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CanmobilemoneytransferserviceMPesasucceedinIndia?:BusinessToday

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CanmobilemoneytransferserviceMPesa
succeedinIndia?
SunnySenNovember6,2014

ExecutiveSummary:In2007,MPesastartedinKenyaasaCSRpilotprojectby
Safaricom,aVodafonesubsidiary,totransfermoneyovermobilebecauseitwasunsafeto
carrycash.Butsoonitchangedintoafinancialserviceandbecameabighit.Vodafone
broughttheplatformtoIndiain2010asapilotinRajasthan,andlauncheditinApril2013.
Butithashadaslowstartconsideringonly1.5millionofVodafone's170millionsubscribers
usethisservice.ThiscasestudylooksathowaservicethatoriginatedinKenyawas
tweakedforIndiaandwhetheritcansucceed.
GeetaDevi,ChotiDeviandLilimaKachaap,threepoorwomeninthenondescriptareaof
NamkumnearRanchi,Jharkhand'scapital,hadrecentlygivenbirthtohealthyoffspring.But
theirjoywastemperedbyexasperation.TheirwaitforduemoneyfromJananiSuraksha
Yojana(JSY),afinancialassistanceplanundertheNationalRuralHealthMission(NRHM),
wasgettingneverending.Thescheme,whichpromotesinstitutionaldeliveryamongpoor
women,givesRs1,400onthebirthofeverychildtothemother.
Thankfully,thetriowouldgettheirdueunlikethousandsofotherswhodonot,andfromquite
anunexpectedsource.ItallstartedwhenVodafone,India'ssecondlargestmobileoperator
bysubscriberbase,tiedupwithNRHMtodoapilotprojectinNamkum.Theobjective:
disbursemoneydirectlytothebeneficiariesthroughMPesaitsfinancialmobileservice
betterknownasamobilewallet.MPesaisaUSSDbased(anSMSbasedservicethat
doesnotneedInternet)technologythathelpspeoplesendandreceivemoneyoverthe
mobile,apartfrommakingutilitybillpayments,andrechargingmobileandDTHaccounts.
TheJharkhandgovernmentsharedthelistofbeneficiarieswithVodafone.Inturn,Vodafone
identifieditscustomersonthelist,andactivatedtheMPesaserviceforthem.Forpeople
whowerenotonVodafone,thecompanyputupcampsinNamkumsothattheycouldget
VodafoneSIMsandtheMPesaservice.
Oncethatwasdone,thegovernmentsentinformationonthebeneficiariesandthemoney
tothebankingsystemthatwaslinkedwiththeMPesaaccounts.Vodafone'sagentssome
ofwhoarealsobusinesscorrespondentsthenhandoverthemoneytotherecipients.So,
Geeta,ChotiandLilimaandseveralothersfinallygottheirmoneythroughMPesa.
WHYMOBILEMONEYMIGHTWORKININDIA
Mobilemoneyhasworkedelsewhereintheworld.MPesawasstartedinKenyain2007by
Safaricom,a90percentVodafonesubsidiary,asacorporatesocialresponsibility(CSR)
activity.DuetoKenya'shighcrimerate,itwasnearimpossibletocarrymoneyphysically.
SoMPesastartedasamoneytransferprojectandwashugelysuccessful.Today,MPesa
has70percentpenetrationinKenyaandisnomoreaCSRactivity.
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IndiamightnothavethesameproblemasKenya,butmobilemoneystillholdsupan
interestingsolutionformoneytransfertoruralareas.
Considerthefacts.Indiahas100,000bankbranches,fivepercentofwhichareinrural
areas.Sendingmoneythroughbanksbecomesimpossibleforthemillionsofvillagerswho
migratetobigcitiesforwork.Thepostofficesystemisalsousedalottotransfermoney,but
isnotconsideredentirelyreliable.Asaresult,mostmigrantworkerssendmoneyhomein
cashthroughtravellingrelativesoracquaintancesamethodfraughtwithchanceandrisk.
