While American tech giants such as Apple, Google and PayPal compete and fail to agree on the standards for digital wallets, a financial technology platform proudly developed in Africa is set to expand across the Continent. Safaricom, the Kenyan wireless services company that operates the M-Pesa network, recently issued a major corporate announcement. Vodacom, a South African wireless giant, purchased 35 percent of Safaricom with an express intention of making the M-Pesa footprint known across Africa. Should this plan work for Safaricom, the Continent could become the largest region on earth were most cash transactions are handled via mobile phones.
M-Pesa is a financial services platform that enables the mobile transfer of money for a handful of purposes that are vital in any economy: instant cash transfers, retail purchases, payments for goods or services, and secure storage of money. In essence, M-Pesa has the ability of turning mobile devices that work with SIM chips into digital wallets, and they need not be fancy smartphones; the rugged and basic feature phones that are widely used in Africa will work with M-Pesa.
In Finland, the land of Nokia and spiritual home of the wireless industry, mobile banking and cell phone payments date back to the late 1990s; however, these wireless transactions were usually tied to a bank account. In North America, most digital wallets are complex systems that connect to bank accounts and credit cards. The M-Pesa service does not require bank accounts; in fact, it was developed for the specific purpose of reaching “unbanked” or “underbanked” populations.
The M-Pesa concept was born from the observations of British experts working for development agencies in Kenya. These professionals noticed that the domestic remittance system of bus drivers delivering cash to remote villages was not efficient. Banks could have filled this need, but bureaucratic measures and unreasonable requirements leave many Kenyans outside of the banking system.
Wireless giant Vodafone UK provided the M-Pesa network for Safaricom to implement. In the 10 years that M-Pesa has been in operation, it has transformed Kenya’s financial system. Safaricom has received accolades from the United Nations and the World Bank, and the M-Pesa system has grown to more than 25 million users in Kenya alone. M-Pesa has been welcomed in Tanzania under a slightly different platform, and it has also expanded to India, Afghanistan, Albania, and Romania. South Africa was set to be the next major market for M-Pesa, but regulatory issues and existing competitors have prevented Safaricom from gaining traction.
Now that Vodacom has purchased a large stake in Safaricom, one South African hurdle has been removed since regulators in that country were concerned about a foreign wireless firm operating a cash transfer network. Safaricom is now a true multinational business, and South Africa is only the beginning. In Kenya, the government is clearing the way for other wireless providers to receive M-Pesa transfers; should this model be adopted in other nations, this financial technology platform could handle more cash transactions than major American and European banks on a daily basis.