Mobile payment provider ‘infuriates’ banks

I've blogged a few times about M-Pesa.  

The first time was in late 2007, when Citibank did a deal to roll the M-Pesa model worldwide for remittances.  Then again in 2008, when Royal Bank of Scotland (RBS) announced the idea of a business model based upon being an MBNO, a Mobile Banking Network Operator. 

The idea of the latter is that you take the model of Vodafone in Kenya with M-Pesa, which is managed by their subsidiary Safaricom, and link the MVNO (Vodafone) with the MBNO (RBS) to offer mobile payments in any country of choice.

When RBS told me their plans to do this, they stated that it was because Vodafone had become the largest bank in Kenya by accident and, as this was not a core activity for them, it made sense to team up and have a bank manage this non-core activity.

This may well be true, but now M-Pesa is at the centre of a storm of controversy.

As banks have seen how successful they have become, they have become more angry about the service.  The whole thing spilled over into a full-scale row just before Christmas, when headlines ran such as this one from the Nairobi Star: "Big Banks in Plot to Kill M-Pesa"

Oh dear.

What had M-Pesa done wrong? 

The newspaper reports that: "four big local banks have formed an 'ad hoc committee' to try and get M-Pesa stopped.  The bankers pitched their case to Michuki (the Kenyan Finance Minister) at dinner on Monday, 8th December. They argued that M-Pesa was similar to a 'pyramid scheme' and that people could lose their money if it collapsed."

Aha!  A Bernie Madoff style Ponzi scheme, ay?  Shut it down.

The accusation is that rogue agents dealing with M-Pesa payments are skimming off the top and stealing the cash.

I suspect the real reason is that, as the article reports later, the M-Pesa service was launched in March 2007 with the blessing of the Kenyan Government and "now has over 5,000,000 registered users and almost 5,000 registered outlets. It has transferred almost KES60 billion (around US$765 million) since it started. In September M-Pesa transferred KES9.61 billion (US$120 million) and in October reportedly over KES10 billion."

The bankers' pressure on the Finance Minister obviously had some effect as, after Christmas, the newspapers reported that M-Pesa could be a "disaster waiting to happen" due to the lack of an appropriate regulatory structure.

The storm rages on this week as papers say that the service must now be brought under the regulatory system of the National Bank of Kenya, and that their agent-based model is open to unscrupulous practices, which is where the whole pyramid scheme dialogue starts.

There may be some gist to the issues and reasons why the service needs to change, but surely it's better to have a simple money transfer service using mobile telephones than having to pay taxi drivers a fortune to move money between villages physically.

And where were the banks when this service was being started?  Just looking at the high net worth client base I suspect.

For all its foibles, M-Pesa is a brilliant innovation and yes, the agents needs to be monitored and the service regulated, but whatever you do, don't break an innovation that works Mr. Michuki.