Mobile Phone Money Transfers No Panacea Yet

ACORN International Financial Justice


New Orleans The bleeding edge hope for technology in handling finance is often seen as Africa and more specifically Kenya and very pointedly mobile phones.  To the degree a mobile phone system could obviate having bank accounts and ease the problems and costs of money transfer for remittances, this could be a good news except for all of the “ifs,” “ands,” and “buts.” In Nairobi last week ACORN International and the Paladin Partners spent some time trying to get our minds wrapped around all of this to sort out the hype from the hope.

The key system is Safricom’s M-Pesa which is ubiquitous in Nairobi and by far the wide leader in the current market.  We saw their outlets everywhere including in Korogocho where we were organizing in the mega-slums.  Talking to the ACORN Kenya organizers about whether and how they used the system we got more mixed reviews based on the costs involved and the need for specific phone and SIM card access.  Importantly they estimated that in Korogocho less than half had any mobile phone and most only used the phone to receive messages without cost and had phones that were simple for text and phone without being able to access M-Pesa on the more what sounded like a more expensive Safricom platform.  The fact that Sammy Ndirangu’s phone was a “dual-SIM” phone somehow seemed important because he could work multiple networks to move between them whenever one or the other was cheaper.  Looking in the mobile phone stores about the city, none of these options were cheap.

Safricom has the lion’s share of the market in Kenya with 13 million subscribers.  Importantly, the company is a joint venture of sorts with equal shares of about 35% owned by Vodafone (based in the UK) and the government of Kenya.  There may be problems with this relationship and expanding access to the platform.

A piece in was illuminating.   Safricom’s competitors approached the Central Bank of Kenya with a proposal to create a seamless system for money transfers between networks.

“Though it is possible to send money across the networks, the transfer process remains complex and costs 10 times more than the price of sending money within a network, adding new dimensions to the factors that preventing consumers from changing mobile phone service providers.

Currently, recipients of money from other networks receive a Short Text Message indicating that money has been sent to them and have to go with the message to an agent of the operator whose platform was used to send the money for withdrawal.

Under the proposed structure, the CBK is being asked to establish a form of clearing house that processes all transactions from the four mobile money platforms M-Pesa, Airtel’s Zap, Yucash or Orange money and sends it directly to the recipient’s phone.

That should help remove the high charges that the operators levy consumers sending or receiving money from one network to another.

Consumers sending Sh25,000 from M-Pesa to rival networks such as Airtel must for instance part with Sh400 in transaction fee while the cost of sending and receiving a similar amount of cash from Airtel to rival networks is Sh200

Safaricom’s rivals reckon that a seamless platform will loosen each operator’s grip on the mobile money platform pulling down the cost barriers and allowing free movement of money in the economy.”

The exchange rate is roughly 80 Kenya Shillings to 1 US Dollar if that helps in understanding all of this.  The notion that regular Kenyans would be transferring Sh 25,000 or more than $300 USD when the largely unenforced minimum wage in the country is about $80 USD in the city and half of that in the countryside is also preposterous as our remittance studies have shown (, but you get the point:  internetwork charges are choking off the tool and its access and applicability to average Kenyans.

The fact that Safricom has the governmental connection and now controls 76% of the mobile market in Kenya doesn’t bode well for a quick fix here anytime in the near future.  Two of the main competitors in Kenya, Airtel and Yucash are India-owned companies, which leads to a natural next question of why hasn’t the mobile money transfer system gotten farther in India where it could make a huge difference?

Let’s look into that question on a later day, but in the meantime this “hope” for African financial systems and for lower costs for remittances still seems farther in the future than any of us might have wanted to believe.