Today, I am in the town of Kamboe, Day 5 of 23
In recent years, the way we use mobile phones has fundamentally changed. With smart phones, we are able to answer emails, surf the internet, play ridiculous, addictive games. In my mind though, one of the single most important developments did not come from Apple, or from anywhere else in the Silicon Valley. Instead, it originated here in Kenya, in the “Silicon Savanna.” This development? Mobile money.
In Kenya, there is a payment system called M-PESA, that I think is absolutely extraordinary. When you want to pay for something, you don’t need to have cash on hand. You just use your phone. And it has re-shaped the economy in a lot of ways.
First, here is how it works. Suppose I want to buy an Arsenal jersey from a guy in a kiosk here in Nanyuki (unsurprisingly, this is a true story—this was how I first used MPESA). I looked into my wallet, and realized I didn’t have any money with me. So, I just pulled out my phone, and paid with M-PESA. First, I had loaded up my M-PESA account days earlier—I had given a Safaricom (the mobile phone provider) employee 6,000 shillings, and they credited my account. So, when I wanted to buy this jersey, I asked him for his phone number. I opened the M-PESA program on my phone, then entered in his number. Then, I entered in the sum we agreed upon. Finally, I entered in my PIN into my phone to verify that it was me, and that someone hadn’t stolen my phone. Then, I simply hit send—I got a receipt as a text on my phone, and he got a text saying he had received his money. And off we went, with no money changing hands, no credit card machines needed, just two people with their phones.
There are several benefits to this sort of system for people in Kenya, some of which might be obvious, some not as obvious. First, it is much safer for people here. Rather than have money on hand, and run the risk of being robbed, you just have your phone with you. If someone steals your phone, they can’t take your money, since they don’t have your phone. Since you register your phone with your government ID, you can just go back to Safaricom, and get your account and money restored to you.
Also, M-PESA serves as a form of banking for the poor. The vast majority of people in Kenya, and really throughout developing countries, do not have access to a formal bank account—the fees are too high and the level of savings too low for it to really be worth it for them. However, many more people can afford a mobile phone. In total, there are more than 600 million mobile phone subscriptions in Africa. Accordingly, if they want to save money, they can simply have a balance on their phone. It allows them to reliably save, and Safaricom even offers interest now for people with savings on their phone.
Another important element of M-PESA (that at least in my case, didn’t occur to me until I did some research) is its ability to let people send remittances home. It is common in Kenya (and elsewhere) for young men in particular to go to a city to find work, where there are more opportunities. They then send a good part of their money back home. In fact, more than $40 billion is remitted worldwide every year, and that doesn’t even include intra-country transfers. However, a major challenge is how to get the money back home. The standard method is to send it with a trusted person who is traveling to the person’s hometown. However, sending a wad of money with someone who is traveling by bus is hardly the most ideal method. It takes several days, and the money might be stolen. Enter M-PESA to the rescue! The person in the city simply sends the money, via mobile phone to their relative’s M-PESA account back home.
It is my belief that in 50 years time, the whole world will be using something like M-PESA (or who knows, maybe we’ll just pay with our fingerprints). However, there are some obstacles to countries like the States using M-PESA. Namely, the regulations on financial transactions that exist. From what I understand, Wall Street and credit card companies are not on board with the whole mobile money thing, since it circumvents the need for either in many cases. I’m curious to see how it all unfolds in the coming years, but for the time being, if you want to see some cool advances in the way mobile phones are used, come to Kenya!