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Africa's Mobile Payment Movement Empowers Populations Long Ignored by Traditional Banks

I was recently involved in a spirited discussion with a couple of people online. The subject? The perception that African countries are somehow lagging behind the rest of the world in terms of technological innovation. I argued against that idea, citing a number of examples from different countries on the continent that show remarkable innovations and concepts. One of those concepts has grown into a viable movement that is just now catching the eye of the west. What is it exactly? The mobile payment movement. To be more precise, M-PESA.

M-PESA is a joint venture between themobile phone provider Vodafone and Safaricom, the leading mobile phone company in Kenya. The term itself is a combination of 'M' for mobile and 'pesa', the Swahili term for money. The service began in 2007 primarily in Kenya, but its roots go back to research done in 2002 in Ghana, Uganda, and Botswana facilitated by the DFID, the Department for International
Development UK. They saw that people in those countries were successfully using mobile airtime as a proxy for money transfer. With that information, the groundwork was laid out for MCel of Mozambique in 2004 to be the first African nation to introduce authorized airtime credit swapping. Vodafone and Safaricom began to collaborate a year later, with grants from DFID and a student software development program as an initial framework for today's M-PESA. M-PESA works like this: you set up an account with Safaricom via a local agent in a store or a mobile hone outlet. You then fork over cash which is deposited into your M-PESA account. After you receive the account information and your PIN, you can then make transactions and payments to anyone via the account. Both parties receive an SMS detailing the transaction. The retailer can then go and collect the funds from any authorized M-PESA agent. And fees are subtracted during this process, much like PayPal. The beauty of it is that you don't necessarily need a bank account to use M-PESA. You can also add airtime using the account as well.

Of course, the question is, why has M-PESA succeeded when other mobile payment systems have floundered? The answer is multi-faceted. One answer lies in the way that M-PESA is designed. In a nation like Kenya, economic hardship is a major problem. The program gained major ground surprisingly enough thanks to the post-election violence that ran rampant in 2008. Many caught in the poorer areas
of Nairobi had no way to conduct their daily business. M-PESA provided a way to do so without having to make a dangerous trek. It also was a welcome alternative to the banks, who were caught up in the ethnic tensions and found themselves choosing sides. More people
began to sign up. This development led to a rise in economic prosperity; one study conducted among rural Kenyan households found that M-PESA users saw their income rise in rates from 5 to 30 percent. About half of the nation's adult population uses M-PESA now. It has grown to now include other banking options such as salary distribution and microfinance loans. In Tanzania for example, M-PESA is used as a means for an NGO to provide travel expenses for those in need of medical attention, providing a possible solution to a troubling healthcare crisis in that country. Having the ability to conduct banking in a country with infrastructure problems with a few swipes on your smartphone saves not only time but actually maximizes economic growth and productivity. It's also more cost effective compared with fees for wire transfers. In addition, the improvements of smartphone technology often find their first steps in countries classified under the 'Third World' or 'developing' umbrella. 

M-PESA's success has enabled Vodafone to offer the service to other ten other nations. This list includes India and Romania, the first European nation to introduce the service. Romania's entry is huge because one of the guiding voices behind M-PESA, Susan Lonie had initially felt the program wouldn't be as popular in Europe.

Mobile payments on the whole have also been steadily progressing here in the United States thanks to PayPal and Square, but have had their difficulties due to concerns about the possibilities of money-laundering raised by banks and also the threat of hackers. M-PESA and other mobile payment programs from African nations owe a part of their success to being more willing to take risks and experiment with connecting parts of their population neglected by banking institutions. In doing so, they've created new territory that they can seize upon. M-PESA itself, for example, is defined more as a money transfer service than a full-fledged banking program by Vodafone and Safaricom. It obtained a special license to that effect from the Kenyan government, despite objections as it grew more and more successful in recent years. In the U.S., this potentially murky area would be attacked by both the need for federal financial regulation to be written and also the possible wrangling between banks, multi-national credit card companies and other financial outlets with mobile providers. But as recent reports have shown mobile payment growth in the U.S. topping one billion dollars—and that's with limited adoption—combined with noted tech investors doing research in Kenya and other African nations, that area might get clearer as time goes on. And will put the nations of the African continent in a firmer position as inspiring leaders of the tech movement of the 21st Century.

Top image credit: erichon/Shutterstock

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Christopher Smith's picture
Christopher Smith is a contributing founder/writer for Manifesto Magazine in NYC and is an indie rock reviewer for Independent Music Productions. Christopher's work has appeared in The Smoking Section, King Magazine, Parle Magazine, & IAMOnlineMag. He has two published books of poetry and runs several blogs.