Who Owns M-PESA? Does It Matter?

Who Owns M-PESA?
Vodafone owns M-PESA. That is right the world’s largest mobile telecommunications company by turnover, lists Vodafone M-PESA as a trademark of the Vodafone Group alongside 12 other names of products, services, companies and logos in their Annual Report for 2009.

Safaricom frequently say they offer the M-PESA service in partnership with Vodafone or that M-PESA is operated by Safaricom in Kenya in partership with Vodafone. In the Safaricom 2008 and 2009 annual reports they state that;

“ Vodafone Group Services Limited, which owns the M-PESA solution, has entered into a Managed Services Agreement with the Company (Safaricom) under which Vodafone agrees to provide the M-PESA solution to Safaricom as a managed service and Safaricom agrees to market and offer the M-PESA services throughout the country.” (Page 67 Safaricom Annual Report 2009)

Vodafone Group Services Limited is a wholly owned subsidiary of the Vodafone Group Plc. Its principal activity is global products and service provider and it is incorporated in England. (Page 94 Vodafone Group Plc. Annual Report 2009)

Safaricom is owned by Vodafone 40%, Government of Kenya 35%, and the remaining 25% is ‘Free Float’ on the Nairobi Stock Exchange.

Development of M-PESA
Vodafone developed M-PESA and therefore has every right to the ownership of the successful innovative product. The story about the development of M-PESA is fascinating, offers great lessons on how to develop a product. This is the time line on the development of M-PESA. Unless stated otherwise the time line below is derived from the great article ‘M-PESA: Mobile Money for the “Unbanked”’ by Nick Hughes and Susie Lonie in the MIT Innovations Journal Special Edition for the GSMA Mobile World Congress 2009.

• 2001 – Nick Hughes recruited by Vodafone. Part of his role was to help Vodafone understand its role in addressing the millennium development goals (MDGs).
• Aug – Sep 2002 – Nick attends the World Summit for Sustainable Development in Johannesburg, South Africa. Meets up with a UK government representative with links to the Department for International Development (DFID). They discuss funding available by Financial Deepening Challenge Fund (FDCF).
• Mid 2003 – Nick writes a proposal on the development of a cash transfer service and seeks support from the leadership of Vodafone and Safaricom .
• Q3 2003 – FDCF award funding of £910,000 (later increased to £970,000) and Vodafone commit matching funds of £990,000 for a Mobile Micro Finance project with a start date of Dec 2003.
• 2004 – Workshops hosted in Nairobi and Dar es Salaam to gather first hand data on needs in micro financial sector. Concept for the product refined to allowing a customer to receive and repay a micro finance loan using a cell phone. Susie Lonie, an m-commerce expert, hired by Vodafone to manage the development of the cash transfer platform.
• Feb – Oct 2005 – Susie departs for Nairobi to work with Safaricom, Commercial Bank of Africa (CBA) and Faulu Kenya. Decision made to build new software for the cash transfer proceeds rather than buy an existing one. RFP issued and Sagentia, a technology consultancy firm based out of Cambridge selected. Servers imported then exported to London to be hosted at Vodafone due to the poor Internet in Kenya. Name of the product, M-PESA, proposed by a Kenyan advertising firm. Faulu clients in the city centre and Mathare selected. Safaricom prepare for the rollout of the M-PESA pilot.
• 11 Oct 2005 – Launch of the M-PESA pilot for 500 Faulu Kenya clients. Following observations and analysis of the use of M-PESA by the clients, the service offering is tweaked.
• Feb 2006 – Arun Sarin, CEO Vodafone, gives a speech in London announcing the launch of a Social Investment Fund with a budget of £3 million over 3 years to focus on the development of products and services that have a social and business benefit. Arun announces the first product in development is M-PESA.
• 1 May 2006 – The M-PESA pilot formally ends but the service runs on to Oct 1006.
• Nov 2006 – Feb 2007 – Technical, administrative, legal and regulatory issues worked out for the commercial launch. New trust company registered; M-PESA Holding Company Limited.
• Mar 2007 – Official launch of M-PESA, a money transfer service.
• Dec 2007 – 1 million customers sign up with M-PESA. The forecast by Safaricom had been 350,000 in the first year.
• Feb 2008 - Vodafone and Roshan launch M-PAISA, the first mobile money transfer service in Afghanistan
• Apr 2008 – Vodacom launch M-PESA services in Tanzania
• Aug 2008 - M-PESA had 7 million customers, with an average 150 million Kenya Shillings (US $2 million) transferred every day, with an average of 1,500 Kenya Shillings ($20) per transaction.

