M-PESA is a mobile money transfer service that has experienced “wild” success in Kenya. Yesterday the Freakonomics blog put up a post examining how M-PESA has achieved such success. The service is owned by Safaricom, a telecom with “monopoly power” and is “35% government-owned,” but perhaps it’s biggest advantage is that it is not a bank.
The post explains that prior to its launch “only 14% of Kenyans participated in the formal banking sector”, and due to regulation the country’s banks were unable to offer banking services to those in rural areas. Today roughly half of all adults in Kenya use M-PESA. However, because of their special situation and lack of competition, they have “sky-high prices, little incentive to innovate, and a limited range of services to customers.”
While it may be true that M-PESA’s success has been in large part due to a combination of regulation and monopoly power that is not necessarily going to be repeated elsewhere, this story illustrates the huge need for financial innovation in so many parts of the world and the willingness of the worlds ‘un-banked’ to use products that offer them even a semi-decent service. It is clear that there is a huge demand for financial innovation amongst the ‘un-banked’, and even more importantly, it is clear that this innovation will not come from banks.
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