Individual Assignment #2
M-PESA and Mobile Money in Kenya: Case Analysis: Pricing for Success
Julian Velasquez
San Jose State University
January 13, 2017
Statement
M-Pesa. An operation in Kenya was successful mobile money transfer service created by Safaricom and Vodafone Group. Since there was a huge mobile boom in Kenya, the two companies sought an opportunity to establish M-Pesa. The plan was to make an impact in the financial inclusions and give the “unbanked” a financial service. M-Pesa money transfer service allowed its customers to deposit, send and withdraw money using their mobile devices. Safaicom on the other hand was the leading provider in Kenya for mobile telecommunication services and held over 60 percent share of the market. M-Pesa would be consider two-sided market since its platform is offer to specific group of individuals on each side.
The platform of this two-sided networks has to create strategies for both sides and as well as establish network effects. M-Pesa for instance is facing a new obstacle from the Kenyan government. The government established a new tax on any cash transfers, which will affect the rate of transactions. Safaricom responded by raising its customer prices for certain transfers. CEO Bob Collymore claims this tax will hurt the public who need the basic financial services. As one of the biggest challenges is Kenya ordinary citizens still use cash as its main transaction rather than mobile. In addition, those using M-Pesa must trust in the service of using it however it wasn’t completely executed.
Supporting Argument
When Safaricom and Vodafone Group established the M-Pesa, the company figure its customers would be comfortable with a mobile payment system. However, Safaricom wasn’t consider a bank for its customers so it couldn’t legally take deposits. Safaricom didn’t benefit from float accounts since the funds were held in trust. A Customer could either leave money stored in their account or send it to another. However, a certain fee would occur anytime a customer wouldn’t send or withdraw money. Now this fee could possible go up since the Kenya government establish a new tax on mobile cash transfers. Users on M-Pesa may not want to make many transactions because of a higher fix fees Safaricom charges for unregistered users. This two-sided market wanted to get senders to convince users to utilize the service. Since cash purchases are the still the primary financial transactions in Kenya, the purchasing decisions of customers is impacted.
The challenge was changing the current riskier system of having a friend, family member or bus/taxi transfer the money to now having a mobile system do it for you. However, since M-Pesa agents would have manage their liquidity and one of the three method process had a drawback. The drawback is during banking business hours, M-Pesa agents could only manage liquidity. So the concept of liquidity management was often complained from both customers and agents. Agents stated cash float problems from banks to them was a huge issue causing lack of funds for customers. So in order to become an agent outlet, stores have to see a consumer demand for the service. Even though M-Pesa has started off successful, the company has to think of different strategies to keep the service growing. The company in this two sided market needs to decide which strategy or strategies to pursue in acquiring both consumers and agents.
Alternative Strategies
Since the banking system in Kenya is poorly infrastructure, M-Pesa mobile service is driving the desire for financial inclusions. Kenya M-Pesa initial go to market strategy was founded on convenience, speed security and affordability. They pride themselves on having a lower cost service compare to most money transfer services. An alternative strategy to help the company grow is setting up network effects. M-Pesa successful platform can see high returns to scale and its users will want to pay for the service. If M-Pesa sees this increase of returns, the company can leverage higher margins lower its prices and drive out any other rivals.
Now M-Pesa agents create outlets depending on how many customers want to use its service. So a cross-side network effect can be a strategy in place. M-Pesa platform has to decide the pricing power on both sides, to determine a subsidy side and a money side. Since M-Pesa has to pursue both customers and agents, the platform can attract enough subsidy -users then the money side will come. Also this cross-sided network effect for this two-sided market can also be reverse, depending on one factor. The challenge of deciding which side will be subsidizing and which side is willing to pay the price to gain access to it. M-Pesa service needs to consider its ability to capture cross-side network effects. The company will have to evaluate its customers and agent’s sensitivity to price and quality.