Vodafone's Kenyan rhapsody

Kenyan mobile banking innovation is hard to export

Kenya's mobile banking innovation may prove difficult to export. The African country has led the way with an SMS-based payment service called M-Pesa, which launched in eastern India last month. The government's push to give all Indians the right to banking access bodes well. But financial regulations and fierce competition may mean M-Pesa in India will face higher hurdles than its Kenyan role model.

Kenya's high number of mobile phone users, combined with inadequate banking infrastructure, has created a robust demand for mobile banking, and M-Pesa has become the dominant player since its launch in 2007. It allows mobile phone users, with or without a bank account, to deposit, withdraw, and transfer cash to one another using text messages. From two million users after its first year, M-Pesa now boasts 14.6 million today - equivalent to 64 percent of Kenya's adult population. It is now evolving to offer savings and loans.

On the surface, India looks primed for a repeat of Kenya's success. The country has 862 million mobile phone users, a large remittance market, and banking infrastructure inaccessible to 700 million people. Vodafone has a presence in 1.5 million outlets, far surpassing the country's 100,277 bank branches.

But unlike Kenya, M-Pesa in India is regulated by the central bank. This means Vodafone will not be able to import the Kenyan model of bypassing banks with mobile-to-mobile cash transfers. Instead, Vodafone and its local partner ICICI Bank will have to screen customers before allowing them to withdraw cash and participate in mobile commerce.

Further, the government's pledge to expand banking services to all Indians has enabled banks to appoint 'business correspondents' to provide basic financial services. This has paved the way for non-governmental organisations, microfinance institutions, telecom companies, including Vodafone, and others to join forces with banks. The irony is that this has flooded the money transfer market with competing mobile payment services that are incompatible with one another.

India's competitive mobile telecom sector is another barrier. Vodafone is the second-largest network with 17 per cent of the market, compared with 70 per cent for Vodafone's Kenyan affiliate. For all its undoubted success in Kenya, M-Pesa will have trouble exporting its model to India.