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Moses Githua has no steady work. He pulls in money from odd jobs, tucking away what he can each month. Githua, who lives in Nairobi, is what development researchers call “unbanked”: He lacks access to a traditional banking system that would allow him to save, invest, or take out a line of credit. “As recently as a couple of years ago, people in the development community would say, ‘People are poor, they can’t save,’ ” says Bill Maurer, who runs the Institute for Money, Technology, and Financial Inclusion at the University of California at Irvine. “But you see around the world that everyone has bottles full of quarters, a wad of bills in the granary.”
It’s not that poor people lack the will to save, Maurer says. They lack the tools. Local banks charge fees that discourage saving small amounts. Keep it in a jar or under the bed, and it becomes attractive to thieves or relatives in need. Instead, Githua, 33, found another way to manage his cash: He uses his account with M-PESA, a service that lets people transfer money with their mobile phones. Githua doesn’t use it that way, though. He loads up his account and lets it sit in his “digital wallet” until he’s ready to use it. This simple trick keeps his savings beyond the reach of thieves. “There was and is micro-finance,” says Maurer, but “what of the people who are too poor to become entrepreneurs, what do they need? A safe, secure place to store what little money they have.” Kenya’s example shows that a $20 mobile phone may be secure enough. By 2012, 1.7 billion of the unbanked poor worldwide will have one.
In 2006 researchers in Kenya, Uganda, and Congo noticed that prepaid mobile phone customers had built their own informal money-transfer system, buying minutes in one location and texting them to another, where they were redeemed for cash. Jan Chipchase, at the time a researcher for Nokia (NOK), was one of the first to notice. “I couldn’t have designed something as elegant,” he says. Safaricom, Kenya’s largest mobile network, worked with its parent company, Vodafone (VOD), to develop a commercial transfer system. In 2007 that was launched as M-PESA. More than 14 million Kenyans, about 70 percent of the country’s adults, have an account, with which they can pay bills or send cash by texting.
Kenyans who migrate to Nairobi and Mombasa maintain strong ties to their villages, and M-PESA has replaced bus drivers and the post office as conduits for sending money home. Safaricom has more than 27,000 agents in the country who, for a small fee, will take cash and deposit it into accounts or disburse transferred funds. The company plans to make the service “bigger than cash,” as its executives like to say.
In 2009, Olga Moraczynski, a doctoral candidate at the University of Edinburgh, spent nine months asking Kenyans how they used M-PESA. In Kibera, a Nairobi slum, she noticed that customers were using accounts to accumulate “small money,” about $13, or a week’s wages. One-fifth of the unbanked M-PESA customers she found in Kibera used the service to replace other methods of saving, in particular stashing it at home. “Don’t think of [M-PESA] as mobile money transfer,” says Chipchase, now the creative director for Frog Design. “Think of it as taking money out of circulation.” There’s no comprehensive data on how many Kenyans save using M-PESA; Mark Pickens of the Consultative Group to Assist the Poor (CGAP) estimates the practice at about one in five customers. A 2009 study by William Jack of Georgetown University and Tavneet Suri of Massachusetts Institute of Technology found that more than three-quarters of M-PESA’s customers use the service to save. A 2011 study by the Financial Services Assessment project at the University of Maryland found the median M-PESA user kept a balance of $3.68, and that a quarter of respondents left a balance after receiving a transfer.
Safaricom is reluctant to talk about savings patterns. In an e-mail, CEO Bob Collymore wrote that “the majority of M-PESA customers top up their money when they need to send money or make payments, and do not keep their money with M-PESA.” Collymore’s guardedness hints at a conflict in mobile savings: There are now just under 100 services like M-PESA in the developing world, and regulators in many countries aren’t exactly sure how or whether to oversee the money stored in these virtual accounts the way they do traditional bank deposits. And the new technology pits mobile operators against banks for the same customers. Working with Equity Bank in Kenya, Safaricom has launched an account called “M-KESHO,” explicitly for mobile savings, but it’s met with less success. Less than 5 percent of M-PESA users have adopted it. The account bears interest and starts a credit history; it also comes with high fees for deposits and withdrawals. The relationship between the companies has been testy. Equity Bank, working with Orange (FTE), a rival mobile operator, is rolling out a separate mobile money system.
Both M-PESA and Orange Money run as applications coded right into the SIM cards of users’ mobile phones; in the developing world, the most efficient way to run a mobile money-transfer service is to already own a mobile network. That may not always be the case. A fiber-optic Internet cable now comes ashore in Mombasa and runs north through Nairobi. That could allow companies to bypass closed mobile networks and introduce Internet banking services—plus other Web-based products. Since March, Chinese telecom equipment maker Huawei has sold around 400,000 Internet-capable smartphones in Kenya at $85 apiece. To keep its edge, Safaricom will have to innovate as quickly as its customers.
The bottom line: A mobile-phone service intended to transfer cash acts as an informal bank for millions of Kenyans, who use it to protect money from thieves.