Atthesametime,governmentassistanceschemeslikeJSYandemploymentplanslike
MNREGA(MahatmaGandhiNationalRuralEmploymentGuaranteeAct)havegivenriseto
anewbreedofmiddlemen.Thisunscrupulouslottakescommissionstodisbursethemoney
tothebeneficiaries,butdon'talwaysdeliver.Andthecheatedbeneficiaryisnonethewiser,
largelyduetoignoranceandilliteracy.Plus,therearetheinevitabledelaysduetoredtape.
InOdisha,forinstance,alargechunkofruralemploymentcomesfromMNREGA,which
ensures100workingdaystoeveryenrolledindividualinruralIndiaeachfinancialyear.In
thecurrentfinancialyear,accordingtoestimatesbyexperts,6.48crorepaymentsare
delayedbymorethan15days,worthRs4,629crore,muchbehindthegovernment'sdesire
toclearallpaymentswithin15days.
InOdisha,Vodafonedidanotherpilotandtiedupwiththestategovernmenttodisburse
wagesofMNREGAworkersthroughMPesaintheHinjilicutandChikitiblocksinGanjam
district.Itsolvedtwoproblems.Forthosewithaccountsinlocalcooperativebanksandpost
offices,itreduceddelayinpayment.Andithelpeddeliverthemoneytothepeoplewhodidn't
havebankaccounts.
Whatworksinmobile'sfavouristhatIndiahas900millionmobilesubscribers,40percentof
whichareruralconsumers."Timewilltellifitisthebestpossibleway,butitdefinitelyseems
thatmbankingisthebestavailablemedium,becauseofmobiletelephony'spenetrationin
ruralIndia,"saystelecomregulatoryexpertMaheshUppal.
HOWVODAFONEDIDIT
AftertravellingthroughTanzania,Fiji,SouthAfricaandCongo,MPesafinallymadeits
launchinIndiainApril2013,afterapilotin2010.ThatwaswhenVodafonehadtiedupwith
HDFCBanktobecomeabankingcorrespondentinasmallvillagecalledSikar,in
Rajasthan'sJaipurdistrict.Thepilotwassmall,andwasn'tscalablethenduetoregulatory
problemsthegovernmenthadyetnotgivenmobilewalletlicencestooperators.Vodafone
wasdependentonHDFCBanktogetthewalletactivated,whichtookanythingbetween
eightand10days.Asaresult,peoplewouldoftenloseinterestandnevercomeback."We
wantedtounderstanddistributionandcustomerneed,"saysSureshSethi,headofMPesa
inIndia."Itwasagoodlearningprocessforus."
ThingschangedinJune2012,whentheReserveBankofIndia(RBI)startedgivingout
licencestostartmobilewallet,andVodafoneapplied.InNovember,theoperators,including
Airtel,weregivenlicencestooperateasemiopenmobilewalletwhichallowedconsumers
tosendandtransfermoney,paybillsanddorecharges,butdidnotallowtheusertotakeout
cash.ButtheRBIdidallowinteroperabilitywithabank,whichenabledVodafonetotieup
withICICIBanktoallowcashoutoptions.
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Finally,Vodafone'sMPesaservicewasrolledoutinApril2013,inthecirclesofWest
Bengal,Kolkata,BiharandJharkhand.Alotofpeoplefromthesestatesmigratetobigger
citiesforjobs.MPesausers,whocouldenrolinMPesabyaonetimepaymentofRs100,
alsoneededtoopenanaccountwithICICIBank.
SoVodafonestartedcollectingKnowYourCustomer(KYC)forms,amandatoryrequirement
toopenabankaccount,andstartedinstantactivation."Wearedoingaquasibanking
service.WecollectKYCformslikeanybankdoes,"saysSethi.ThousandsofVodafone
dealersbecameMPesaagentsorbusinesscorrespondents,andstartedbankingthe
unbanked.
TheonlyproblematthetimewasthatallMPesaagentshadtobewithin30kmoftheir
parentbank,especiallysinceICICIBankdoesnothavedeeppenetrationinruralIndia.(The
RBIsubsequentlyremovedthe30kmrestrictionthisJune.)
