
The Invisible Bank: How Kenya Has Beaten the World in Mobile Money - ramabk
http://newswatch.nationalgeographic.com/2012/07/04/the-invisible-bank-how-kenya-has-beaten-the-world-in-mobile-money/
======
abenga
(Kenyan here) I think that the fact that Kenya did not have such a large
banking industry helped M-Pesa succeed. By the time the local banks realised
that it threatened to eat into their business, it had become too big and
popular to beat. We had the local banking association petition the Central
Bank to introduce regulations on it, the cost of compliance to which would
have made it a lot more costly than it is, and subject to a lot more
bureaucracy. Luckily, the proposal did not go through.

~~~
knowtheory
At the same time... Vodafone doesn't have any banking regulations like deposit
insurance does it? That seems like a big deal to me. What happens if Vodafone
goes out of business? What happens if they decide to just keep the money and
shut down the service?

These are low likelihood events, but then, so was the financial collapse of
2008.

~~~
roguecoder
The financial collapse was caused by highly-leveraged banks relying on complex
opaque models to "manage" risk while making loans and purchasing financial
assets.

Since neither Vodafone nor Safaricom are engaging in lending, borrowing or
betting on assets those risks don't exist. It is more akin to pre-paid credit
cards than traditional banking.

~~~
Retric
I don't think you can know what Vodafone does with money in it's care.

~~~
natrius
If they were doing those sorts of things, they'd presumably be regulated as a
bank in Kenya.

~~~
muriithi
Like most start-ups the established players underestimated the capacity of the
new kid on the block to eat their lunch[1].

By the time banks ganged together to lobby against the service it was too late
[2].

[1]
[http://www.moneyweb.co.za/mw/view/mw/en/page292681?oid=55103...](http://www.moneyweb.co.za/mw/view/mw/en/page292681?oid=551037&sn=2009+Detail&pid=287226)

[2][http://kenyaaudit.blogspot.com/2008/12/banks-now-gang-to-
fin...](http://kenyaaudit.blogspot.com/2008/12/banks-now-gang-to-finish-m-
pesa.html)

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droithomme
I read about halfway through this article thinking it sounds good, but they
used insubstantive marketing language terms like "new innovations", "big
ideas", "safely and securely", "flexible adaptable technologies", and
"dreaming big but thinking locally" so many times that it gave the game away.
In addition there are no down sides described, the alternatives are demonized,
and there is no real technical explanation. It's indistinguishable from a full
page magazine ad. It is clear is a paid placement by advocates for a concept,
and not a real article from a journalist. I then glanced up to see what site
is running this sort of puff article and was genuinely surprised to see
National Geographic is now doing this sort of thing. I guess the journalist
needs some practice so he can learn to hide his tells in future product
placements.

~~~
joseph
I didn't get that impression. The company I work for sells services in the
area of mobile payments, and M-Pesa really is the "holy grail" that many
companies worldwide are trying to imitate. I visited Kenya in April, and it is
everywhere. In the middle of nowhere along the roadsides you see little green
shacks with the M-Pesa logo where you can collect money that has been sent to
you. However, M-Pesa is not without its downsides. Safaricom is stagnant on
adding features, and getting a "pay bill" number for your business so that you
can accept payments from customers is a lengthy and somewhat complicated
process. On the other hand, this opens new doors for entrepreneurs to fill in
the gaps.

~~~
ghshephard
I don't think the argument was that M-Pesa isn't something real and
substantive, it's that the article was a poorly done puff piece. Honestly, I
got as much from your one paragraph write up about M-Pesa as I did from the
original article.

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technotony
I previously founded a credit and savings bank using mobile money in the
Philippines. M-Pesa is a fantastic success in Kenya but replicating it's
success in other countries has been very difficult. There are several reasons
for this: 1) There were no alternatives when it was launched, eg Western
Union. The best way to send money home to your family was literally to trust
it to a bus driver, you can imagine how well that worked 2) The regulators
were very 'soft' touch and allowed Vodaphone to launch a service which was
illegal in many other countries (for money laundering reasons) 3) Vodaphone
had an 80-90% market share in most segments, this prevented the 'cross-
network' problem

I believe that until android (or other) smartphones become affordable to poor
people, freeing innovation from the carriers, we won't see M-Pesa's success
get replicated around the world. Then we will see rapid growth shortly after
that tipping point is reached.

