Mobile Payments: the Devil is in the Details

21 January 2011 at 07:00 8 comments

By: Tara Capsuto, KF 13, Kenya

Only 4 million Kenyans have bank accounts. Over 10 million people – approximately 40% of the adult population — in the country now use the M-PESA money transfer service. The rapid growth of mobile payments in Kenya in recent years has been hailed as the key to unlocking financial access for millions of unbanked individuals. While mobile payments are transforming the financial landscape in Kenya, especially for the unbanked, experience at KADET (Kenya Agency for Development of Enterprise and Technology), one of Kiva’s MFI partners in Kenya, highlights that there are also real challenges to making mobile money transfers work for an MFI and their clients.  Illiteracy, human error, and fraud are all factors that make mobile payments more complicated than they sound initially.

What is M-PESA?

“M” for mobile, “pesa” means money in Kiswahili. M-PESA is a mobile phone-based money transfer service, designed to enable users to complete basic banking transactions without the need to visit a bank branch. M-PESA customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets. Here’s a short video from the Consultative Group to Assist the Poor (CGAP) explaining how M-PESA works.

Mobile payments at Kenya Agency for Development of Enterprise and Technology (KADET)

KADET started piloting mobile repayments in April 2009. By the end of 2010 nearly half of their clients were making loan repayments and savings deposits using M-PESA. Previously, KADET’s clients had to make payments at a bank branch where KADET holds accounts in order to make repayments – which could entail up to one day of travel for groups located in remote areas of Kenya. In the future, KADET plans to expand the suite of services they offer to their clients using mobile banking, like providing loan approval via SMS, offering loan disbursements via mobile money, and sending repayment reminders by SMS. But such advances do not come without challenges.

Why mobile payments are not as easy as they seem

  • Fraud: Although less paperwork can be more efficient for credit officers, the fact that clients don’t get a paper receipt from a bank, just an SMS, can be problematic because they can easily be forged. KADET has had a few problems with fraudulent SMS receipts. (note: these isolated cases were not Kiva clients and each of the cases have been rectified KADET).
  • Client resistance to change: Many clients feel more comfortable with tangible, paper evidence that they’ve paid and have opted for the reassurance of a paper receipt from a bank over the convenience of using M-PESA.
  • Illiteracy: M-PESA is only available in Kiswahili and English. For illiterate clients or those only comfortable speaking in their local dialect, this means they must rely on fellow group members to make M-PESA payments on their behalf. This has caused some conflict when the literate client does not make the payment on the other person’s behalf. Groups often pool their savings deposits together in one M-PESA transaction so they only have to pay the M-PESA fee once. This has similarly caused some conflict within groups.
  • Human error in inputting KADET’s business number or the client’s account number, has resulted in the client’s payment going to another business, the payment being credited to another client, or nonpayment
  • Mobile repayments can hurt group attendance: Initially mobile payments caused a drop in group meeting attendance. Credit officers had to reinforce the importance of meeting attendance, in spite of mobile payments, and KADET has been able to reverse this trend.
  • Client repayments are not always accessible in real time. The M-PESA website requires a 3rd party certificate from Vodacom, which can take up to 1 day to obtain. This means a client could repay a day before their group meeting but the credit officer can’t actually see that the client has repaid.
  • M-PESA is not easily compatible with internal systems. Data from M-PESA cannot directly be imported into the management information systems (MIS) at MFIs. For KADET, this means all payments made through M-PESA have to be manually input into their MIS, another opportunity for human error to affect the process. A number of start-up companies have developed bridge software to move data from mobile providers to MIS systems but most MFIs, including KADET don’t have this yet.

The benefits are hard to deny

  • Outreach to rural areas. Most of KADET’s clients are located in rural areas. Even small villages have an M-PESA agent, though they may not have a bank branch. This means some loan groups save up to a full day of travel to a bank areas (most of KADET’s clients are located in rural areas).
  • Delinquency management: Credit officers can demand repayments in real time, saving follow-up visits to the client in arrears.
  • Efficiency in repayments. Mobile payments reduce the time it takes for client repayment data to be input into the MIS: many of the offices in remote areas would use a courier service to send all repayment receipts to main offices. This also reduces the amount of paperwork that can potentially be lost.

Many of the challenges KADET faces sound more like growing pains than real game-stoppers. While it’s clear that there are challenges to be overcome, mobile money will continue to reshape the world of microfinance.

Interested in reading more about mobile banking? There is a growing body of literature examining mobile money in Kenya. Here are 2 very informative articles:

  1. Mobile Banking Changing Kenya’s Society (Source: Microfinance Hub)
  2. Glimpsing the Future in Kenya (Source: Center for Global Development)

Tara Capsuto is a roaming fellow in Kenya, focusing on social performance monitoring at several of Kiva’s field partners. She is looking forward to spending the final weeks of her fellowship criss-crossing Kenya in matatus, working at 7 of KADET’s remote branch offices — no doubt seeing the places where mobile money transfers are most beneficial. Make a loan on Kiva today!


Glimpsing the Future in Kenya (Center for Global Development)

Entry filed under: blogsherpa, KADET (The Kenya Agency for the Development of Enterprise and Technology), Kenya, KF13 (Kiva Fellows 13th Class). Tags: , , .

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  • 1. 5 KEY FEATURES M-PESA DOES NOT HAVE. « ProduSoul  |  2 March 2011 at 02:00

    […] Mobile Payments: the Devil is in the Details ( […]

  • 2. sammi maina  |  1 March 2011 at 00:26

    Hi Tara. This is such a great article. Am doing a research on Mpesa and I cant fail to mention that despite the challenges posed by it, it become ubiquitous. We are yet to venture into the very remote areas but we don’t think the story will be any different. once again thanks such a great article.

  • 3. Dylan  |  30 January 2011 at 21:40

    Hi Tara – a great blog post. We’re based here in Nairobi and sharing offices with Kiva and Juhudi Kilimo. Are you around and able to meet this week? We’re building a mobile money bridge for MFIs and looking for Kenyan MFIs looking to pilot the service.


  • 4. brittanygoesglobal  |  22 January 2011 at 22:15

    Great article as always Tara! I am definitely saving this 🙂

  • 5. Zach  |  22 January 2011 at 08:59

    I would imagine there must be a huge problem with money transfers, mobile phones are easy to hack into and this is the reason I don’t have mobile internet on my phone. ZW

  • 6. Julia  |  22 January 2011 at 05:30

    Thank you for this very interesting article. Why can the SMS receipt be so easily forged? Does it not contain something like, say, a ten digit number so that the MFI knows if that is a valid receipt? Paying via mobile phone seems to be a really good idea in spite of all the problems.

    • 7. tcapsuto  |  23 January 2011 at 20:33

      Thanks for your comment, Julia. The SMS receipt does contain the client’s account number. However, if the client has an SMS receipt from another group member, it’s just a matter of changing the account number in the receipt and it looks as if the client has paid. Credit officers don’t (yet) have access to real time verification from M-PESA when they’re out of the field so they can’t check on any kind of unique payment receipt number. A paper receipt from a bank on the other hand, is much more difficult to forge. I absolutely agree with you that the net benefits of mobile payments far outweigh the challenges!

  • 8. Fehmeen | Microfinance Hub  |  21 January 2011 at 09:36

    Thanks a lot for linking to my site from this great article about mobile payments 🙂 I’ve been a huge fan of Kiva so it’s nice to see this

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