Safaricom M-PESA – a lesson in how operators, if not all companies, can build a mobile business centered on essential services

Safaricom’s mobile money service M-PESA has – rightfully – received international recognition for its efforts in bringing essential financial services to people without bank accounts. What is less well-known is that Safaricom also makes a good income from the service – 16 percent of revenue and rising fast. Operators the world over should take note. In fact, all companies that are developing mobile services should take note.

Elsewhere in the world operators are fighting to retain customers in the face of stiff price competition from their direct competitors and, at the same time, worrying about the threat to their core voice and messaging revenues from their indirect competitors – companies offering Web-based telephony e.g. Skype and messaging services e.g. BlackBerry messenger. These companies are often referred to as over-the-top or OTT providers (more on this here).

mobiThinking isn’t prescribing that every operator launch a m-wallet (though many have jumped on the bandwagon of late). The point is that operators need to find services that are indispensible to customers (and, for that matter, businesses), that both foster loyalty and from which they can derive a fair revenue.

About M-PESA:

M-PESA was launched in March 2007, as a joint initiative by Safaricom and Vodafone, to enable Kenyans to use their mobile phone to transfer money, perhaps to a family member’s phone back home, for a small fee. Five years on the service is used by 14.91 million people… That’s 36 percent of the Kenyan population. Customers can reload their m-wallet or withdraw cash at a network of 39,400 agents.

Safaricom has gradually introduced a range of financial services to M-PESA including paying utility bills or school fees, making in-store purchases, m-ticketing, phone top-ups (29 percent of top-ups on Safaricom come via M-PESA), withdrawing cash from ATMs, sending money home from 45 countries overseas, people even have their wages and stock dividends paid into their M-PESA account. All of this is achieved without needing a bank account, bank card or a smartphone, because M-PESA works on all handsets.

Fostering loyalty:

M-PESA is only available to Safaricom customers. That means that the 14.91 million people who use M-PESA have to be active Safaricom customers – if there’s no credit on the SIM card, M-PESA doesn’t work. 78 percent Safaricom subscribers use M-PESA – how many of those would be prepared to give up the service to move to a rival operator? So even before you look at direct revenue from transaction fees, you have to consider the indirect impact on revenues delivered by this indispensible service due to reducing customer churn.

Earning revenue:

Operators worldwide are facing reduced revenue growth – and in some cases are seeing declining revenues – from voice and messaging, due to a mixture of competition and, in some countries, government regulation. Increasing the share of services other than voice and messaging is a priority for all operators. That’s what makes M-PESA contribution of 15.8 percent to annual revenue so significant – it’s twice as much as SMS revenue – and it’s growing at a staggering 43.2 percent each year. Here’s the stats from Safaricom’s annual report.

Safaricom revenue 2010/11 and 2011/12

Revenues in Billion Kenyan shillings (Ksh. 1 billion = US $11.74 million)
  2010/11 2011/12 Annual
Contribution to
2010/11 revenue
Contribution to
2011/12 revenue
Voice 63.50bn 68.96bn 8.6% 67.0% 64.5%
M-PESA 11.78bn 16.87bn 43.2% 12.4% 15.8%
Data 5.37bn 6.59bn 22.7% 5.7% 6.2%
SMS 7.54bn 7.77bn 3.0% 8.0% 7.3%
Handset & Acquisition 6.64bn 6.80bn 2.4% 7.0% 6.4%
Total Revenue 94.83bn 107.00bn 12.8% 100% 100%
Source: Safaricom annual report (March 2012) via: mobiThinking

So why should we all be excited about M-PESA?

1) Operators can’t continue to compete just on the price of voice… messaging… data.
All operators need to find their M-PESA – a service that fulfills a real customer need and one that customers are prepared to pay to use. In developing countries, where many people do not have access to financial services, but do have mobile phones, mobile money services should – theoretically be just as successful – though none, so far, have attracted the huge numbers that M-PESA has in Kenya. Success of m-wallets in Western countries, where the majority of people have bank accounts, is less assured.

As operators search for the key services that suit consumer and business customers, we should see a period of innovation that will inevitably benefit all. We’re not talking about jumping on bandwagons e.g. opening yet another app store, or duplicating services that other companies already do better, but coming up with new ones, that operators with their large customer bases and sophisticated infrastructure should be able to do better and cheaper.

2) All companies should take this attitude to mobile. Mobile services are successful because they answer a real customer need. The main reason behind M-PESA’s success is not necessarily because Kenyan’s needed mobile banking, they needed banking.

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