The end of Mobile Money as we know it

This week brought a major announcement: Safaricom will allow its M-Pesa merchants to accept payments via Mastercard.

Mobile money, Africa’s remarkable success story, began in 2007. At a time when mobile banking was still a distant future in Europe, Kenyan telecom giant Safaricom introduced a simple yet groundbreaking idea:

Your SIM card becomes a store of value, your phone number serves as your bank account, and you can send and receive money through a basic feature phone menu.

Mobile Money

They called this service M-Pesa, meaning mobile money. Today, across Africa, 166 mobile money providers serve approximately 780 million registered users.

Safaricom’s success in Kenya has been particularly extraordinary. Kenya’s 56 million people have 39 million M-Pesa accounts, giving Safaricom a market share exceeding 90%. In fact, the Central Bank says that the annual transaction volume through M-Pesa is equivalent to three times Kenya’s GDP. Kenya has become the M-Pesa universe. “When Safaricom’s servers go down, the country’s economy goes down”, they say.

So, why is Safaricom now opening up its closed-loop system?

A bold move

It’s a bold move. Allowing M-Pesa merchants to accept payments through Mastercard and enabling M-Pesa consumers via Mastercard to make payments to bank accounts of other providers could disrupt Kenya’s payment ecosystem. It might weaken M-Pesa’s monopoly-like dominance.

What considerations could have prompted Safaricom to take this risk?

• Modern digital payment technologies such as NFC and Bluetooth are on the rise and would sooner or later disrupt the 17-year-old, somewhat cumbersome M-Pesa mobile money system one way or another.
• Safaricom’s growth potential in Kenya is nearly maxed out. To expand further, international growth is key, and a strategic partnership with Mastercard could open the door to new opportunities.

It has been an admirably bold decision. The future is open. It will take a few years for the full impact to unfold. However, the concept of mobile money as a distinct ecosystem, separate from the traditional banking system, will likely cease to exist.