Utpal Dholakia Ph.D.

The Science Behind Behavior

Lessons From Kenyan Consumers About Technology & Marketing

M-Pesa has made Kenya the global leader in financial services innovation

Posted Sep 01, 2015

Masai With Phone by Simone D. Flickr Licensed under CC BY 2.0
Source: Masai With Phone by Simone D. Flickr Licensed under CC BY 2.0

Over the past decade, which country has been the global innovation leader in mobile financial services? No, not the United States or Canada, not Japan, nor has it been one of the Western European countries. Ask any expert this question and they will unanimously point to Kenya. The answer lies in M-Pesa.

Even when judged by the standards of recent technology revolutions, M-Pesa is a tremendous success story. In 2006, only 14% of Kenyans had a bank account, and close to 40% had no access to any financial services whatsoever. For most Kenyans, sending money to someone meant relying on a family member or friend to carry cash to the recipient or use services provided by matatu (bus) companies. Either way, the going was slow and dicey. And using a money transfer service such as Western Union --- with hefty double-digit commissions and minimum transfer amount requirements --- was far beyond the means of most Kenyans.

Then in 2007, Kenya’s largest telephone company Safaricom launched M-Pesa (“Pesa” is Money in Swahili), a mobile phone-based, person-to-person, money transfer service that allowed consumers to send, deposit, and withdraw money using text messages. It coincided with the explosive adoption of mobile phones in Kenya.  By 2014, almost 14 million Kenyans (or around 55% of the adult population) were active M-Pesa users. By context, only about 19% of Americans currently use mobile phones for financial transactions. M-Pesa’s use has not only transformed Kenya, but it has also influenced how such services are delivered in developing economies around the world. It would not be an exaggeration to say that Kenya leads the world in innovation of mobile financial services.

What can technology marketers (and consumers) learn from this phenomenal Kenyan success story? There are several interesting lessons:

  • Terrific opportunities can be found in surprising places. Most of us tend to look for success stories, learning lessons, and new opportunities in conventional places. For marketers, that often means focusing on what is familiar: the developed markets (USA, Japan, Western Europe, Australia) and on industries such as consumer packaged goods with the most visible marketing activities. However, such a narrow focus might lead to missing terrific opportunities. In the case of M-Pesa, once it was introduced, almost overnight, Kenyan consumers of all stripes jumped on board. This service was so vastly superior to anything else available at the time, not only with respect to convenience and safety, but also with respect to price and value, that Kenyans of all incomes, ethnicities (yes, Kenya has over 70 different ethnic groups) and regions adopted the service enthusiastically. As a case study, M-Pesa is a story of product superiority and of existing unmet consumer needs being met brilliantly. For marketing practitioners, this is an opportunity unlike any that most of us actually experience. Who among us would not have liked to be in the shoes of Safaricom’s marketing director during the years of explosive growth?
  • Adoption of new technology products and services can be successful from the “bottom up.” Many marketers tend to believe that technology products should be marketed using a “skimming” approach. Whether it is the latest version of iPhone or video game console, many technology products are priced high in the beginning to create prestige value among early buyers. Such an approach allows companies to earn the greatest profit from the consumers who are willing to pay high prices to have the product before anyone else. In the case of M-Pesa, Safaricom used low and simple pricing to begin with – or what is called a “penetration pricing” approach. Focusing on popularity among mass consumers, the introductory pricing structure featured free and quick registration, free deposits of money, and the lowest commissions for sending small amounts of money to other registered users (with higher tariffs for sending money to non-registered users). The result of this populist pricing approach: very quick adoption across the social spectrum.
  • The ingenuity of consumers is limitless. M-Pesa’s success is as much about the financial success of individual Kenyan consumers as it is of Safaricom and the Kenyan economy. The product was launched with the initial goal of providing simple and cheap money transfer services. It grew into something much larger. It is now used to offer all kinds of financial services, from savings and fixed deposit accounts to loans. Dozens of organizations have piggy-backed on M-Pesa to offer basic essential services and utilities like electricity, water, and education. Not only that, it is now used as the platform for micro-finance transactions, providing access to funds to the poorest and the most remote Kenyans. There is considerable evidence that M-Pesa has facilitated the launch of many small businesses throughout Kenya and provided the inspiration for countless startups. Starting out as a simple mobile payment service, M-Pesa has turned into something much larger and more significant. It is the mechanism through which financial inclusion can be achieved for every Kenyan citizen.
  • Marketers can serve as prime agents in creating and maintaining consumer trust. Here in America and in many other developed countries, consumers are intensely suspicious of marketers. Not without good reason, we suspect companies of having ulterior motives in every action they undertake. In Kenya, in contrast, the reactions of consumers were entirely different. Because of its introduction by Safaricom, already the most well-regarded brand in Kenya, M-Pesa was seen as a drastically more trustworthy alternative to store, manage and transact money. Kenyan consumers viewed larger institutions such as government-owned banks as rife with corruption, under government control, and having questionable motives (such as supporting one particular ethnic group to the detriment of others).  This good-will speeded up adoption of mobile phones and M-Pesa and grew the user network so benefits could multiply. Safaricom helped its own cause by employing an ample marketing budget, a simultaneous launch of M-Pesa throughout the country, and a simple and powerful value proposition that articulated the core value of the service: “Send money home.”

What then are the main lessons in the M-Pesa success story? First, when a technology is truly useful to consumers, it spreads rapidly and takes a life of its own. Second, when the marketer makes smart decisions with respect to branding, product features, and pricing, it can speed up the consumers’ adoption of technology even further. Third, there are tremendous stories about consumers and consumer psychology in Africa waiting to be discovered and studied. Finally, not all marketing is evil; oftentimes marketing activity can be the force of producing significant good in the world.

More About Me

I teach core marketing and pricing to MBA students at Rice University and my academic vita is here.

You can find and download a lot of my academic and some of my practitioner-oriented writing at SSRN. If you can’t find something old I have written, shoot me an email and I will send it to you.

Some of my writing for managers and business people can be found at HBR.org and I also write a relatively new blog called “The Science behind Behavior” on Psychology Today.

You can connect with me on LinkedIn or Facebook, or you can send me an email. All questions, comments, thoughts, and ideas for future blog pieces or academic research projects are welcome.