M-Pesa: Begins at phone in Europe

           

It is not often that a company’s investment in a frontier market phones home so clearly. Vodafone made plans this week to launch M-Pesa in Europe. From modest beginnings in Kenya seven years ago, the mobile money service provided by Safaricom, Vodafone’s subsidiary, handles the equivalent of a third of the country’s gross domestic product a month in text-messaged cash.

That is one milestone. Here is another: also this week, the UK government said that it had hit a long-held target of spending 0.7 per cent of economic output on overseas aid. The prime minister called it his “proudest achievement” in office. Others grumbled. What value does aid – often in the same frontier markets – bring, and for whom?

Look to the link between the two milestones. It exists, if distantly, in M-Pesa itself. For all its enormity in 2014, the system started as a £2m pilot project in 2006. Vodafone supplied half the funding. But the rest came via the UK’s Department for International Development.

This prompts a simple question. What stopped one of the world’s biggest telecoms companies – one that generated £8bn of free cash flow the year before – putting another £1m at risk for M-Pesa? Arguably, it was right for UK taxpayers to put in money regardless. Just under £1m is cheap at the price for a chance to transform an East African economy’s infrastructure. Would that similar slices of Dfid’s current £12bn budget were always as effective.

But should taxpayers have shared in M-Pesa’s long-run upside through equity? Vodafone probably did not take all the initial risk because it could not be sure of the future market at first. The original trial set out to improve microfinance loans: only gradually did M-Pesa’s use for sending money cheaply become apparent. Vodafone later put plenty of investment into building up a wider network. Safaricom had significant market share in 2006, and has grown since. M-Pesa secures customer loyalty, crucial for any telecoms provider. That is one benefit of M-Pesa being early in mobile money’s revolution.