Legal Studies Research Paper Series No.

2011-14

An Emerging Platform:

From Money Transfer System to

Mobile Money Ecosystem.

Jake Kendall
[email protected]

Bill and Melinda Gates Foundation

Philip Machoka
[email protected]
United States International University (USIU)

Clara Veniard
[email protected]
Bill and Melinda Gates Foundation

Bill Maurer
[email protected]
University of California, Irvine ~ Department of Anthropology

The paper can be downloaded free of charge from SSRN at:

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An Emerging Platform: From Money
Transfer System to Mobile Money
Ecosystem.
By Jake Kendall, Bill Maurer, Phillip Machoka, and Clara Veniard1

Abstract
While it has often been described as a money transfer product, when mobile money reaches scale it can also be
seen as a network infrastructure and platform facilitating the exchange of cash and electronic value between
various economic actors including clients, businesses, the government, and financial service providers. In the
past, the emergence of other network infrastructures that provide new ways of moving people, goods, energy or
information (canals, railroads, electricity, telecommunications, internet, etc.) has had transformative effects on
the economy. In this paper, we document what may be the early stages of just such a transformation in the
market for retail financial services in Kenya, where the M-PESA mobile money product has achieved the scale
necessary to form an infrastructure backbone to the financial system.
Our investigations uncovered significant integration of mobile money into the product and services offered by
financial institutions in Kenya. We find an ecosystem of firms has sprung up to facilitate the technical integration
of existing financial institutions’ back end systems with the new mobile money platform. We also find a number
of innovative new businesses and “pure play” startups which operate solely over the mobile money platform.
That said, significant barriers remain which block the development of a more fully developed ecosystem
including the high price of money transfers and the difficulty of integrating to the mobile money interfaces
(especially that of M-PESA). Firms wishing to outsource their day-to-day cash transactions with clients to the
mobile money system may face a new challenge, as they must find new opportunities for interactions with their
clients to reinforce rapport, build trust, educate, and cross sell new products.

Mobile money as a network infrastructure & platform for financial services

In the past, the emergence of new network infrastructures (canals, railroads, electricity,
telecommunications, internet, etc.) has had profound effects on the economy.2 New ways of moving
people and goods, energy, or information can lead to waves of innovation and have transformed
markets as existing firms restructure and new firms emerge to capture new opportunities. While it has
often been described as a money transfer product, mobile money is a network infrastructure for storing
and moving money that facilitates the exchange of cash and electronic value between various actors
including clients, businesses, the government, and financial service providers.

1
Author affiliations: Jake Kendall and Clara Veniard, Bill & Melinda Gates Foundation; Bill Maurer, The Institute for
Money Technology and Financial Inclusion; Phillip Machoka, United States International University, Nairobi. The
views expressed herein should be considered the personal views of the authors alone and may not reflect the
views of the Gates Foundation.
2
Historians of technology have long noted the economic and social changes wrought by new infrastructure such as
electrical power and rail. See Thomas P. Hughes (1993) Networks of Power: Electrification in Western Society,
1880-1930 , Johns Hopkins University Press. For a cautionary tale, see Wolfgang Schivelbusch (1987), The Railway
Journey: The industrialization and perception of time and space, University of California Press.