~~~
sadlyNess
Stereotypical POV about Africa(that bus driver shit). There was Western Union
& Moneygram before M-pesa. M-pesa was just better(cheaper, faster, cellphones
everywehere,).

~~~
technotony
There was no Western Union in Kenya villages before M-Pesa launched...

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ramabk
In Africa, many homes do not have electricity but increasingly everyone has a
cell phone. Prepaid cell phone minutes have become a defacto currency in many
African countries. Africans are in many ways more acclimated with using
privately issued digital currencies (such as M-PESA)...

~~~
tome
Where do they charge their phones? Are portable hand-powered generators
common, like wind-up radios?

~~~
ramabk
[http://www.viewchange.org/videos/kenyan-solution-for-
chargin...](http://www.viewchange.org/videos/kenyan-solution-for-charging-
mobile-phones)

~~~
pgeorgi
video2text: They extend the light machine on bicycles with just enough
circuitry to make it suitable as a charger.

~~~
JonnieCache
Hooking up a bicycle dynamo to charge your phone is a popular african hack:
[http://www.ted.com/talks/william_kamkwamba_on_building_a_win...](http://www.ted.com/talks/william_kamkwamba_on_building_a_windmill.html)

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lifeisstillgood
Can anyone explain how it actually works?

I am guessing you give vodafone 10 dollars, they give you a txt with a random
code anyone with that random code and your number can request the 10 dollars
to come off your account and onto theirs

but ...

What is the strength of the code ? What is the security around the
transmission to your phone? It sounds bruce schneir might no like it

~~~
abenga
You register with Safaricom (The Telco) with your Identification Card
Number/Passport Number. You get a 4-digit PIN to use as a password. After this
your phone number is your 'account number', in a manner of speaking.

An M-Pesa application comes installed as a SIM application (I don't know the
technical details, I access it from the "SIM Toolkit" menu in my phone) on all
Safaricom SIMs. The application allows you to Send money, check your balance,
and pay bills to registered corporate accounts. You need to know the account
PIN to perform any of these actions.

To deposit money in your account, you need to go to an agent (these are
numerous all over the place) and pay them. These are registered business who
can deposit money in your 'account' (a normal customer cannot deposit money
directly into another person's account), and you get a Text message confirming
that the transaction was successful, and your account balance has been
updated. When you receive money, you receive a text message, and you may
withdraw it from any agent. You need photo ID to withdraw money from an agent.

\-- edited for clarity.

~~~
rogerbinns
Is the value purely stored in the SIM? ie does this all work without any form
of cellular connectivity, or is there some sort of synchronization over
cellular.

How do they deal with rogue agents? Presumably a rogue agent can claim you
have handed over a large sum of money but it would take a while to discover
they have lied.

~~~
abenga
No value is stored in the SIM, the transaction record and balance is stored in
Safaricom's servers. Agents have a registration number prominently displayed,
and all transactions are immediately confirmed by SMS to both parties. I think
agents also need deposit a (significant) amount of money to get registered.
Daily transactions for individual accounts are capped at 70000 shillings
(about 900 dollars), so is the balance in the account. It would be difficult
to carry out fraud of any significant scale with the system.

~~~
rogerbinns
So that means all transactions have to take place where there is cellular
connectivity then?

I live in the US - our connectivity is highly volatile and connectivity
concerns are still a major part of the cellular consumer experience.

~~~
joelhaasnoot
I was on the lookout for lions in a wildlife park in Uganda while checking my
email... It's all possible.

------
grayrest
Does anybody have a term for the phenomenon where a technology achieves enough
critical mass among early adopters for network effects to arise only to have
the technology improve as it matures so the late adopters wind up leapfrogging
the early adopters?