Does it Matter Who Owns M-PESA?
To the millions of Kenyans that use the service, in the short term, it does not matter. The service is so valuable that the question of ownership seems irrelevant. M-PESA has revolutionized money transfer services. It has provided financial services to Kenyans who did not use banks or other financial institutions. The M-PESA function that enables people to make payments to organizations e.g. pay their bills and also for organizations to make payments to individuals will further transform financial services in Kenya. The use of M-PESA makes these payments and money transfer efficient, cheaper and safer.

If there any questions about the ownership of M-PESA most Kenyan’s would wrongly conclude it was developed and is owned by Safaricom. This is largely due to the very effective marketing done by Safaricom. Few Kenyans would believe that Safaricom is anything but a 100% Kenyan owned company and in turn M-PESA is therefore a product designed in Kenya by Safaricom. It is after all the most successful company in Eastern and Central Africa, the most capitalized on the Nairobi Stock Exchange with over 800, 000 shareholders.

In the long term many more people may want to know who owns M-PESA. The landscape may change considerably for Safaricom and Vodafone. The variables include;

• The long term plans for Safaricom by Vodafone; depending on the goals of the new CEO and the Board of Directors.
• The overall direction and branding of Safaricom after Micheal Joseph leaves and a new CEO is appointed.
• The expectations of the new Government in Kenya after the 2012 elections and subsequent changes at the Ministry of Finance, the Ministry of Information and Communications and at the Communications Commission of Kenya (CCK).
• The M-PESA service may also become ‘normal’ to Safaricom subscribers, a regular part of their lives. These factors will provide an opportunity for harder questions to be asked about the ownership of M-PESA.

Will Kenyans feel deceived to discover the owners of M-PESA reside in London? I suspect there will be feelings of hurt; national pride wounded. Questions about how this happened. Whether this is of greater importance to the nation than the current and future benefits of M-PESA is debatable.

For Kenyan information and communication technology firms it is staggering that the start-up funds required to develop M-PESA were KES 250,000,000. Vodafone, with their great development team and enormous financial resources, still had to seek half of the funding externally from DFID. Is it possible for Kenyan firms to leverage such significant amounts of much money to develop a technology? Can such services be developed with smaller budgets? Is it conceivable that Kenya, and other African countries, can build and operate their own mobile network operators and retain profits or offer lower costs to subscribers? Or are we doomed to contributing to the bottom line of wealthy shareholders in Europe, the Americas and Asia.

There is an increasing interest in providing profitable services and products to people living in poor countries, the so called bottom of pyramid (BOP) markets or the ‘Next Billion.’ To quote the former CEO of Vodafone Group Plc. Arun Sarin

“ … we [Vodafone] have a clear need to understand the economic and social impact of our technology in developing markets. This is not for altruistic purposes - we have no desire to undertake the role of governments or NGOs or embrace an exclusively philanthropic approach to “do good”. Rather we recognise that around 20% of the world’s mobile phone users are from low to middle income countries and can see that the next billion mobile phone users are likely to live in markets which have very different needs from those we are used to.” Arun Sarin, CEO Vodafone, speech in London Feb 2006

M-PESA, its success and the interest it is generating as a successful service offering by a multinational to previously untapped markets should be a wakeup call to Africa. Africa which hosts many in the BOP markets needs to critically start thinking creatively about how it can offer services and products to these people and retain the profits in the continent or else Africa will truly be doomed and be dominated economically, even though its residents will have better access to services than ever before. The success of Mo Ibrahim's MNO Celtel, gives us hope that it is possible to have successful African owned telecommunications operators.

Back to the question of ownership of M-PESA, Safaricom and more critically Vodafone can deflect the negative attention this may create. Vodafone could limit the use of the name M-PESA to Kiswahili speaking countries and use other brand names in other countries e.g. M-Paisa in Afghanistan. That said the new CEO, Vittorio Colao, does not seem as interested in continuing the growth of Vodafone in the emerging markets of Turkey and India which are the focal points for remittances of funds by the citizens of these countries in Germany and the UK respectively. These would have been the ideal markets for the M-PESA service by the Vodafone International Mobile Payments Department. Interestingly Nick Hughes who headed this department left Vodafone in September 2009. So Vodafone may lose interest in the M-PESA service or just focus on its African subsidiaries in Southern and Central Africa and Ghana.