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As with many other types of network infrastructure, mobile money displays the characteristics of a
platform bringing together financial services providers and clients, and providing them a core
functionality which they can use to transact, and which can be incorporated into different financial
products.3 Platforms, such as the Internet, Facebook, iPods, smart phones, video game platforms, and
financial and commercial exchanges, also have great power to stimulate innovation and change existing
business models. As a network infrastructure, and as a platform for financial services innovation, mobile
money appears to have the potential to radically reconfigure how retail finance is done in developing
countries.
There are a number of fundamental challenges to reaching the poor with financial services that have
blocked market growth in the past. Perhaps the key challenge is that the vast majority of the poor lives
in a cash economy, and is paid in cash. In developed economies, banks usually receive clients’ salaries
via direct deposit and the money can either be moved to longer term savings products or withdrawn
and spent through channels like ATMs and point of sale devices. In developing economies, the poor lose
the natural connection to the financial system which stems from having income born in electronic form.
They require a deposit taking infrastructure to even get them into the bank in the first place. To make
matters worse, the poor often make money unpredictably and would need to deposit frequently
whenever small windfalls come their way. Meanwhile, banks and other financial service providers are
loath to deploy deposit taking banking infrastructure (i.e. branches, and two way ATMs) as intensively as
they might need to in order to service poor clients’ greater deposit needs since the revenue these clients
generate does not justify the investment. In fact, even clients who do not require intensive deposit
services (e.g. those who might receive direct government transfers or military pensions) are rarely seen
as profitable customers by banks given the low balances they hold and the high transaction cost of
traditional banking infrastructure.
Mobile money appears to have the potential to solve many of these issues. By giving banks and other
financial services providers a cheap way to outsource cash handling and deposit and withdrawal
transactions, mobile money can allow providers to serve clients at lower cost per transaction and with a
reduced investment in physical infrastructure. Additionally, by unbundling and outsourcing transaction
handling, banks may be able to get more value out of their existing branches and branch staff,
refocusing them on more value-adding and complex tasks such as wealth and risk management advisory
services and cross-selling products. Mobile money also
helps clients by giving them a dense network of Mobile Money Players in Kenya. In
transaction outlets where they work and live, reducing addition to Safaricom’s M-PESA, other
the cost to clients of accessing financial services. Once mobile operators in Kenya have
clients are on the financial system and able to transact at launched similar mobile money services
low cost with banks and other financial service providers, during the past two years, including Yu
the platform enables a new set of services and delivery (YuCash), Orange (Orange Money), and
models which were not previously possible or profitable Zain (Zap). However, M-PESA remains
for the provider. the most widely used mobile money
service and is the focus of our study.
The financial inclusion field’s excitement for mobile money
is driven by the possibility of providers offering savings, credit, insurance and other products to the poor
at low cost. But whether mobile money will achieve this lofty vision depends on a number of factors.

3
Economists often refer to mechanisms which brings together multi-sided markets as a platform. Multi-sided
markets are those where each side benefits, the more the other sides participate. An example would be video
game consoles which bring together game players and game producers and where players benefit from a wider
variety of game producers and game producers earn more when there are more players.

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First and foremost, networks and platforms usually require scale to have significant impact. Second,
even if mobile money reaches the poor, other barriers might inhibit innovation in financial services for
this segment. Finally, mobile money may simply not lower clients’ and providers’ costs enough to be
truly transformative.
In Kenya, Safaricom’s M-PESA has managed to overcome the “last mile problem” creating a network
that connects over 70% of Kenyan households to the financial system (13.3m people, approximately
60% of all adults in Kenya).4 The M-PESA network handles more transactions in a year than Western
Union does globally, and the value of transactions represents more than 15% of Kenya’s GDP.
Unlike other deployments around the world struggling to achieve scale, penetration is no longer the
barrier limiting the platform’s benefits. Nevertheless, having launched only in 2007 M-PESA is still in its
early stages and, while the uptake of M-PESA has been spectacular, it is not yet clear what will be the
final effect on the wider retail market or on the number of poor people who access the financial system.
Some in the financial inclusion field suggest there is an “innovation gap” and M-PESA is failing to live up
to the original promise but it is too early to tell whether innovation is not there or is still gaining
momentum as the market comes to grips with a new way of doing business.5 It is also too early to tell
who will drive innovation—will it be M-PESA or new and existing players riding on top of M-PESA? If
others build products and platforms on top of the M-PESA platform, the innovation possibilities will
expand greatly.
In this paper, we present the results of some initial probes to understand how market players are
harnessing M-PESA as a platform for new services, and to gauge the emerging ecosystem of these M-
PESA enabled services.
We looked both for existing financial institutions that are integrating M-PESA into their service offerings
and for startups and new ventures that are launching new “pure play” services which operate primarily
through the M-PESA platform. In addition to a basic landscaping to measure the level of activity in the
space, we also sought to understand some of the motivations for using mobile money in a new wave of
financial services delivery and some of the challenges these new and existing financial service providers
face in doing so. We conducted the landscaping through Internet research and phone calls, and then had
a mini-conference in Nairobi on January 14th, 2011, bringing together some financial service providers
and information technology service firms who have begun to specialize in M-PESA product integration.
We also incorporate results from a recent study conducted by Microsave for the Bill & Melinda Gates
Foundation which assesses new mobile money enabled products and services using information
available from desk research, interviews with the implementers and users, secret shoppers, and focus
groups.
Our investigations document significant integration of mobile money into the product and services
offered by preexisting financial institutions in Kenya. We find numerous technology firms has sprung up
to facilitate these integrations between financial service providers’ back end systems and new mobile
money platforms. We also find a number of innovative new businesses and “pure play” startups which
have created financial services offerings operating solely over mobile money. Both those institutions
integrating to existing products and those launching new ones frequently cite increased outreach and
lower costs, especially in reaching poor clients, as motivations for adopting the mobile money platform.