WithinayearofMPesa'slaunch,VodafonecompleteditspanIndiarollout.Today,ithas
80,000outletsorbankingcorrespondents,60percentofwhichareinruralIndia,andallof
themhavetheabilitytocashout.EventhoughMPesahasotherserviceslikeutilitybill
paymentsandrechargeoptions,moneytransferaccountsfor60percentofthebusiness.
ToVodafone'sadvantage,therefore,isthelimitedbankinginfrastructureinthecountryand
themigrantworkers'needtosendmoneyhomeinasecuremanner.Whathelpsisthat
Vodafonehasadistributionnetworkthatspans1.7milliontouchpoints,anddeeppenetration
inruralIndiaofits170millionusers,53percentareinruralareas.
Ofcourse,Vodafoneisn'ttheonlycompanyofferingmoneytransferonmobile.India's
biggestmobileoperatorBhartiAirtellaunchedAirtelMoneyinJanuary2011.Butitsinherent
disadvantageisthatitdoesn'tallowcashout,asitdoesnothaveapanIndiatieupwithany
bank,exceptaverysmallfootprintwithAxisBank.Airtel'soldertieupwithStateBankof
India(SBI)hasalsolongcometoanend.SBIitselfrunsabankingcorrespondentservice
calledEkoIndiaFinancialServices.Ekoworksasamobilewallet,butisnotdependenton
anymobileoperator.ButthenetworkismuchsmallerthanVodafone's.
IdeaCellular,India'sthirdlargestmobileoperator,alsohasanMWallet."Initscurrentform,
thesegmentthatitappealstoistheurbanandsemiurbanuser,"saysAmbrishJain,Deputy
ManagingDirectorofIdeaCellular."Butmbankingisneededfortheunbankedpopulation
whodon'thavedebitandcreditcards.Andtheyrequirecashout,whichisnotavailable
today."
TelecomcompaniesareexpectingthatoncetheRBIcomesoutwiththefinalguidelines,it
willallowthemtoprovidecashoutserviceswithoutanyinterventionneededfrombanks.
LONGWAYTOGO
However,thesuccessofMPesainIndiaonascalecomparabletoKenyalookslikealong
haul.OfVodafone'suserbaseof170million,only1.5millionareenrolledinMPesa.And
lessthanonethirdoftheseareactiveusers.Alotofthisisbecausepeoplestillrelyonthe
banktodepositmoney,andarenotcomfortabletransferringmoneyovermobile.
Writeyourview

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TheproblemswithmicrofinanceinIndiahad
raisedaquestion:isittooearlyforfinancial
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inclusioninIndia?Andnow,thereisanew
question:isittooearlyforinclusionthrough
mobile?MartenPieters,CEOofVodafone
India,doesn'tthinkso."No,wefeelthatwe
arewellpositionedandalignedtoenable
financialinclusion,"hesaysconfidently.
VodafoneisalsoupgradingtheMPesa
platform.Theoldplatformwasanimport
fromKenya,andisnotscalable.Thenew
platformbeingbuiltwillalsoworkonthe
Internet."Wehavebuiltcapabilitytoprovide
Internetbasedservicesalso,giventhat
reductioninpricepointsofsmartphones
andincreasedavailabilityhasledto(their)
greateradoption,"saysPieters."MPesa
willalsobeavailableonamobileapp
shortly."
In2011,industryestimatesandexpertshadsaidthatby2015therewillbeanywhere
between200and300millionpeopleusingfinancialinclusion,butnumbershaven'tyet
reachedasixthofthat.EventhoughVodafonehasgotinitialsuccesswithMPesa,the
biggerchallengeistogetthenumberslikeitsmobileservicehasgarnered.
EXPERTVIEW:
OPTIMUMADOPTIONOFMPESAWILLTAKEATLEASTTWOYEARS
"MPesa'sadoptionhasbeenlowowingtofactorssuchas
awarenessandlackofinformationandcommunication
technology"
SANCHITVIRGOGIA
ChiefAnalyst&CEO,GreyhoundResearch
FinancialinclusionistheneedofthehourinacountrylikeIndiaand
ithasbeenemphasisedenoughbygovernment,companiesandindividuals.TheRBI'spilot
projectonMWallethasbeenanimportantfactorwithintheecommerceindustryandI
believeitisheadingintherightdirection.
