M-Pesa: How a simple SMS changed money in Kenya

In 2007, in Kenya, a service launched by the operator Safaricom offered something simple: sending money via SMS, without going through a bank. Its name: M-Pesa ("pesa" means "money" in Swahili, and the "M" stands for "mobile"). Years later, this service has become a case study examined all over the world.

How it works

The user deposits or withdraws cash at an agent, usually a small local shopkeeper, then sends funds to another number using a PIN code and SMS messages. M-Pesa is not a bank: it is a mobile transfer and payment service. The agent network plays a central role, and it includes tens of thousands of small businesses.

An idea born from research

The idea came from observations made in the early 2000s: in several African countries, people were already sending each other phone credit to transfer value. The British Department for International Development (DFID) facilitated a partnership with Vodafone, which led to a pilot project in Kenya starting in 2005, followed by the commercial launch in 2007.

Impressive figures

By the end of 2011, M-Pesa had approximately 17 million registered accounts in Kenya. The service was subsequently launched in other countries, such as Tanzania in 2008, but with uneven success: in South Africa, for example, it met with much less success than hoped.

A measured effect on poverty

In 2016, economists Tavneet Suri and William Jack published a study in the journal Science estimating that access to M-Pesa had lifted approximately 194,000 Kenyan households out of poverty, or 2% of households. They also estimate that the service encouraged about 185,000 women to move from agriculture to business activities. These are estimates based on a survey of about 1,600 households, with a stronger effect for female-headed households.

Key takeaways

M-Pesa shows that an African innovation can meet a real local need with simple technology. The SMS of yesterday paved the way for the mobile payments of today.