Context: Kenya in the 2000s
In 2007, just prior to the launch of the mobile payment service M-Pesa, less than 20% of Kenyans had access to any type of formal financial service.  Banking was largely limited to the wealthy, and 70% of the population lived in rural communities—putting further constraints on financial activity.  Around the same time, however, mobile penetration in Kenya had reached 30% and was expected to grow to 70% by 2013.  To address this lack of financial inclusion, Safaricom (a subsidiary of Vodafone and the largest mobile network operator in Kenya) launched the revolutionary mobile payment system—M-Pesa.
How M-Pesa Works
M-Pesa is a system that utilizes mobile technology to convert cash into e-money, and vice versa. Three basic transaction types make up the service: 
- Deposits: A Safaricom user visits an authorized M-Pesa retail agent and makes a cash deposit. The agent then transfers the corresponding e-money amount to the user’s M-Pesa account (tied to a phone number).
- e-Money Transfers via Phone: A user can send e-money to individuals, pay bills, make store purchases, and buy airtime credits via SMS text messages.
- Withdrawals: A user can visit a M-Pesa retail agent and “cash out” part of his or her e-money balance.
Safaricom has monetized M-Pesa by implementing a tiered fee structure on money transfers and withdrawals. For an average transaction of $25 USD, Safaricom charges roughly a 2% fee. There are no fees on deposits.
Figure A: Overview of M-Pesa [A]
The Success of M-Pesa and Value Creation for Users
M-Pesa became the first mobile money transfer service in Kenya, and the lack of competition has led to rapid consumer adoption. While the banking community initially argued against the legality of M-Pesa due to regulatory issues, the Central Bank of Kenya ultimately ruled in favor of Safaricom. 
Fast forward to today, and M-Pesa is one of the major mobile payment success stories. Companies such as Zain Telecom have launched competing services, but are failing to keep up. Safaricom’s success can largely be attributed to the way in which it rapidly scaled its retail infrastructure—there are now over 40,000 M-Pesa agents nationwide.  In 2013, there were 20 million Kenyans using M-Pesa, and roughly 43% of the nation’s GDP flowed through the platform. 
By allowing users to transfer money easily, securely, and instantaneously, M-Pesa has improved the economic landscape and livelihoods of millions of Kenyans. Among rural households that adopted M-Pesa, studies indicate that incomes have risen by up to 30%.  This is partially driven by increased efficiencies in the allocation of human and physical capital, as households become more likely to send family members to high-paying jobs in distant locations.  M-Pesa has also impacted patterns of remittances, savings, and risk management across the nation.
Impact of M-Pesa on Safaricom
M-Pesa has drastically transformed Safaricom’s business. First, M-Pesa has allowed Safaricom to diversify and capture new value from customers. In fiscal year 2016, M-Pesa accounted for 21% of the company’s total revenue.  Additionally, M-Pesa has helped reduce subscriber churn and increase overall user engagement within the Safaricom network. Safaricom’s overall revenue per user for voice, message, and data services has increased over time as a result of M-Pesa.
Furthermore, M-Pesa has altered the way in which Safaricom operates with traditional airtime distributors. Now that M-Pesa enables consumers to purchase additional airtime (e.g., call minutes) directly from their phones, the company can reduce commission pay-outs and its dependency on these traditional partners. In fiscal year 2014, Safaricom sold roughly 38% of its total airtime through M-Pesa.  This translated into savings of $64 million USD in commission fees.
What’s next for M-Pesa?
With the rapid commoditization of Android smartphones and increased broadband penetration, Safaricom must look to provide more sophisticated use case scenarios with M-Pesa going forward. To do so, the company must earnestly open up its APIs (application program interfaces) so that third-party developers can integrate their services with M-Pesa.
Some may argue that Safaricom has already started doing this. Available on Google Play, M-Ledger (originally created by Dynamic Data Systems) is an app that allows individuals and businesses to analyze their transaction histories. However, many remain skeptical of Safaricom’s willingness to give up control of its quasi-monopolistic platform, and one could argue that there are still some real limitations around API functionality and access. 
Finally, while M-Pesa has certainly been a huge success, there are still opportunities to capture new users in Kenya. For example, researchers estimate that only 25% of lower-income women send mobile money each week (compared to 49% of lower-income men).  Understanding this gender gap and adjusting fee structures, marketing tactics, and product offerings appropriately can both advance mobile engagement among rural women while also growing Safaricom’s bottom line.
 International Finance Corporation, “M-Money Channel Distribution Case – Kenya: Safaricom M-Pesa,” (2010), accessed November 2016.
 Alliance for Financial Inclusion, “Enabling Mobile Money Transfer: The Central Bank of Kenya’s Treatment of M-Pesa,” (2010), accessed November 2016.
 Omae Malack Oteri, Langat Philip Kibet, and Ndung’u Edward N., “Mobile Subscription, Penetration, and Coverage Trends in Kenya’s Telecommunication Sector,” International Journal of Advanced Research in Artificial Intelligence, (2015), accessed November 2016.
 Safaricom, “Get Started with M-Pesa,” accessed November 2016, http://www.safaricom.co.ke/personal/m-pesa/get-started-with-m-pesa.
 T.S., “Why Does Kenya Lead the World in Mobile Money?” The Economist, (May 2013), accessed November 2016, http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-18.
 Daniel Runde, “M-Pesa and the Rise of the Global Money Market,” Forbes, (August 2015), accessed November 2016, http://www.forbes.com/sites/danielrunde/2015/08/12/m-pesa-and-the-rise-of-the-global-mobile-money-market/#1c205bad23f5.
 Consultative Group to Assist the Poor, “Poor People Using Mobile Financial Services: Observations on Customer Usage and Impact from M-Pesa,” (August 2009), accessed November 2016.
 Consortium on Financial Systems and Poverty, “The Rise and Impact of M-Pesa,” (January 2013), accessed November 2016.
 Safaricom, “Safaricom Limited Annual Report: 2016,” (August 2016), accessed November 2016.
 Groupe Spécial Mobile Association, “2015 State of the Industry Report: Mobile Money,” (2015), accessed November 2016.
 Olga Morawczynski, “Just How Open is Safaricom’s Open API?” Consultative Group to Assist the Poor, (October 2015), accessed November 2016, https://www.cgap.org/blog/just-how-open-safaricom%E2%80%99s-open-api.
 Georgia Barrie, Jamal Khadar, and Stephanie Gaydon, “Women and Mobile Money: Insights from Kenya,” Groupe Spécial Mobile Association, (November 2015), accessed November 2016.
[A] Consultative Group to Assist the Poor, “M-Pesa Mobile Money,” (July 2010), accessed November 2016, https://www.youtube.com/watch?v=ewJ-lpvWDEU.