Last month, flipping through the pages of the Daily Nation - Kenya’s tabloid newspaper of crime, politics and corruption - I came across the story of a police officer undone by his mobile. It seems this officer - who earned the equivalent of a few hundred dollars a year - saw many times that amount pass through his hands on a daily basis.
Because this is Kenya, that’s a difficult thing to hide. Those presumably-illicit funds didn’t reach him as a thick wad of Kenyan shillings handed off in a back alley. Instead, these cash transfers took place via text message, using a ‘mobile money’ system known as M-Pesa.
Barely seven years old, M-Pesa transformed Kenya’s cash economy into one of the most digitised in the world - complete with audit trails. Every digital transfer of funds leaves a record somewhere, and that, it turns out, had been this policeman’s undoing. A tribunal examined his M-Pesa transactions, finding him wanting.
Kenya’s leap into digital money has put it well ahead of other economies throughout the world. In the ‘developed world’ we use slow and antique systems like clearinghouses to settle our payments, a process that can take days. M-Pesa transfers clear in a few seconds, creating ‘velocity’ in the money supply. Shillings circulate through the Kenyan economy hundreds of times faster than before M-Pesa, making everyone richer.
M-Pesa also makes everyone safer. With the vast majority of Kenyans ‘underbanked’ - too poor to be offered accounts - Kenyans once hand-carried large amounts of cash from place to place, making them easy prey for thieves. Today, almost everyone uses M-Pesa to send money: back home to the family living in a rural village; to a friend living across town; even to the electric utility.
Although it had been designed as a peer-to-peer payment system, Kenya Power quickly tapped into M-Pesa, making it a breeze to accept payments from their customers. As soon as they did, delinquencies fell. When it’s easier to pay, more customers will.
Keyna’s electricity grid covers its major cities, but many of its villages have no grid connection. Relying on kerosene for lighting, these villagers suffer from a variety of respiratory complaints because of the fumes generated when fuel is burned inside the home.
Two years ago, M-Kopa launched, offering a solar-powered lighting and charging (for those ubiquitous mobiles) solution for Kenyan villagers. The cost of the system - around US $200 - is paid off in daily installments of 45 cents, submitted via M-Pesa. Mobile money allows Kenyans to purchase a state-of-the-art solar electricity system over time, and allows M-Kopa to create a virtual energy utility, competing with Kenya Power in its capacity to offer power to customers.
Paying for purchases over time isn’t a new idea, but M-Pesa makes the process so easy that nearly any Kenyan business can offer it to their customers. Mobile money doesn’t just change the way business operates, it makes entirely new kinds of businesses possible. Business models we haven’t seen yet in the ‘developed world’ have already taken root in Kenya.
Consider a small corner store in Nairobi: Customers always paid in cash for their purchases, but more and more they want to pay with mobile money. A personal mobile money account can receive those funds, but then it gets all mixed up with personal finances. It’s a mess: M-Pesa has no merchant services - nothing to make it easy for an SME to track business cash flows.
Every problem is someone else’s opportunity. Kenyan startup Kopo Kopo offers those merchant services, running analytics on a merchant M-Pesa account, so businesses can track their cash flows. With those analytics in hand, Kopo Kopo goes one step further - pre-qualifying small businesses for lines of credit at Kenya’s banks. Those banks have never had the time or inclination to consider these tiny businesses as potential customers. It takes too much time for too little profit. Kopo Kopo does all that work (with the help of data analytics), connecting small business to big banker.
Everyone I’ve told about Kopo Kopo in the ‘developed world’ has responded with the same reaction, “We could use that here!” But, shackled to older payment systems, we’ll need to make a leap into digital currencies (Bitcoin, digital dollars or something else not even on the horizon) in order to catch up. That will happen - but not before bankers feel threatened by the new business models coming out of Kenya.
Almost a generation ago, William Gibson quipped, “The future is already here -- it’s just not evenly distributed.” Just a few years ago people pointed to Japan, with its ubiquitous culture of mobiles, as our future. Today, we need to look to East Africa, where money – and the way it's used – is being re-invented. ®