4
For more on the history of the M-PESA products see Mas and Radcliffe (2010) and for more on the mechanics of
how M-PESA’s retail network works, see Eijkman, Kendall, and Mas (2010)
5
http://technology.cgap.org/2010/03/08/mobile-money-takes-off-where-is-the-innovation-in-product-design/

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That said, significant barriers remain which block the development of a fully developed ecosystem
including the high price of person-to-person (P2P) transfers and the difficulty of integrating to the M-
PESA Application Programming Interfaces (APIs—see box for an explanation). From our conversations
with providers, we also infer that those wishing to outsource their day-to-day cash transactions with
clients may face a new challenge, as they must find new opportunities for interactions with their clients
to reinforce rapport, build trust, educate, and cross sell new products.

Market Activity in Broad Strokes

Even though we were not able to conduct a complete census of the market, our search identified over
300 formal businesses which are integrated with M-PESA and other mobile money services. All of these
businesses are large enough and formal enough to have a web presence. We did not seek to assess
whether smaller or informal businesses are using M-PESA, though many also appear to be doing so.
Further, we found almost 90 formal financial institutions which have integrated their operations with
mobile money (primarily M-PESA) and found few providers who do not have mobile money integrations
completed or underway. Financial service providers range from traditional banks, savings and credit
cooperatives (SACCOs), and insurance providers to newer mobile-based credit, insurance and mobile
savings offerings. A sampling of those offering new mobile
money based services or products is contained in the Application Programming Interfaces
appendix table. (APIs) are sets of instructions that allow
different software applications to
Many of these integration efforts and products are still at an
interface with one another. Well
early stage and some of the new products have very few
designed APIs are powerful because
active customers. More detail on the market activity we they allow the development of new
found follows. applications that seamlessly incorporate
the functionality of the original system
Landscape of “innovators”, “integrators”, and into their workings. APIs are a recent
“bridge builders” innovation: their origin is in TCP/IP
network architecture, but their use for
In order to develop a shorthand, we call financial services user-oriented application development
providers “integrators” when they add mobile money as a dates to the mid-1990s. The invention
service delivery channel for an existing line of products, and of M-PESA corresponds in time to the
“innovators” when they are new entrepreneurial products or explosion of interest in APIs for third-
ventures launched around a purely mobile money based party application development, itself
business model. We call “bridge builders” application propelled by the mobile revolution, so it
developers that specialize in mobile money integrations for can hardly be blamed for having a poor
financial and payment services. API (PayPal, for example, launched APIs
in 2010).
Integrators
Most financial service providers in Kenya are joining mobile money platforms as a channel for their
clients to make deposits and withdrawals from bank accounts and other financial products. Financial
service providers integrate with mobile money platforms using a variety of mechanisms that vary
depending on the institution. These linkages are often difficult and expensive to create and many
providers we spoke to are wrestling with the process. In our analysis below, we focus on M-PESA since it
is by far the dominant platform, although other mobile money providers exist.
No official API exists that service providers can use to integrate to M-PESA. With the exception of the M-
KESHO product described below, financial service providers typically adapt two different one-way
mechanisms to move money to and from clients. M-PESA’s Pay Bill function allows clients to send
deposits from their M-PESA account to the financial service provider while most providers use custom

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built “screen scraping” programs to connect to M-PESA’s bulk payments webpage to automate the
sending of large numbers of withdrawals. Banks also have the option avoid the bulk pay “screen
scraping” for withdrawals by instead using a SIM card which is activated directly by the Bank’s server.
However, these integrated SIM cards are extremely slow and not suitable for sending more than a few
dozen transfers per minute so are rarely used. In some cases, financial service providers opt to use a
third party “middleware” software application to facilitate easier integration with M-PESA, though these
also use the bill pay and bulk payments channels to activate payments.
On the client end, most providers present clients
with two different interfaces for deposits and
withdrawals. Deposits are done through the
normal Bill Pay option in the M-PESA menu on
their phone. Then clients must use a USSD based
interface (described below) which allows them to
trigger withdrawals to their M-PESA account. Here
we describe how some of the integrations work.
M-KESHO link with M-PESA. Equity Bank, with
over 6 million bank accounts constituting 55% of
all bank accounts in Kenya, is perhaps the most
active in the mobile money space and has the
strongest link with M-PESA. In May 2010, Equity
partnered with Safaricom to launch the M-KESHO
product. M-KESHO is the first bank product with a
real-time link to M-PESA for deposits and withdrawals via an easy to use SIM-based menu. It is branded
by both Equity Bank and M-PESA and can be opened directly at an M-PESA agent. The two main
differentiators of the M-KESHO product over others is that both deposits and withdrawals can be
initiated through the SIM based menu as opposed to relying on the less user-friendly USSD menu.
Additionally, and perhaps more importantly, the product was marketed and branded as a joint effort,
which probably boosted initial uptake substantially.6 In November of 2010 Equity partnered with Orange
and launched its own mobile money product to try and increase competition with M-PESA. Along with
the cash merchant network Orange plans to develop, Equity will launch its own cash merchants further
increasing customers’ access to financial services through mobile money.
Except for Equity Bank, no other financial services provider has managed to integrate directly with M-
PESA. For the others, no formal interface exists and they are forced to adapt the Pay Bill function to
facilitate deposits and the bulk payments web menu for withdrawals as described below.
Deposits through the Pay Bill Feature. Pay Bill can be accessed from the M-PESA SIM menu and allows
customers to deposit money from M-PESA to their bank account, although they are not able to
withdraw funds. The customer experience is similar to paying a bill: she selects Pay Bill, enters the short-
code for the recipient (which M-PESA calls a “business number”) as well as her own account number (as
she would e.g. with a client account number at the power company). This directs a transfer to be made

