Kenya's Banking Revolution

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Photograph by Sarah Elliott for TIME

A street stall and a cell phone are all that is needed

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The secret of M-Pesa's success is simplicity. In a world where sending money home used to require a hard-to-obtain bank account, Kenyans can now send as little as $1.20 to one another for minimal cost, with no risk, in seconds. The advantages over a regular bank are clear, says Maina: "Some businessmen want to deposit too little for them to stand for a long time in a queue. Others are shabbily dressed or illiterate or they forget their signatures. It's just easier to operate with M-Pesa."

Economists have a second explanation for M-Pesa's success. In his seminal 2004 book, The Fortune at the Bottom of the Pyramid, development economist C.K. Prahalad outlined a huge opportunity for businesses that had long assumed that being poor meant having no money. The poor did have a little money, it turned out, and there were billions of them, a massive untapped market for the companies that could figure out how to serve them. Mobile banking is the best evidence yet that Prahalad, who died in April, was right. Before mobile technology, most of the developing world was unbanked. But as Safaricom and others have demonstrated, that was because of lack of supply, not demand. "If you asked me in March 2007 did I think M-Pesa would be so big, there's no way," says Safaricom's founding CEO, Michael Joseph, who recently stepped down. "But I shouldn't have been surprised. There is money available. [It's just that] nobody knew about this market, this potential, four years ago."

That's good news for the poor, who are suddenly talking and banking long distance. But the rich world has tons of money. How long can a situation last in which Kenyans — and South Africans, Ugandans, Japanese and Filipinos — can bank by mobile phone but Americans and Europeans can't? Moreover, says Realini, even the world's biggest economy has a bottom to its pyramid: her research shows the poorest 30% of Americans are underbanked — unable to access the credit and finance it can afford. Evidence of that untapped demand, she says, can be seen in peer-to-peer banking, online transactions that link lender to borrower directly, cutting out banks altogether. It's one reason Walmart tried, unsuccessfully, to buy a bank.

Don't be surprised to see Kenyan-style mobile-banking apps on your phone in the near future, says Realini. William Maurer, a professor of anthropology at the University of California at Irvine and the director of the Institute for Money, Technology and Financial Inclusion, says banks are missing a market. Banks that stick to the old model — offering a limited range of services, for often hefty fees, to a limited group of wealthy people — risk being outflanked by the customers they ignore. Maurer says the lesson of Safaricom is, "Don't forget about the customers. They're doing interesting things. [They're] innovators in their own right."

Safaricom has taken that message to heart. Its new innovation: an alliance with a brick-and-mortar bank. That idea evolved from Safaricom's observation that Kenyans were using M-Pesa not just as a transfer service but also as a savings bank. M-Pesa allows deposits of up to $600 per day, and many subscribers, Safaricom noted, were depositing cash and just leaving it there, where it was secure. A tie-up with Nairobi-based Equity Bank means M-Pesa customers can now have their bank accounts linked to their phone accounts, with all the extra benefits that entails, such as interest and access to ATMs and debit cards. It's a neat reversal of the way traditional credit checks work. In the West, your bank account acts as the credit record necessary to obtain a mobile phone. In Africa, your prepaid mobile phone is your credit record and your passport to a bank account — and savings, loans and a credit card.

The alliance is yet more bad news for traditional banks, not least because Equity also represents a challenge from another angle. Founded in 1984 as a microfinancier, Equity now covers Uganda and Sudan as well as Kenya, where it accounts for 57% of all bank accounts. Its customer base of 5.7 million is the largest in East Africa. Equity's CEO, James Mwangi, is unrepentant about the havoc his company and Safaricom are wreaking on the old ways. (Kenya's banks tried but failed to shut down M-Pesa in 2008.) For too long, he says, banking was about exclusion: "You are poor, you don't belong." Now it has been "transformed, completely reinvented."

In a new environment where inclusion is the watchword, banks that do not adapt will die. "They have very good reasons to be worried," says Mwangi. "Innovation is a game changer. It will consign some banks to irrelevance, liquidation and insolvency." What, again?

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