, a leading bank in Kenya, launched an initiative to offer every M-PESA user the opportunity to open a savings account. Customers use M-PESA to both deposit money into and withdraw money from their savings accounts. Called M-KESHO (kesho is Swahili for “tomorrow”), this service effectively gives millions of rural Kenyans access to banking services for the first time.
M-PESA: Perks and pitfalls
It became clear soon after M-PESA’s launch that the service provided an effective and convenient means of making any sort
of person-to-person money transfer, and subscriber numbers grew well beyond projections. Initial predictions estimated 320,000 users in the first year of trading: Nine months after launch, M-PESA registered its one millionth customer. It was an exciting success. As with any new business that unexpectedly finds itself growing much faster than anticipated, however, there were numerous implications, each with significant costs.
• Budget flexibility: The rapid growth required a significantly reworked budget. For example, customer acquisition costs money because agents have to be paid to register customers, and the cost of new SIM cards—which are free to new customers—needs to be covered. It takes time for new customers to become mature users and start generating revenue, so signing up more than 10,000 new customers per day had a serious impact on cash flow in the early life of the product.
• Customer support: M-PESA needed a significantly larger call center and a lot more customer service representatives than were originally anticipated.
• System capacity: At the time of M-PESA’s launch, the system had a technical design that could cope comfortably with the original business case plus a sensible safety margin; this capacity was rapidly exceeded and had to be regularly expanded to include new features at significant expense.
• Managing agent demand: A sufficient number of agents had to be sought out, enrolled, and trained. As retailers and outlets came to understand the business opportunity, however, the situation reversed; their demand was such that the Safaricom sales office had to cater to the crowds of would-be agents. Extra staff members were also required to process applications and provide ongoing agent training.
Conclusion
As problems go, those associated with rapid growth are the best kind to have, but they are challenging nonetheless. Substantial costs were incurred far earlier than anticipated, pushing back the expected break-even date. Working on the basis that budget shortfall would soon be forgotten while unexpected customer growth would be remembered for years to come, M-PESA managed to secure additional funds. Now, alongside increasing demand, a critical mass of mature customers is growing to support the need for revenue. There is still much to do, but as M-PESA approaches its third birthday in Kenya, it is well prepared to tackle whatever comes next. n
See more information at
www.safaricom.co.ke/index. php?id=745.
Susie Lonie (
Susie.Lonie@vcontractor.co.za) is a mobile commerce expert and currently the executive head of financial services at Vodacom (Pty) managing the rollout of M-PESA in South Africa. Lonie managed the design, piloting, and implementation of M-PESA in Kenya.
INTERNATIONAL FOOD POLICY
RESEARCH INSTITUTE Supported by the CGIAR
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sustainable solutions for ending hunger and poverty Supported by the CGIAR
www.worldbank.org Copyright © 2010 International Food Policy Research Institute and the World Bank. All rights reserved. Contact
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