66
It’s not clear whether this interest will be sustained however, as the rate of uptake slowed significantly after the
product launch. There were approximately 600,000 accounts opened in the few months after launch in may 2010,
but the rate of activations dropped dramatically in the fall of 2010. The high prices of deposits and withdrawals,
and difficulties in the relationship between Equity and Safaricom have contributed to the stagnant growth of the
product.

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from her electronic wallet to the bank’s biller account. Most banks allow deposits through the Pay Bill
channel, even if they have not yet managed to facilitate withdrawals through M-PESA.
The Bill Pay feature can also be used to connect to other financial accounts. Kenya Women Finance Trust
(KWFT) bank, for example, is a
microfinance institution which leverages
M-PESA’s Bill Pay feature to enable
customer loan repayments. The CIC
Insurance Company uses M-PESA’s Pay
Bill to allow a customer to pay insurance
premiums using a mobile phone.
Customers can save Kshs. 140 (US$1.75)
every seven days, earn interest, and
access an immediate life insurance cover
of Kshs. 50,000 (US$625) which increases to Kshs. 100,000 (US$1350) by the twelfth year. The company
absorbs the remittance charges that M-PESA places on Pay Bill transactions.
Withdrawals using bulk pay and USSD. A subset of financial institutions enable customer transactions
through M-PESA in the other direction (ie. withdrawals) using a bank-run USSD menu. Institutions
pursuing this approach include Barclays Bank of Kenya, Kenya Commercial Bank, Co-operative Bank, NIC
Bank, Family Bank, K-rep Bank, Kenya Post Office Savings Bank, and Faulu Kenya. In order to process the
withdrawal, customers have to link to their bank’s m-banking platform by dialing a USSD code (for
example “*498# for Kenya Post Office Savings Bank”). Funds are then transferred from the bank account
to Safaricom and into the customer’s M-PESA wallet. Once the funds are deposited into the wallet, the
customer receives a message that funds are available.
Banks typically automate the high
volume of withdrawals using M-
PESA’s web based interface for bulk
payments. Since this web interface is
designed to be used manually and no
API exists to integrate to this page,
financial institutions typically write a
custom built “screenscraping”
application. This application
manipulates the web page like a real
user uploading payments in real or
near real time and sends them to clients who have requested a withdrawal. Screenscraping techniques
are notoriously unstable and many providers have had their interfaces break down in the past when
Safaricom has made even minor changes to the web interface.
Neither the Pay Bill deposits nor the bulk payments withdrawals need to be real-time because the bank
does not have to credit the client account immediately. Instead, providers typically send the bulk pay
transactions in a batch on a set frequency (most do it every few minutes, however).
Leveraging bridge builders. Some financial institutions also leverage bridge builders to facilitate
connections with M-PESA, either by building custom applications to facilitate integration, or by offering
middleware applications that automate the integration process for multiple smaller institutions. For
example, Meru Mwalimu SACCO integrated its products with the M-PESA platform through Spotcash, a
service that allows members of SACCOs and microfinance institutions to withdraw and deposit their
money from and to their savings account respectively, through SMS, USSD, IVR or WAP. Once the

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withdrawal request has been received, the money is transferred to the member's M-PESA account. The
cost is 10 Kshs. per transaction (US$0.12), without including SACCO fees or Safaricom withdrawal fees.
Another example is Celullant which has developed integration solutions for many banks, including a
platform for the World Council of Credit Unions that will enable SACCO’s to connect with M-PESA.

