Mobile Phone Payment System Blossoms in Kenya

January 2, 2008 By Indrajit Basu, International Correspondent

The fact that mobile phones (with their latest generation 'killer' applications) have already impacted and changed most people's lives is hardly something new. But now the economic development role of mobile phones has entered a new phase: the mobile phone as a replacement for bank accounts and even debit or credit cards.

Take a country like Kenya. Here, an innovative mobile phone money transfer service called M-PESA is transforming the lives of thousands of Kenyans, many of whom do not even own a bank account because either they can't afford to, or even if they can, there's no bank nearby. In fact, Kenya's banking infrastructure is so poor that it doesn't reach almost 80% of adult Kenyans.

Take the example of Mwaka Howaida. He is a bar owner who runs his bar in Meru, a small town nearly 100 miles away from the nearest trading centre Nyeri.

Whenever Mwaka needs his beer stock to be replenished, his supplier insists that payment in full is either made in advance, or paid in cash at the time of delivery . Mwaka does not have a bank account. And the fact that the limited reach of law and order in Kenya means that making cash payments for deliveries isn't a smart alternative. Lorry driver-highway robberies are rampant. So up to now, the only option available to Mwaka was a day-long bus ride (with cash) to Nyeri where he could pay his supplier in advance (and lose a day's revenue in the process).

Now however, Mwaka pays on delivery through a few simple menu instructions on his mobile phone. He has recently opened an M-PESA account for free with his nearest Safaricom dealer. And whenever he needs to pay his supplier, he deposits cash in his airtime account, which is very similar to topping up his prepaid mobile phone card, and keys in an SMS text message instructing MPESA to transfer money to his supplier's M-PESA account. This secured real-time fund transfer costs Mwaka less than a dollar.

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