The strategic Impact of Going Cashless in Kenya

December 9, 2020

In Kenya, M-Pesa has been one of the most significant innovations in the country in the last century. The Safaricom product epitomizes disruption in the established banking system and has birthed a cashless invention that has stood the test of time. And now M-Pesa has become equivalent to the cashless economy in the republic of Kenya!

What is M-Pesa?

M-Pesa is a branchless banking service, built upon the backbone of the largest telecommunications provider in Kenya (Safaricom). It allows users to complete basic banking transactions without going to a bank branch.

M-Pesa's continued success in Kenya is creating a top-rated and affordable payment service with little bank involvement. M-Pesa customers can deposit and withdraw funds from a network of agents, including mobile airtime resellers and branches that act as bank agents.

At its core, this mobile solution allows the transfer of money from one individual to another via a mobile platform. The service works like this. A person deposits funds into an M-Pesa account via an agent. (Every person with a Safaricom Sim card gets an M-Pesa account)

Then all one has to do is access the M-Pesa Menu and send those funds to another person's M-Pesa account. Once the other person receives it, and this usually takes a few seconds to one minute.

The recipient then goes to the M-Pesa agent and withdraws those funds. The agents typically get a cash flow (float), which usually is an amount from the banks so that they have the funds to give withdrawals in cash.

Why is M-Pesa so popular in Kenya?

Since its launch in March 2007, the M-PESA application has been very successful throughout Kenya. There are more than 2.3 million registered users. Through people-to-people transfer, more than 18 billion Ksh have passed through the system.

When it comes to fees, many people believe that banks are expensive to run. Banks charge customers for deposit and withdrawal services.

Their services are only available in major cities of Nairobi. M-Pesa is cheap and convenient. You have to go to one of these M-Pesa kiosks and agents.

For many Kenyans, if the minimum bank deposit balance is 200 shillings and the withdrawal cost is 50 shillings, it is not cheap to save 500 shillings in the bank.

So if it comes down to the type of phone and the buyer, the phone's price varies from 750 shillings to 50,000 shillings. Therefore, mobile phones' affordable price, and they come already equipped with the same M-Pesa features has led to its popularity.

Who is driving the M-Pesa innovation?

First on the send side, it is actually the young predominantly male urban migrants who drive service or customer recruitment. Research into the likes and wants of this sub-group has found that they are also the most likely to be early adopters of technology that drives savings from their earnings.

Second on the receive side, it is rural recipients (usually women, poorly educated, poor people) who also use M-PESA. 

M-Pesa Challenges

Both agents and customers are not happy with cash fluctuations, especially in rural areas. Most transactions in the village are withdrawals, so agents need to maintain cash flow. They do this with frequent trips to the bank. This can be a problem if the agent is not in the city center, where most banks in Kenya are located.

Before MPesa, buying and selling airtime was only possible with cash. Super agents (those that supply and manage groups of up to ten retail agent outlets) bought large amounts of airtime and made significant profits with little interaction with end-users.

MPesa was not the right choice for them because there were too many customer contacts, and the value of each transaction was small.

So Safaricom turned to self-service kiosks and small grocery stores selling tobacco, fruits, and essential products throughout Kenya. These agents are provided with an additional income source (by reducing each transaction) and an IT system to manage the mobile funds.

Without these systems, each agent would not be very reliable. The telco had to invest in this network for the system to work, and this was responsible for the most significant barriers to entry.

Initially, P2P services (sending, receiving, purchasing airtime, etc.) for families and neighbors became payment services with functions of paying bills and buying products.

Over the next few years, the government's vision is to electronically execute all transactions between the government and citizens, including taxes/bills/fines/profits. MPesa may not be the ideal candidate.

This is not a larger and more critical transaction, but it is primarily considered a payment method for daily transactions. Additionally, as most taxpayers have bank accounts, the number of credit/debit card transfers and payments increases.


The future of mobile money started by MPesa has in Kenya been given the sheen of being inevitable. One thing is sure. Now that competition between banks, phone companies, and start-ups have been established, Kenya's mobile money will continue to innovate.

Especially in this banking sector, where there are almost no competition and vested interests with major players such as Paypal and other payment services, it’s more and more apparent why Kenya has been able to leapfrog even more established markets like Europe and America in the cashless journey.

Send more than money.