Innovators
Innovators are new entrepreneurial ventures or products with a purely mobile money based business
model for financial services.7 They fall into two categories: existing providers developing new types of
products that only operate through the mobile money channel and new entrepreneurial ventures
launched around mobile money based products. In both cases, the new products facilitate transactions
through the mobile phone and mobile money agents rather than through legacy channels like retail
bank outlets, or sending money by check or money order. Savings and insurance seem to be particularly
popular financial products in this space, probably as a result of the need for frequent, small value
transactions that would be expensive to facilitate through normal retail channels - both for clients who
would have to travel further, and for institutions who would have to maintain a retail channel.
Examples of innovators. Our research uncovered a number of newly launched savings, credit, and
insurance products where mobile money is integral to their delivery model. These products run on the
mobile money platform and help low income Kenyans save for retirement, health care and other needs,
borrow; or open small value insurance contracts. Many are targeted at customers who do not have
steady incomes and cannot afford to make regular lump sum monthly payments and appreciate a
service that allows them to make small value payments. A few sample products include:
 Zimele asset management offers a new pension scheme where clients can remit a deposit of as
little as Kshs. 250 (US $3.13) on a regular basis via the Pay Bill feature and earn interest at a rate
of 8.5% quarterly. Zimele started this in late 2008 and claims it is getting a good response by
depositors who want to avoid traveling to the head office to pay installments.
 The Jua Kali Association (an association of self employed informal workers) offers a new pension
product with can be funded through mobile money, including M-PESA. Users can save for
retirement via the Pay Bill feature starting at Kshs. 20 (US $0.24). This product has allowed Jua
Kali to more than double the number of pension accounts in only six months.
 Changamka Microhealth Ltd., offers a medical saving plan for out-patient and maternity health
care for expectant mothers. Customers use M-PESA’s Bill Pay function to save small
contributions to a smart card where the money is locked-in for use when one falls ill or needs
maternity care. In selected clinics, customers can pay for medical services at a discounted rate
using the smart card. Contributions to the smart card can also be made via M-PESA from family
members, friends, and other community members.
 UAP insurance company partnered with the Syngenta Foundation for Sustainable Agriculture
and Safaricom to help farmers insure against drought when they buy certified seeds and
fertilizers through a program called Kilimo Salama (Safe farming). This scheme offers a micro-
insurance policy to small-scale farm holders who plant on as little as one acre that covers them
from financial losses during drought or excess rain. Dealers are equipped with a camera phone
that scans a bar code at the time of purchase and immediately registers the policy with UAP

7
Most of the innovators link to M-PESA using one or more of the integration options outlined in the integrators
section.

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 Insurance through Safaricom. An SMS confirming the insurance policy is sent to the farmer
through the mobile phone. When data is transmitted through the Safaricom network from a
particular weather station indicating that extreme weather conditions are going to cause crop
failure, all the farmers within the region of that station automatically receive a payout via M-
PESA. In September 2010, rain shortfall in the Embu region allowed over 100 farmers to receive
an insurance payment via M-PESA. This was the first crop insurance claim to be paid through a
mobile payment system.
 M-PESA has also enabled the launch of entirely new service providers, including a virtual
microfinance institution named Musoni. Musoni only offers credit services (although they hope
to provide deposit services in the future) and all operations are cash free, with disbursements
and repayments done through M-PESA’s Pay Bill feature. In addition, Musoni has developed a
server that creates reports based on data provided by Safaricom and that facilitates lending
operations. Musoni customers are not charged for repaying through M-PESA or for the loan
disbursement through M-PESA. The customer is only responsible for paying the cash-out fee
from the M-PESA wallet.

