Page 149 - Trends in Telecommunication Reform 2016

Box 5.3: M-Pesa Chapter 5

Developed in Kenya, M-Pesa is one of the world’s most successful mobile money transfer
services. It was launched in 2007 by Safaricom, Kenya’s largest MNO. Through it, millions of
people with access to a mobile phone – but with limited or no access to a bank account – can
send and receive money, top-up airtime and make bill payments.

Customers register for the service at an authorized agent. This is often a small mobile phone
store or retailer. The customer deposits cash in exchange for electronic money, which they can
send to their family or friends. Once they have registered, all transactions are completed securely
by entering a PIN number, and both parties receive an SMS confirming the amount that has been
transferred. The recipient, who does not have to use the same network, receives the electronic
money in real-time and then redeems it for cash by visiting another agent.

There are several mobile money schemes established worldwide. Why has M-Pesa been the most
successful? The financial sector regulator, Central Bank of Kenya (CBK), the telecommunication
Regulator (then CCK, now the Communications Authority of Kenya or CA) and the Ministry of
Finance conducted a due-diligence assessment of the risks before commissioning the project.
CBK put in place minimum standards to promote trust and confidence in the payment system
and promote consumer welfare. It also gave a special licence to Safaricom that contained less
stringent conditions than licences given to banks and other financial institutions.

The regulators’ initial decision to allow the scheme to proceed on an experimental basis without
a formalized regulatory framework was the root of this success. Regulatory forbearance allowed
innovation to thrive without being “boxed in” by conventional practices. Having established a
base of initial users, M-Pesa enjoyed the network effects of being hosted by the largest MNO.
The more people signed up for it, the more it made sense for others to do so.

While regulatory forbearance was exercised in the inception stages in order to encourage
innovation and uptake, a measure of formal oversight has been adopted over time to monitor
payment systems and to prescribe anti-money-laundering measures. The National Payment
Systems Regulations became law in August 2014.

On the telecommunication side, the M-Pesa agency system initially operated within the
Safaricom network only, but it’s now interoperable with other networks. The accommodation for
interoperability came in the wake of a petition by Airtel to the CAK to compel Safaricom to open
up its M-Pesa network.

Source: Author

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