money & economicsWikipedia2007 · Kenya

M-Pesa turned a phone's text messages into a bank account for millions in Kenya

the gist

M-Pesa, launched in 2007 by Vodafone and Safaricom, lets people store money on their mobile phone and send it by PIN-secured text message. Users deposit and withdraw cash through a branchless network of agents, often airtime resellers and shops, so no bank branch is needed. By 2010 it was the most successful mobile financial service in the developing world, and by 2012 about 17 million accounts had been registered in Kenya. It has spread to several African countries, and has also been criticised for its fees, which can amount to about 10% on withdrawals.

how it works

Money is stored as a balance in the user's account on the phone. Transfers are sent as secure SMS messages, and cash is exchanged at agents who take deposits and pay out withdrawals, so the phone network replaces the bank branch.

so what

M-Pesa showed that a basic phone and a shop network could bring formal financial access to people who had no bank account, and many analysts credit it with reducing crime in largely cash-based economies. Its fee structure also shows the trade-off between access and cost.

Adapted from Wikipedia, the free encyclopedia · CC BY-SA 4.0

Image: Wikimedia Commons