Bridge-builders
As financial service providers and other businesses struggle to integrate with M-PESA, a mini-industry of
software developers and integrators has started to specialize in M-PESA platform integration. A number
have also built and begun marketing their own middleware applications which usually specialize in
facilitating certain types of integrations. These bridge builders fall into two broad categories: 1) those
that are strengthening M-PESA’s connections with financial institutions for the delivery of financial
products, and 2) those that are strengthening M-PESA’s ability to interoperate with other mobile and
online payment systems. The lack of functional M-PESA API is hindering bridge-building, but several
companies have devised tools for new financial functions and online payments nonetheless.
Connectors with Financial Service Providers. A number of technology companies are facilitating mobile
money’s connections with financial institutions, especially small financial institutions struggling to
integrate with M-PESA. Tangazaletu is developing a set of tools to integrate financial systems to M-PESA
through an application called Spotcash that allows members of SACCOs and microfinance institutions to
deposit and withdraw money to and from their savings account, through the Pay Bill or a USSD menu at
a cost of 10 Kshs. per transaction (US$0.12). A number of other providers are building or offering similar
connections to M-PESA for small financial institutions, such as Kopo Kopo and Coretech Systems. Zege
Technologies has developed an M-PESA integration, automation and aggregation solution called
MPAYER that eases the process of frequent payments to and from M-PESA by processing payments on
demand. Currently, Pay Bill transactions are processed in batches at scheduled times through a manual
process, thereby causing delays and resulting in errors.
Connectors with other Mobile and Online Payments. Other technology companies are strengthening
mobile money’s ability to interoperate with online payment systems. Webtribe’s Jambopay, Symbiotics’
Moca, Intrepid Data System’s iPay, and Pespal are a few examples of payment services that allow buyers
to pay for goods and services over the Internet using their phone.
We found mention of over 20 companies which were performing these types of integrations or writing
their own middle-ware applications to facilitate such integrations. Though not all of them operate in the
financial services space, a significant number are, presenting strong evidence that there is sustained
demand from financial services players to adopt the mobile money platform.

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Motivations for adoption and perceived benefits from mobile money
In surveying the landscape of financial service providers who are harnessing the mobile money platform
and the software development firms who are facilitating integrations, a few common themes emerge.
Providers state a number of different reasons to adopt mobile money, most of them related to
expanding geographic outreach and facilitating payments more cheaply. Some benefits mainly accrue to
clients, and some to suppliers, but there are also several mutually beneficial features of mobile money
integrations.
From the client perspective, integrating with mobile money increases the density of access points and
the reach of access points in new areas, transforming the geographical distribution of delivery channels.
Many financial service providers cite the lower cost in time and money for clients who want to make
payments and deposits or receive insurance payments, withdrawals, or loan disbursements. Smaller
institutions in particular lack widespread distribution networks (some have only a single branch) and
thus can benefit from plugging into a ubiquitous, low cost retail delivery channel. Some institutions also
report that the existing ATM network is not well situated for the poor. For example Nayndarua Teachers
SACCO notes that ATMs are clustered around wealthier and urban areas far away from their low income
and rural clientele.
Providers may also benefit from behavioral and other benefits. Savings clubs can have more efficient
meetings because less time is devoted to handling and counting cash. More time can be spent meeting
as opposed to counting the money that members brought in for payments. 8 In addition, because the
mobile money platform provides real-time remittance transactions and feedback (including instant SMS
receipts), it can help build trust and promote savings and repayment behavior. There may be additional
benefits to clients to having all their financial relationships and transactions available through a unified
interface which is with them at all times – i.e. their mobile phone.
From the supplier perspective, there are a number of benefits afforded by the reduced need to deal
with physical cash. Several providers suggest that keeping money in electronic form with clear records of
every transaction is valuable to reducing the risk of theft and misappropriation by employees. Providers
are also able to save on cash handling and collection costs. By removing the need to keep retail locations
and field agents stocked with physical cash, many costs and risks are removed both for savings and
lending operations. For example, with its purely mobile based business model, Musoni hopes to
maintain very low cost operations. This not only reduces costs for the provider, it can also enable
previously unprofitable small value transactions (although M-PESA’s transaction fees are still too high to
generate this benefit significantly).
Not having to handle cash also frees up staff time to focus on sales and other important tasks. This is
especially valuable for smaller financial institutions, like SACCOs and other small financial services who
value individualized sales and customer service for low income customer segments (through their closer
connection with this client base) but that are poor at service delivery.

Challenges providers face integrating with mobile money in Kenya

Many providers report that building mobile money into new and existing products posed challenges at
all levels from the operational to the strategic. The most common complaints are:

8
Anecdotally, practitioners report that monthly savings group meetings can be hours long and much of the time is
taken up by publicly counting cash to verify records and bookkeeping are accurate.