I see this all the time, a simple example being self check out machines. A
chain in Atlanta adopted them in the late 90s (this is from memory, could be
later) and they were fairly common in the city in early 2000s. They were
awful/clunky to use but 5-6 years later I'm in the middle of nowhere South
Carolina and find the process to be comparatively painless on an obviously
newly-installed machine. Meanwhile the original technology is still
installed/operational in the city.

~~~
prostoalex
Last mover advantage?

Sort of like magnetic strip credit cards in the US vs chip cards in Europe. Or
the reasons Eastern European countries have the highest broadband speeds,
having never dealt with investments in ISDN and other networks.

~~~
Djehngo
I am not sure cards are a good example.

In the UK at-least we had magnetic stripe and signature cards everywhere for
years and years.

When chip and pin was introduced all the merchants had to get chip and pin
terminals and all card holders had to get compatible cards.

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ImprovedSilence
That is a very interesting article, I love to see the innovation in these
scenarios. I also kept clicking around on articles there, it seems national
geographic has some very good/interesting articles. I particularly enjoyed
this one involving pay as you go solar power, for lights and phones:
[http://newswatch.nationalgeographic.com/2012/04/17/pay-as-
yo...](http://newswatch.nationalgeographic.com/2012/04/17/pay-as-you-go-
sunshine-how-solar-energy-and-mobile-phones-are-powering-the-developing-
world/)

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onedognight
It look like the fees can be summarized as ~2% (with a ~$1 minimum) split
between sender and receiver with the full fee covered by the sender for out of
system transfers.
[http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/Tool6.7...](http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/Tool6.7.CaseStudy-
M-PESAKenya+/$FILE/Tool+6.7.+Case+Study+-+M-PESA+Kenya+.pdf)

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onoj
I thought the Philippines had cash transfer and payment by sms since 2006
(article is 2007) my friends use this so it is not vapour.

[http://www.nytimes.com/2007/10/19/news/19iht-20oxan-
PHILIPPI...](http://www.nytimes.com/2007/10/19/news/19iht-20oxan-
PHILIPPINESMobile.7959871.html)

~~~
drucken
While this Phillippines SMS mobile payment service looks superficially similar
and 7 years older, it is much more tightly linked to existing financial
infrastructure, including bank accounts (optional) and cards (required).

Kenya's M-Pesa only requires a mobile.

Both country services require registration with government ID documents.

In addition, what has been partly astonishing about M-Pesa is the incredibly
rapid growth in its use. Within 8 months of its launch in April 2007, it had
over 17 million subscribers (50% of the population), i.e. on average over 2
million subs per month for a non-Internet service!

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vindicated
I'm not sure if it's exactly the same thing, but this sort of service has been
available in Pakistan for a while now - <http://www.youtube.com/watch?v=5kL--
YSnFPo>

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nowarninglabel
M-pesa is awesome, it's been intriguing to me that at Kiva we've been able to
do mobile payments for microloans in Kenya long before they will be easy
enough to transact in the U.S.

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edoloughlin
With this system, you're giving your location, real social graph and financial
transaction data to a single company. I think I'd pass.

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hrayr
Was I the only one avoiding this article because they thought it's about Kanye
West?

This trend of third world countries taking a technology and running with it
doesn't surprise me one bit. It's much more difficult to disrupt an
established industry with new technology than to adapt a mature technology to
create new industries.

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nodata
I thought I read a story recently about how the Kenyan system was being
plagued by mistrust. I'll see if I can find a link.

Edit: can't find the story.

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Canada
It's a halwa network. It moves debt. It's not at all innovative. The only
reason we don't do this here is because it's illegal.

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gcb
In the us you'd have to pay $30/mo for unlimited payment via mobile phones in
a 2yr contact.

And it would only work for the first $1000, then it will cost extra per
dollar.

And it doesn't matter it works over means already provided/charged by the
telcos, they will go out of their way to make it billable.

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DiabloD3
No offense, but Bitcoin already did this.

~~~
Sunlis
I don't know much about Bitcoin, but I think the distinction is in how many
people are using the service. A big part of that seems to be platform
compatibility. These people are able to use it on their cheap Nokia cell
phones rather than needing a computer to use Bitcoin. The impression I got
from the article was that payments are done via text message, so you may not
even need a data plan for it.

~~~
unwind
I would agree, totally different use-cases.

Also, M-Pesa was launched in 2007, Bitcoin in 2009. So the "already" is a bit
imprecise, too.

