M-PESA: Kenya’s fast-growing mobile payment system

MIT Sloan Asst. Prof. Tavneet Suri

I grew up in Nairobi, Kenya, and so my research on M-PESA, the cell phone-based payment system that has spread like wildfire across the country, strikes a deeply personal chord. Most of my research on this has been in collaboration with William (Billy) Jack at Georgetown who lived in Kenya himself for a few years. We both experienced the frustrations of what in the US would be the simplest of money transactions, and felt that M-PESA could fulfill a need of many Kenyans.

In practice, the adoption of M-PESA has been faster than we, and most other observers, had anticipated. In four short years it has been widely embraced by Kenyans, and has already had a big impact on the lives of people I’ve known for years. I did my dissertation on the adoption of farming technologies in Africa, and it’s still a subject that interests me a great deal. I’ve looked at the implementation of seed technologies in Kenya, and the diffusion of improved coffee farming practices in Rwanda. It often takes decades for these kinds of technologies to fully penetrate a population.

But the adoption rate of M-PESA has been at rocket speed. By the end of 2007, the year it was first established, about 1,000,000 Kenyans had signed on to the service. Today, as of December 2010, M-PESA has 13.3 million users – that’s 57 per cent of the adult (over 15 years) population. To put this figure in context, only 22 per cent of Kenyans have a basic bank account, and only 10 per cent are Internet users. I don’t think we’ve ever seen a technology take off this fast – even cell phones themselves.

What also surprises me about M-PESA’s widespread acceptance is that its users are not all rich and educated. While it is true that the early adopters tended to be wealthier and better educated, many recent M-PESA adopters are incredibly poor and have had little formal schooling. There is some texting involved with this technology so users can’t be entirely illiterate, but a lot of them have just primary education. M-PESA is not a cheap service, but it is less expensive than the alternatives, such as Western Union, which makes the fact that it is so widely used even more striking.

When my co-author Billy and I give talks about my research, people come up to us afterwards and say things like: “Surely M-PESA is changing the very fabric of the country, and could mean big things for Africa.” Yes, there are big implications, but even as a native Kenyan, I doubt M-PESA alone is going to make Kenya richer.

A lot of the work we have done has been to understand what M-PESA does at the household level, but there of course are many repercussions of M-PESA’s prevalent use on the macro-economic level and also on firms and entrepreneurship across the country – what we’re hoping to study next. For instance, there are 25,000 M-PESA agents in Kenya – that’s 25,000 businesses that can now provide a new service to their customers. M-PESA pays these agents good commissions, evidenced by the impressive growth in the agent network over the past four years (at the end of 2007, there were only about 1600 agents across the country).

It has also made a lot of the economy cashless, which may make life a lot safer for ordinary Kenyans. In Nairobi, which is a high crime city, lots of people say they use M-PESA because it is more secure. People deposit money in their phones – in order to access the money you need a pin code – which makes it less vulnerable to thieves than cash in the pocket. The high-speed, protected remittances are very important, too (as evidenced by our household level work where we find it helps households manage risk much better). In the past people would hand an envelope of cash to a bus driver who was heading the right direction, and hope for the best. But with M-PESA, you know the money will get there, and you know when it will get there.

One can imagine that M-PESA could more broadly affect the efficiency of businesses if it can be easily integrated into supply chains. This remains to be seen.

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  1. By Banking on UID on April 21, 2011 at 10:39 am

    […] to research by Massachusetts Institute of Technology professor Tavneet Suri, 13.3 million people, or 57% of […]

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