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Cost of transactions is the main barrier to integration with mobile money, especially M-PESA. The high
cost of M-PESA transactions, which can amount to more than US $1.00 for a roundtrip deposit and
withdrawal transaction (though clients and institutions usually split this cost in some way), are a
significant barrier for offerings where frequent small payments are necessary. Providers are excited
about the ability of M-PESA to facilitate low value transactions -- many of the innovative products linking
to M-PESA allow very small transactions -- but M-PESA’s fees are still too high to be viable for the client,
especially the person to person fee which is over US$0.40. Many providers cite this as a key barrier to
reaching lower income clients who would prefer to risk storing the money at home or saving through
other informal means rather than pay these fees. As a result, some providers, such as Kenya Bankers
Sacco Society, Musoni, and Zimele Asset Management, cover all or a portion of the fees charged by M-
PESA. Although M-PESA transaction fees were cost effective when building the business, especially
when compared with traditional retail channels, they are limiting the viability of smaller value
transactions and thus limiting outreach to the poor. With Equity bank/Orange entering the market and
Airtel Mobile money currently re-launching the ZAP product, Safaricom may eventually face some
pressure to reduce pricing on transfers.
Integration costs and poorly performing M-PESA APIs are a key challenge. An equally common
complaint is that integrating with mobile money is difficult and M-PESA has no real API to speak of. As
detailed above, most providers have to hack together a system whereby clients access a session-based
phone menu (USSD) to enable withdrawals via the web interface and use M-PESAs Bill Pay function to
send money back the other way. Neither mechanism is optimized for the tasks they are performing and
the Bill Pay function actually requires most financial service providers to have a custom integration to
collect client data, link it to information received from M-PESA and input both sets of information
directly into their back end systems. The poor API functionality causes many institutions to incur large
integration costs, and suffer from poor performance and system downtime whenever Safaricom’s
interfaces change.9 This is especially problematic for smaller institutions with limited in-house software
development capability and whose lower scale of operations combined with often older (or even Excel
spreadsheet based) back end systems make integration a challenge.
While M-PESA’s API was considered the worst, other mobile money APIs in Kenya are not much better.
Yu-cash is lauded as having the best API, though its extremely limited agent footprint and client base
make it of little use to banks seeking to reach the mass market.
Challenges of building and maintaining relationships with clients when offering a service indirectly.
While low levels of client literacy, lack of familiarity with technology, and limited exposure to financial
products are challenges many financial institutions cite in dealing with the poor, these are exacerbated
when mobile money is used as it implies less face to face contact with clients. As a result, the large cost
savings to banks and to clients from having fewer transactions at the teller come at the expense of
reduced client contact. This may make client outreach, trust-building, education, and cross selling more
challenging, especially for providers that do not have brand recognition. Mamakiba, for example, is an
early stage venture that offers pre-paid prenatal care and child delivery services to allow mothers to
save for births rather than borrow. Given the lack of face to face contact and unknown brand, clients

9
We feel there are two main features of a “good” API: predictability of API management from the provider, and
ease of use (which may or may not be related to degree of openness or adherence to industry standards – a user-
friendly API might still be a walled garden or adhere to its own set of standards, for example). It is hard to program
when the system might change without warning, and when the system is not designed to be open to third-party
programmers. Safaricom has no formal API management process and when changes are made to the interface,
financial institutions are left scrambling to fix them, regularly leaving their systems down for up to days at a time.

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were at first skeptical that the services would actually be available when they were ready to give birth.
Mamakiba had to counterbalance this with extra client outreach to establish trust.
We believe reduced direct client contact is a fundamental challenge that is created by the efficiency-
enhancing separation of the cash transaction service function from the customer service and sales
business functions. These functions used to be combined in one retail outlet where they overlapped,
facilitating client contact and client relationship management whenever someone came in to deposit or
withdraw cash. Now they are separated, challenging providers to develop new models for fostering
positive interactions with customers. One potential bright spot is that, while mobile money is a
payments service, it comes through a mobile phone, facilitating new ways to communicate with
customers via text message and voice. Some providers are already experimenting in this area.
Other reported issues included lack of phones among some of the poorest Kenyans (many poor Kenyans
borrow phones from others, making it difficult for financial service providers who need to identify the
client before allowing them to withdraw money or receive funds) and poor service (including lack of
float at the agent or downtime of the mobile operator’s network).

