Africa’s Mobile Money Battle: Can M-PESA succeed in Ethiopia?
Understanding what turned Kenya-based M-PESA into a key disruptor in the African market and how banks can respond to its expansion.
Director – EMEA Lead – Fintech and blockchain specialist
When the mobile payment and money transfer service M-PESA was introduced in Kenya in 2007, nobody anticipated the transformative impact it would, have not only in this country but in the African market as a whole.
Owned by Safaricom, Kenya’s largest telecommunications provider, today M-PESA boasts 32 million users only in its home-country — where the adult population is 34.6 million.1 Around 659,000 businesses also make use of its transfers service, “Lipa Na M-PESA” in Kenya. In addition, in the last years M-PESA has expanded its operations to the Democratic Republic of Congo (DRC), Egypt, Ghana, Lesotho, Mozambique, Uganda, and Tanzania —it has become one of the most successful examples of mobile payment providers in Africa and worldwide.2
Now, M-PESA is starting to explore one of the continent’s largest and most challenging markets — Ethiopia — and a couple of key questions loom over its internationalization strategy. Firstly, will M-PESA be able to replicate its Kenya success in Ethiopia? Secondly, how can traditional financial institutions in Africa respond to the expansion of M-PESA and other mobile financial service providers?
Drivers of M-PESA’s success in Kenya
At least six factors have contributed to M-PESA’s positive performance in Kenya:
Weak banking infrastructure. Kenya also had a limited number of ATMs — just one for every 18,000 people.
Favorable demographic dynamics. In recent years, as the Kenyan economy expanded and the country underwent a rapid process of urbanization, a growing number of urban workers have sought ways to send money back to their families in rural areas.
An attractive solution. In this context, M-PESA has provided an accessible, convenient, safe, and affordable solution for consumers seeking to make payments and money transfers. In a country where the level of economic informality and cash usage has been traditionally high, M-PESA has emerged as an attractive alternative for unbanked and underbanked populations.
Effective marketing. Safaricom has also put forward a strong marketing campaign, communicating all these multiple advantages of the M-PESA system to people across Kenya.
Strong distribution network. Finally, M-PESA has been able to tap into Safaricom’s extensive distribution network. Today, the company boasts nearly 260,000 agents in Kenya, providing customers with easy and accessible options for conducting cash in and cash out operations.4 For a comparison, traditional banks such as Equity Bank and Kenya Commercial Bank have approximately 15,000 agents across the country.
The introduction of M-PESA triggered a swift transformation in Kenya’s payment landscape, with a large share of the country’s population quickly transferring their savings to mobile accounts.
Gradually, the scope of M-PESA solutions has expanded well beyond the company’s original service. Today, M-PESA’s customers can use its systems to make cross-border payments, handle bills and tax payments, contract loans, and access a myriad of savings products, offered through partnerships with financial institutions. This evolution has transformed M-PESA into a comprehensive and integrated financial solution, and a major success in Kenya’s market.
The arrival in Ethiopia
M-PESA started to offer its services in Ethiopia on August 15, 2023, after Safaricom received the Payment Instrument Issuer License from the National Bank of Ethiopia (NBE). Since then, it has garnered 1.16 million individuals and 12,400 business customers, which are supported by a network of 16,500 agents. To date, the platform has facilitated two million transactions in the Ethiopian market.5
Although Ethiopia is a bigger market, with a population of 119 million people, compared to Kenya’s 55 million, cash accounts for 99% of all payment operations in the country6 and its level of financial account penetration is low: currently, only 46% of Ethiopian own an account at a financial institution or with a mobile-money-service provider, according to the World Bank. In Kenya, the rate is 79%.7
In this context, M-PESA aims to replicate the success it achieved in Kenya in Ethiopia by serving all sectors of the country’s population.8 Its arrival in Ethiopia marked a major breakthrough for the country as, up until then, the only mobile money provider allowed to operate in the country was Telebirr, controlled by state-owned telecommunications group Ethio Telecom. If M-PESA can replicate its Kenya success in Ethiopia, other private mobile money providers are could follow in the company’s footsteps, boosting the levels of competition in this market.
How can traditional financial institutions respond?
The success of M-PESA in Kenya, its swift expansion to other African countries, and the rapid adoption of its platform in the first few weeks of operation in Ethiopia seem to shed light on the potential of mobile money providers to disrupt the continent’s payments market.
