Kenya’s M-PESA: Is mobile banking really all it’s cracked up to be?

**This post is part of a “before and after” series on Jonathan Morduch’s experience in Kenya and his thoughts on the potential of mobile banking. Tune in to see what he has to say when he returns.   

The Bill & Melinda Gates Foundation certainly thinks so. I’m going to be seeing for myself this week, when I join a foundation-sponsored visit to M-PESA, a rapidly-growing mobile payments service in Kenya. As Ignacio Mas and Daniel Radcliffe wrote as guest bloggers for us last week, at Gates they believe that M-PESA “is already demonstrating how m-payments can successfully expand the range of financial options available to poor households.” By all accounts, M-PESA has become a remarkably effective way to transfer money, but can it really deliver as a platform for full-service banking?

The potential for mobile phones to solve the problem of infrastructure for expanding financial access in poor and remote areas is tremendous. As Ignacio and Dan point out, mobile phone penetration in Africa, which was a mere 3 percent in 2002, is expected to reach 72 percent by 2014 – this on a continent where roughly 20 percent of the population has a bank account (see our recent global count). That part’s clear – and exciting.

But can you really offer the full range of microfinance services via a cell phone? M-PESA isn’t worried about this right now – it’s fundamentally a payments and store of value platform and doesn’t deal in microloans. But if the microfinance industry wants to stake its future on the promise of models like M-PESA, then this is a question we need to understand sooner rather than later.

So far, banking with the poor is “high touch” work. Loan officers do much more than just disburse funds and collect payments. They also play the roles of social worker, book-keeper, mediator, detective, and coach. I wonder what, if anything, will be lost if human interaction is taken out of some or all of the equation? A mobile phone can’t assess who’s a motivated entrepreneur, who’s untrustworthy, or who might be in trouble.

Another question is whether platforms like M-PESA can be effective in reaching the under-served.  In principle, they can dramatically reduce transactions costs and thus change the game.  But in practice, are/will they reach the already well-served, or can they actually get to the unbanked in rural areas and remoter regions?
Of course there can be solutions to challenges like these, and that will be a big focus next week.  I’ll report back when I return from Kenya.