M-Pesa is a mobile phone-based money transfer and payment service launched in Kenya in March 2007 by Safaricom, the country's largest mobile operator, with its then shareholder Vodafone. The name combines M for mobile with pesa, the Swahili word for money. Users hold an electronic balance linked to their phone number and can deposit and withdraw cash, send money to other people, pay bills and merchants, and reach savings and credit products, all without needing a bank account.
It is the best-known example of mobile money and the model on which many later services were built. In Kenya it became the main way of moving money between people within a few years of launch and is widely credited with advancing financial inclusion. The service also operates in other African countries through Vodacom and Safaricom group companies.
Origins
M-Pesa grew out of a pilot project, supported by a challenge fund of the United Kingdom's development agency, that tested whether microfinance loans could be repaid by phone. Pilot users instead began using the system to send money to one another, and the product was redesigned around a simple proposition: sending money home. Kenya had many urban workers supporting rural families and few bank branches, and the alternatives were bus couriers, post offices or travelling in person.
Vodacom launched the service in Tanzania in 2008. Later launches followed in countries including the Democratic Republic of the Congo, Mozambique, Lesotho, Ghana, Egypt and, in 2023, Ethiopia. Attempts in some other markets, among them South Africa and India, were closed after failing to gain scale. In 2020 Safaricom and Vodacom bought the M-Pesa brand and platform from Vodafone through a joint venture.
How it works
A customer registers with an identity document at an agent and receives an account tied to the SIM card. The original interface is a menu stored on the SIM, and the service is also reachable through USSD codes and a smartphone app, so it works on the most basic handset. Transactions are approved with a PIN, and both parties receive a confirmation by text message.
Cash enters and leaves the system through agents. In a cash-in, the customer hands banknotes to a mobile money agent, who transfers the same value of electronic money to the customer's account. A cash-out is the reverse. The agent uses their own stock of electronic value and cash, known as float, and earns a commission from the operator. The size and density of the agent network, which far exceeds that of bank branches and cash machines, is the foundation of the service.
The electronic balances are a form of electronic money. Every unit is matched by money that the operator holds in trust accounts at commercial banks, kept apart from the company's own funds.
Services
- Transfers between people. The original and still central use is person-to-person transfer to another phone number.
- Merchant and bill payments. Under the Lipa na M-Pesa brand, businesses receive payments to a till or paybill number, and utilities, schools and government services collect fees.
- Bulk payments. Employers, aid agencies and governments pay salaries and benefits directly to phones.
- Savings and credit. Products run with partner banks, beginning with M-Shwari in 2012, offer interest-bearing savings and small loans, and the Fuliza service provides an overdraft when a balance is too low to complete a payment.
- Links to banks and abroad. Customers move money between M-Pesa and bank accounts, receive an international remittance directly to the wallet through partner money transfer companies, and buy airtime.
The operator earns fees on transfers and withdrawals, graduated by amount, and commissions from business customers. Deposits are free to the customer.
Regulation
In Kenya M-Pesa began under a letter of no objection from the Central Bank of Kenya, which allowed the telecom-led service to proceed while a legal framework was developed. That framework arrived with the National Payment System Act of 2011 and regulations issued in 2014, which set rules for authorising payment service providers, safeguarding customer funds in trust, appointing agents and protecting consumers. The service is not a bank and balances are not bank deposits.
Customer identity rules follow a tiered KYC logic, with limits on balances and daily transaction values. Regulators have also pressed for competition and openness: operators' agents are no longer exclusive, and transfers between different providers' wallets have been enabled under wallet interoperability arrangements. In other countries the service is licensed by the local central bank under that country's own e-money or payment rules.
Impact and criticism
Research on Kenya has linked access to M-Pesa with households' ability to withstand income shocks, since help from relatives arrives quickly and cheaply, and with a reduction in poverty among some groups, particularly households headed by women. The service brought large numbers of previously unbanked people into formal financial services and became infrastructure on which lenders, insurers and retailers built.
Criticism has centred on market power, given Safaricom's very large share of Kenyan mobile money, on the level of fees for small transfers, and on the spread of easy digital credit, which has been associated with over-indebtedness and negative credit bureau listings for small defaults. Fraud is a persistent problem, including social engineering calls, fraudulent reversals and SIM swap attacks, and system outages affect a large part of the economy when they occur.