Conclusions
M-PESA was launched only four years ago and its rate of uptake in the population has taken even
Safaricom by surprise (over 70% of households, and 60% of adults regularly use it).10 Existing financial
service providers offering new or enhanced products and entrepreneurs seeking to hatch new ventures
have had little time to develop and test business models. Nevertheless, our preliminary investigations in
Kenya reveal a growing demand from banks, microfinance institutions, and SACCOs and other financial
service providers to connect their products onto the platform provided by M-PESA. We found few
financial institutions that did not have some form of mobile money integration completed or underway
and documented 90 specific cases which did. We also uncovered a number of new entrepreneurial
ventures who exist solely on the mobile money platform (though none of these startups had generated
significant volume of business as of yet). While the level of transactions going to and from the financial
system through these newly enabled mobile money channels is still relatively low according to anecdotal
evidence, and it does not yet seem likely that large numbers of new poor clients are being reached
because of mobile money, these are early days and the level of activity is striking.
For this reason, we believe mobile money has strong potential to become a “catalytic platform.” The
variety of new models and approaches being tried could portend a fairly fundamental realignment of
the cash-based financial sector moving from all cash transactions mediated by expensive retail
infrastructure to greater use of electronic payments through cell phones. Outsourcing cash handling will
not only allow financial service providers to serve their clients at lower cost per transaction but also
allow them to get more value out of their existing front office infrastructure and staff as they focus on
more sophisticated tasks such as customer service, cross-selling, risk evaluation, etc. as opposed to cash
handling. On the client side, customers will gain access to a dense network of transaction points, greatly
reducing their costs to access financial services. And once clients are on the financial system, and able to
transact at low cost with financial service providers, the platform enables a whole new set of services
and delivery models which were not previously possible or profitable.
However, whether mobile money will achieve this vision in Kenya depends on operators and financial
service providers’ ability to overcome certain challenges: 1) Prices on transfers, especially through M-

10
See Suri and Jack (2011), “Mobile Money: The Economics of M-PESA”; NBER Working Paper No. 16721.

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PESA, must be reduced, 2) Mobile money providers, especially M-PESA, must lower integration costs
and develop a useful set of APIs, and 3) financial service providers must develop fundamentally new
models for fostering relationships with customers when face-to-face cash transactions and the retail
infrastructures associate with them are a thing of the past. If mobile money and financial service
providers can overcome these challenges, Kenya’s retail financial services market is poised to be
transformed.

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Appendix Table. Existing and in-process integrations with M-PESA and other mobile money platforms.
Note: since the list of providers integrating with M-PESA and other mobile money platforms is extensive,
we have only included select number of those offering a new product through M-PESA.

Sector Category

Bridge builder
E-Commerce

Integrator
Innovator
Insurance
Financial

Savings
Institution /

Credit
Company Product Description
Develops mbanking solutions for
Cellulant X
banks and SACCOs that help them
use SMS messaging to/from their
clients.
Expectant mothers and her
Chamgamka Chamgamka X X
community save for future health
services through M-PESA.
12 yr endowment product that
Cooperative M-BIMA X X X
combines savings with a life and
Insurance
disability cover. Payments and
Company (CIC)
claims are settled through M-PESA.
Uses USSD technology to allow
Coretec X
members to access services like
Systems and
deposits, withdrawals and loan
solutions
payments through M-PESA.
Equity Bank M-KESHO X X Offers account directly linked with
M-PESA in quasi-real time.
Web-based application that allows
Flexus Kopesha X
microfinance institutions (MFIs) to
Technologies
disburse loans directly into the
customer’s’ M-Pesa account.
Developing applications for MFIs and
Intrepid Ipay X X
SACCOs. Also offer platform for
online purchases with mobile
money.
Currently enabling loan payments
Jamii Bora Trust X X
through M-PESA.
Pension product for informal sector
Jua Kali Jua Kali X X
enabling small payments funded
Association pension plan
through M-PESA.
Index-based weather insurance sold
Kilimo Salama Kilimo X X
to farmers against drought using
Salama
camera phone and scanning
technology. Payments made through
M-PESA.
Building a platform that integrates
KOPO KOPO X
mobile money systems with a range
of MFI and SACCO loan management

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 systems.
Expectant mothers save through M-
Mamakiba Mamakiba X X
PESA for birth based on a savings
calculator.
Integrated services with M-PESA
Meru Mwalimu All products X X X
platform through Spotcash
SACCO
application.
New loan-cum-savings product
Mobile Jipange X X
delivered through M-PESA.
Commerce Kusave
Ventures Ltd
Virtual MFI that enables clients to
Musoni X
repay their loans and deposit their
savings using existing mobile money
services.
Web payment system that enables
PesaPal X X
online buying, selling and bill
payments with mobile money.
Platform for online purchases with
Symbiotic Moca X X
mobile money.
Connects SACCO accounts to the M-
Tangazoletu Spotcash X
Pesa platform allowing users to
withdraw and deposit their money
from and to their account through
the cell phone.
Platform for online purchases with
Webtribe Jambopay X X
mobile money.
New mutual fund that allows smaller
Zimele asset Zimele X X
payments to be made through M-
management pension plan
PESA.
Expedites MPESA payments by
Zege Mpayer X
making transfers on demand as
Technologies
opposed to through batch-
scheduled requests.

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