SanchitVirGogia

TalkingaboutMPesa,whichisVodafone'sMWalletoffering,theadoptionhasbeenlow
owingtofactorssuchasawarenessandlackofICT(informationandcommunication
technology)networks.ForthisplatformtothriveitisimperativethatIndiaalsoreachesa
healthystageofdigitalinclusion,thatis,connectivityforall.Adoptionisakeyfactorforsuch
aservice.Itisimportanttounderstandthatforanynewservice,amindshifttousethat
particularservicetakestime.Thiswillhappenwhenthegovernmentbringsvendors,
suppliersandthecustomeronasingleplatformtopromoteMWalletor,inthiscase,M
Pesa.
Wordofmouthisthegreatesttoolforinfluencingpeople.Iftheservicepicksupintier1and
metropolitancities,itisboundtohavearippleeffectintier2andtier3cities.However,the
successandthegrowthofMPesawilldependonthemerchantswhowillpromoteand
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integrateMPesawiththeirbusinessneeds.Westillneedtounderstandthefactthatthere
aremanyuneducatedpeopleinthetier2andtier3marketswhodonotunderstandthe
conceptofMWalletinitscompletefunctionality.Educatingthemisaprimaryconcernfor
vendors.Ifthisproblemisapproachedstrategically,itisonlythenthatMPesacanachieve
itsoptimumgrowth.
Therefore,VodafoneneedstoapproachtheIndianmarketverystrategicallybyensuringthat
peoplearedigitallyeducatedontheadvantagesandconvenienceofaplatformlikeMPesa.
InordertoachieveoptimumadoptionofMPesaplatform,Vodafoneneedstogiveatleast
twoyears.
MPESAFIRSTNEEDSTOFINDACCEPTANCEINURBANAREAS
"TheenrolmentsandbenefitsofMPesaarenotlikelytogrow
smoothlyovertime"
RAJESHCHAKRABARTI
ExecutiveDirector,BhartiInstituteofPublicPolicy,Indian
SchoolofBusiness,MohaliCampus
Mobilemoney,orMPesaasVodafoneintroducedit,hasbeena
muchawaitedproductinIndia.GivenIndia'senviablemobilepenetrationandmassive
financialexclusionandsignificantcashmanagementproblemsincertainareas,mobile
moneyappearslikethemostsensiblesolution.However,onehastounderstandthata
productlikeMPesabecomesusefulonlywhenasignificantnumberofpeoplebeginusingit,
particularlythepeopleyouareusuallytransactingwithorsendingremittancesto.
RajeshChakrabarti

So,theenrolmentsandbenefitsofMPesaarenotlikelytogrowsmoothlyovertime,butare
likelytoexhibitsignificant"breaks"astheservicecrossescertaincriticalthresholds.Hence
thethrustonhookinguplargescalevendorslikerailwayticketservice,anodethattouches
hundredsofthousandsofpeopleandhelpsMPesajumpovertoanewthresholdinits
networkeffect.
Giventhisnatureoftheproduct,itremainstooearlytoevaluatethesuccessandimpactof
MPesa.CustomeracquisitionwillbethenameofthegameandVodafonehaschosento
replicateitssuccessfulAfricanmodelinIndiabyspreadingalargenumberofagents,over
75,000,acrossthecountryandhasalreadycrossedthemillioncustomermark.Astrategy
forcustomeracquisition,particularlyfocusedatthebottomofthepyramid,islikelytobethe
keydriver.However,heretoo,aconscious,focusedapproachoftakingMPesatothe
financiallyexcludedmayactuallybelessproductivethanseekingtocreateMPesaasthe
"in"thingandfindinitialacceptanceinanaffluenturbandemographyandthenhaveit"trickle"
or"gushdown"tothefinanciallyexcluded.
Serviceprovidersarelikelytoseemorebenefitsofsigningupiftheircustomersareinto
mobilemoney.Asaresult,convenienceratherthanendingexclusionmayendupbeingthe
USP.There,ofcourse,MPesawillhavetobattleitoutwithotherbankaccountorcredit
cardbasedformsofmobilepayments,butthatshouldbeafamiliarbattlegroundfor
Vodafone.
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