Oct 23, 2012

M-PESA puts Kenya on the brink of a cashless economy


A strategic inflection point is when the balance of force shifts from the old structure, from the old ways of doing business and the old ways of competing, to the new. Before the strategic inflection point, the industry simply was more like the old. After it, it is more like the new. It is a point where the curve has subtly but profoundly changed, never to change back again.
-          Andrew S. Grove, Only the Paranoid Survive (1999).

M-PESA is arguably the most significant technology for payments in Kenya at this time. It has changed the economics and shaped the power play in the payments value chain in Kenya.

Mobile phone penetration in Kenya is driving mobile payments growth. There are over 27 million mobile phone subscribers in Kenya with over 15 million of them being M-PESA users.

Looking back at the history of M-PESA we see one inflection point where the gradual evolution Of the Kenyan payments industry was disrupted,where there was a discontinuity between the past and the future. With a simple message of ‘send money home’, M-PESA revolutionized how Kenyans send and recieve money. Domestic remittances in Kenya has never been the same since M-PESA was launched in 2006.

The second discontinuity is coming with the creation of a two-sided market platform. This second discontinuity will require the participation of not just M-PESA customers but business owners as well. M-PESA has cracked the chicken-and-egg dilemma by getting a critical mass of customers on the market by giving them an easier way to make a payment.

M-PESA at Petes coffee shop in Nairobi

The demand for M-PESA among businesses is being fueled by M-PESA customers who are demanding to pay with M-PESA at the point of sale. Hundreds of SMEs are adopting M-PESA at the point of sale to capitalize on this trend. It has become very easir 
than before for small retailers to get an M-PESA buy goods account . Within 2 weeks a small retailer could be offering M-PESA at the point of sale just like the big boys Uchumi, Naivas and Deacons.

Now this begs the question, will M-PESA detrone ‘King Cash’? Will Kenya be the first country in Africa to go cashless? Some might think that this is unachievable for a low income country where the payment environment is still dominated largely by notes and coins. But some like me believe that this is the future and it is around the corner.

It is impossible to observe an inflection point when you are on it. It often takes years for hindsight to become sharp enough to reveal that a fundamental change has occurred. But in the case of M-PESA in Kenya, I can feel it happening. I can see it happening.

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