Yet, the expansion of M-PESA is far from being a sign of a lost battle for competing payments players, such as card networks like Visa and Mastercard or bank-led instant payment schemes.
Despite M-PESA’s success, as of today, cash still accounts for 80% of transactions involving small and medium enterprises (SMEs) in Kenya.9 This cash volume represents significant opportunities to be seized by those who can develop innovative payment services for low-value cash transactions.
In Ethiopia, traditional financial institutions can also learn from the experience of banks in Kenya while planning their response to M-PESA’s arrival. Traditional financial institutions have adopted two major strategies in the Kenyan market:
The partnership strategy. Some have chosen to partner with M-PESA to expand their online offering to loans and savings products, interoperable real-time transfers, and wealth management services. The KCB Bank, for instance, started to offer M-PESA customers loan products through a platform called KCB M-PES.10
In 2022, Visa signed a partnership with Safaricom that led to the introduction of a new virtual card, the M-PESA GlobalPay virtual card, which enables customers in Kenya to shop at any merchant worldwide accepting Visa, including popular online stores and service providers, like Netflix, Google One, or Spotify.11
The competition strategy. Other banks, however, opted to challenge M-PESA’s leadership by enhancing their product offerings and developing their own mobile platforms. In 2016, 34 banks in Kenya launched PesaLink, a mobile payment solution aiming to become an alternative to M-PESA.
Offering banked customers a quick, secure, and convenient method for real-time interbank transactions, PesaLink has reached over three million users. However, the platform is still significantly behind M-PESA’s user numbers, which illustrates the challenges faced by banks to match the popularity and convenience of Kenya’s mobile money giant.12
Strategic Options for Financial Institutions
Thus, banks and other financial players operating in Ethiopia need to consider how to respond to the arrival of M-PESA and other mobile money providers in their market.
Regarding M-PESA specifically, the first decision they must make is, evidently, whether to openly compete against the company or to partner with it, leveraging its infrastructure, expertise, and strong reputation in the region.
If they choose not to partner with M-PESA, they can employ at least five strategies to remain competitive:
Enhance mobile offerings. To confront the challenge posed by mobile money disruptors, traditional financial institutions must evolve intofully-fledged “digital banks.” This transformation involves ensuring interoperability with mobile money providers to offer their clients a superior user experience in apps and online services.
In addition, these institutions should enable a digital onboarding process and enhance their apps in two ways, first, by offering a broader range of financial services through their digital platforms, and second, by giving customers greater control over their mobile money operations, including personal finance management tools like customizable spending limits, real-time transaction monitoring and the ability to set personalized transfer alerts.
Another interesting strategy is to promote the offering of low-value transactions, a segment typically associated with M-PESA and other mobile money apps. This involves, first, allowing mobile-enabled, easy and free peer-to-peer (P2P) transfers between banked customers, and second, promoting them to customers.
Banks also have the option to partner with local fintech companies, leveraging their capabilities to expand the bank’s digital offering, such as digital lending and personal finance managers. A series of government reforms since 2020 have created a more favorable business environment, fostering growth in the sector. Two notable examples of major fintechs in the country are Arifpay and Belcash. Arifpay delivers innovative, secure, and user-friendly digital payment solutions for merchants, banks, and consumers; Belcash is a digital banking platform catering to banks and microfinance companies.
A final alternative for traditional financial institutions is to form partnerships with other telecommunications groups. An example of this approach is Equitel, a collaborative venture between Equity Bank and Airtel, the second-largest telecom service provider in Kenya after Safaricom. Airtel also owns Kenya’s second-largest mobile money service — Airtel Money — with over two million customers.13
Using Airtel’s infrastructure, Equitel enables its customers to transfer money from their accounts to any bank account or mobile wallet in Kenya. The platform also provides users with access to loans and deposit management services, airline ticket purchases, and content related to financial education.
Innovations driven by mobile money providers have considerably improved financial inclusion in Africa. The success of M-PESA in Kenya demonstrates that banks must content with mobile-based competitors as the digital payment ecosystem continues to grow.
If traditional financial institutions do not invest significant resources to enhance their current product and service offerings, they could soon see their market share jeopardized and their future growth potential (today’s cash transactions) limited.
Nevertheless, there is still room in Ethiopia for a quick response to the challenge posed by mobile money players — especially if banks adopt bold strategies to enhance their mobile and digital services. This is crucial not only for securing their primary role in the payments and deposits segments but also for protecting their market share across the entire spectrum of financial services.
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