The introduction of Apple Pay, which allows users to pay via smartphone, has generated plenty of buzz. But when it comes to mobile money, America trails years — seven years — behind another country: Kenya.
The mobile money app M-Pesa launched in 2007 and now has more than 15 million users in Kenya — plus millions more across South Africa, Afghanistan and the rest of the globe. By 2012, the value of M-Pesa transactions reached $18 billion, equal to about 41 percent of Kenya’s GDP. For those interested in emerging markets, M-Pesa has become a larger-than-life success story: It launched a hundred research papers and became a sort of holy grail for other telecom companies, which have tried — largely in vain — to replicate its model around the world.
But M-Pesa’s model may finally be spreading. Last month, Kenya’s Equity Bank introduced a new piece of technology that literally piggybacks off of M-Pesa’s success. Called a “thin sim,” the paper-thin chip slips under a standard SIM card used in mobile phones by Safaricom, the telecommunications company that owns M-Pesa. Operating like a second SIM, the device will connect to its own cellular network to allow users to make instant money transfers, just like M-Pesa.
Those in the industry are watching closely, not just to see whether another player can finally shake M-Pesa’s dominance, but also because the technology could finally make mobile payments feasible in other developing countries. If so, it could further blur the line between banking and telecom, and potentially offer market access to the hundreds of millions around the world who have a phone but no bank account. First, Equitel, the thin-sim program, has to fend off a court challenge in January.
Among those who hope Equitel succeeds is Benjamin Mulgal, a 24-year-old university student whose parents send him money through M-Pesa — and who pays up to 110 shillings (about $1.22) in fees each time. “M-Pesa charges are a burden to me,” he says, but they earned the company $118 million in revenue in the first six months of last fiscal year. Most came from customer-to-customer money transfers like the ones Mulgal gets from his parents. Equitel’s charges top out at 25 shillings.
Also alluring for many of Kenya’s unbanked: the potential for credit. Last year Equity Bank’s loan portfolio topped $2 billion, with much of that cash chopped up into micro-loans to Kenya’s middle and lower-middle classes. But as with anywhere, Kenyans without a credit history generally aren’t eligible for a loan, and certainly not a sizable one. With Equitel, though, the bank can see how much money a client receives or spends in a given month — or note how frequently his account balance approaches zero — and use the data to establish a credit history.
Safaricom, which did not respond to interview requests, isn’t giving up without a fight. M-Pesa’s parent company has a history of beating back potential competitors, and when word of Equitel’s plan surfaced, it sought to ban the thin sim altogether, arguing that the device could threaten the security of customers’ data. Kenya’s Communication Authority disagreed in October and green-lighted thin sim for a year, but Safaricom has appealed. The High Court is expected to rule early next year.
To be sure, Equitel won’t demolish Safaricom’s monopoly in one fell swoop, and it’s far too early to tell whether it can offer Kenyans the seamlessness M-Pesa has. And when it comes to payment systems, it’s not clear that a variety of players is necessarily better than a monopoly. Sellers might feel pressured to carry all of them, for instance, and that could prove costly for small-time merchants like vegetable vendors. “It can’t be economically viable to have so many companies doing the same job,” says Timothy Igathe, an industry observer. He thinks the market could bear only about four payment companies.
At the least, most in Kenya agree that two is better than one. As Equity continues its thin-sim rollout, it’ll put M-Pesa’s reputation as an isolated success to the test. Which doesn’t guarantee either of them will last through the long haul: Unlike Apple Pay, the thin sim and M-Pesa are designed primarily for users who don’t have smartphones. For now that’s an asset in countries like Kenya, where one-third of new phones being sold can’t connect to the Internet or use apps. But as more Kenyans switch to smartphones, that may render both services — M-Pesa and Equitel — obsolete.