EXCLUSIVE: “Out of APP-rica!” – Diego Gutierrez, Vodacom in ‘The Paytech Magazine’

Africa’s mobile money transfer service M-Pesa has led the world once – can it do it again? Vodacom’s Diego Gutierrez believes so

The M-Pesa story is legendary in the payments history of Africa – after Kenya entered the paytech pantheon as the first country to launch a mobile money transfer service back in 2007. Fifteen years, more than 50 million monthly users and 52 million transactions-a-day later, M-Pesa is helping write the next chapter for financial services by building itself a super-app. It’s a logical next step for what is now the biggest financial services provider in Africa by transaction volume – bigger than all the continent’s banks combined – and it’s being propelled by a joint venture inked in 2020 between Kenya’s Safaricom and its parent group, Vodacom, based in South Africa. The name of the joint venture, M-Pesa Africa, spells out a vision as much as a strategy; to build M-Pesa into a truly supranational brand.

THE EARLY YEARS

Originally launched by local mobile phone operator Safaricom (then controlled by UK telecoms giant Vodafone, which owned the M-Pesa brand until recently), the service that allowed users to send and receive money by a simple SMS on a feature phone was adopted with blistering speed in Kenya. Initially designed as a safe and easy way to transfer money between individuals, pretty soon, customers were using it to pay cashless for goods in supermarkets, transaction-fee-free, via what’s now the Lipa na M-Pesa channel.

There was no need to waste hours queueing at Kenya Power centres where customers traditionally bought their electricity upfront, either. And employers began transferring earnings direct to casual workers’ M-Pesa wallets because it was safer and cheaper than dealing in cash. By the time of its 10th birthday, 96 per cent of Kenyan households were using their Safaricom/M-Pesa account to store, save, transfer and receive money, giving millions of people access to secure financial services outside of a banking system that mostly excluded them. Today, it’s said that more than half of Kenya’s entire GDP is transacted over the app.Expansion into other African countries with similar infrastructures and equally large numbers of people living in remote areas with no access to formal banking, also saw fast adoption. M-Pesa is frequently held up as a poster child for what can be achieved if you really understand the challenges customers face and build your model around them.

“Last year, we transacted a quarter of a trillion dollars over the platform – that’s the money moved between wallets, and it’s growing in gigantic steps,” says Diego Gutierrez, chief officer for international business at Vodacom, which manages the M-Pesa service in Tanzania, Lesotho, the Democratic Republic of Congo, Mozambique and Ghana. M-Pesa is also active in Egypt and is poised to enter Ethiopia, Africa’s second most populous country with 114 million people, where banking services are limited and appetite for mobile payments systems enormous.

As a telecoms operator, Safaricom hadn’t set out to replace cash back in 2007. Rather, it was just trying to find a safer, cheaper way of moving it on a non-banking rail, after realising that its users were exchanging Kenyan shillings for airtime anyway in an informal economy.In launching the M-Pesa service, it used touchpoints that its customers were already familiar with: a feature phone and local storekeepers who sold Safaricom airtime and were recruited as M-Pesa agents to facilitate account top-ups and cash-outs. It was simple, effective and – if operated at scale by the provider that owned the infrastructure to deliver it – very profitable. But, beyond that, is there anything it can teach the rest of the world? Had Africa’s mobile money revolution continued to be limited to simple digital wallets and peer-to-peer transactions, perhaps not. But the story has moved on considerably since 2020.

Under the new joint venture, the ambition for M-Pesa is so much greater now. By 2021, neither Safaricom nor Vodacom saw themselves principally as telecoms businesses. Rather, Safaricom describes itself as a ‘purpose-led technology company’ with financial services, including wealth creation and insurance, singled out as future key revenue streams.

Similarly, Vodacom now frames itself not as a telco but as a techco. Indeed, the Vodacom Group, including Safaricom as a strategic partner, now claims to be the biggest fintech platform in Africa by subscribers. At the same time, both companies have been moving into new business areas, including education, healthcare and agriculture – all key to Africa’s economic and social improvement programme, and all needing finance, be it payments, loans, insurance or investment, which M-Pesa now supports with localised products across Africa. By 2021, revenue from M-Pesa overtook that of Safaricom’s traditional core telecom services and financial services accounted for nearly 10 per cent of Vodacom Group’s service revenue.

