Nearly everybody would be familiar with pre-paid mobile phone accounts where you can go to the corner store and buy airtime credits for your mobile phone. What if for a small fee shops also allowed you to exchange your surplus airtime for cold hard cash? And if the phone company set up a system by which you could transfer airtime to other subscribers via some sort of SMS mechanism? Suddenly we would have a very simple but robust payment system. One that would compete with the likes of EFTPOS, would be really convenient and which might under cut the traditional banks.

Of course in places like Australia the regulators wouldn’t readily allow such financial innovation without a banking license and the associated regulatory barriers to entry. Such a pity. Luckily the financial regulators in Kenya are a bit slow moving and exactly this scheme did get off the ground about two years ago. It now has over 7 million users and a lot of other mobile phone companies across the developing world are moving to copy the service. It’s called M-PESA (Swahili for mobile money). Check it out.

Okay but we have EFTPOS so why is this significant? In the developing world we are rapidly approaching (ie perhaps within a decade) the point where nearly everybody has a mobile phone. And yet vast number of these people don’t have access to a traditional bank account and are not likely to have one any time soon. Suddenly a whole section of humanity that has previously missed out is about to be able to access an in your pocket electronic payment system. Interesting times. I love innovation.

4 thoughts on “M-PESA

  1. There mechanisms for sending phone credit to others.

    The big problem for using it in Australia for anything other than microcredits is the concern about security… and spam. Conducting a transaction can be considered a “prior relationship” meaning that your SMS or voicemail could fill up with junk… and you’d have to use your credit to send stop messages!

  2. Systems such as paypal seem to work OK, I can’t really see any probs with what you are suggesting. It would make the task of purchasing Fairfax/Murdoch propaganda and a carton of milk on Saturday mornings a lot easier when you don’t have to root around looking for loose change behind the front seat of the car.

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