The M-Pesa super-apps went live in June of that year – one for retail customers and another for M-Pesa’s large constituency of micro and small business users. Importantly, in a low-income environment that still suffers from poor connectivity, they have an offline mode so customers can continue to use them and complete transactions even without data bundles or when totally offline. Over the first nine months, the super-apps would be downloaded by nine million customers and 320,000 businesses.“Payments and financial services through solutions like our super-app and M-Pesa will drive the continent’s growth for the next decade,” says Gutierrez. “Our job is to continue to innovate, and enlarge the ecosystem of customers, merchants and agents, and of third-party solutions that embed into our app.”

IN GIANTS’ FOOTSTEPS

M-Pesa took inspiration from the world’s super-app cradle when it came to deciding on its own model. It collaborated with China’s Alipay, which has more than a billion users back home, to take the same micro app marketplace approach, inviting developers to use the M-Pesa Mini Program Development Platform to help move it from being a mobile money app to a ‘lifestyle companion’. It calls itself the ‘Google Play store of Africa’.“Before, apps had their own payment interface; people went into them then paid through M-Pesa.

Now we’re embedding these apps into our super-app, they won’t have to leave our platform to access them,” says Gutierrez. “The beauty is, we create a link with these companies to offer additional incentives – discounts, loyalty solutions, even loans, because we have access to users’ scoring.”Customers can already shop, book a restaurant, food delivery, rail and bus tickets, and use government services, inside the M-Pesa environment. And, with 42,000 external developers creating additional services, the aim is to have several hundred mini apps active and hit 10 million downloads by the end of this year. Safaricom isn’t the only one with super-app ambitions.

But, in Kenya at least, says Gutierrez, M-Pesa has a natural competitive advantage over rivals like video-on-demand platform Viusasa and ridehailing firm Little Cab: it’s everywhere and used to pay for almost everything. “Before M-Pesa arrived, only 10-15 per cent of people were banked; today almost 70 per cent are inside the financial system. It’s massive,” says Gutierrez. “These people can make payments, send peer-to-peer, pay for services, get loans, save money, buy products through our network of merchants that take payments in M-Pesa. People are happy to receive their salaries in M-Pesa because they can use them to pay other people … you create a circle and it evolves into enterprise solutions.

Fast-moving consumer goods companies, for example, have huge distribution fleets that move across Africa. They’re not carrying cash anymore, they distribute products and shop owners pay them in M-Pesa. That’s integrated into a system we enable, with our enterprise solutions.”The super-app is, so far, ‘just scratching the surface’ of what can be achieved, he says.

STILL SOME GROWING ROOM

The regulatory environment has been sympathetic to Safaricom as it went about building the M-Pesa service in Kenya – although its market dominance has attracted criticism and challenge from some quarters. Rolling out mobile money across African borders hasn’t been plain sailing, largely due to different regulatory approaches. Rules around data sharing, which is crucial to any super-app, may yet prove an obstacle. A 2021 white paper from Mastercard and The Economist, called From Online Bazaar To One-Stop-Shop: The Rise Of Super-apps In The Middle East And Africa, identified three ‘promising players’ in Sub-Saharan Africa, aside from M-Pesa: Nigerian courier service Gokada, whose super-app allows users to send packages, order food and hail cabs on one platform; SafeBoda, a Ugandan-based ridehailing firm; and MTN Group, another telecoms provider headquartered in South Africa, which is bundling instant messaging with m-commerce and entertainment.

Indeed, Vodacom itself launched a ‘digital shopping, lifestyle and financial platform’ called VodaPay, also backed by Alipay, in South Africa, in 2021. For any one of these to become a supranational player, there will need to be better harmonisation between existing industrial strategies and policies, the report said. Thanks to M-Pesa’s underlying payments platform, it probably stands a better chance than many because, as the white paper observed: “A super-app without a strong payment infrastructure is almost impossible to imagine.”Gutierrez is confident that M-Pesa will be laying down many more historic markers.

“We think everything is going to be integrated into our super-app,” he says. “Telcos are going to become banks; banks are going to become telcos. We see ourselves at the centre of this journey.”

And that is the new lesson that M-Pesa can teach the world.

This article was published in The Paytech Magazine #12, Page 69-70