M-PESA or UPI? A Tale of Two Letters to the World Bank
Letter 1: A (somewhat biased) case for the M-PESA model from a Telco
To: The World Bank
From: A Telecom Lobbyist
We believe we are one of the rare countries that can make the M-PESA model work. It failed in a number of other African countries due to demand reasons (poor consumer awareness and adoption) and supply ones (lack of a supporting ecosystem that’s required to make mobile money work like large merchant networks).
Fortunately, we are not like most Eastern and Southern African neighbors. We are a much larger country and we pride ourselves on our private sector dynamism and entrepreneurship. Given that the keys to success in the mobile money game are massive scale and innovation, we are optimistic.
We know that payments systems tend to live or die by the trust. Reliability and security are critical to users, not all the fancy value-added financial services like micro-loans, insurance and savings products. They want simple, frictionless payments. That should be our starting point.
We also know that users are more likely to trust large, ubiquitous brands. Telecom companies are much better positioned to build this type of trust. We already have the trust of a mass of users who are underbanked. We have developed these customer relationship via our extensive agent networks across the country. This cannot be said for our friends in the banking sector.
Let’s face it, regulatory bodies and banks are always going to be a few steps behind the innovation curve. Banks are by nature risk-averse and poorly equipped to serve the base of the pyramid populations. The ideal role for banks, in our view, should be back-end account-holding and compliance, not leading the movement with front end, consumer-facing innovation. Leave the front end to telcos and the growing number of fintechs that are emerging in our country that are obsessed with user needs. Let us flex our entrepreneurial muscle and our obsession with user needs!
We have a unique opportunity right now to catch up to Kenya’s mobile money moment.
We firmly believe that the correct order of operations is to 1) massively increase access to mobile money and then 2) regulate this access — rather than the other way around. Regulation simply cannot hang with the speed of technology and business model innovation we’re seeing! Let’s not let the government stifle this progress!
In sum, we the telcos have the customer data, relationships and trust to really make mobile money happen. Please help us shape a regulatory framework that allows us to go out and bank this population. We’re happy to work with the government and banks in a “regulatory sandbox” structure that allows us to drive innovation, and the government and banks to play the important back-end and compliance roles.
Letter 2: A (somewhat biased) case for UPI from a banking official
To: The World Bank
From: A Banking Representative
Given that we’re starting from scratch, we believe that UPI is the way to go.
While the M-PESA model is alluring, it has consistently failed to take hold outside of the unique circumstances in Kenya. In our case, we already have a mature banking sector and we do not have a predominant, government-backed telco like Safaricom. Our high mobile penetration alone does not make us an ideal ‘leapfrog’ market.
Instead, we envision a system that works for all players, not just a few telecom companies. We believe our target end state system is one that draws on the strengths of telcos, banks and the government, and combines them into a whole that expands access in a way that inspires trust. When done right, banks gain a foothold in a new customer segment, telcos get a much stickier mobile service and the government opens up a key channel for transfers and taxes: win, win, win.
Our reasoning lies in three key challenges to making mobile money work:
First, mobile money flourishes with a single, interoperable payment product. We need to overcome the closed loop problem where we have patchwork quilt of offerings. If there are 2–3 different players vying for share without a common government framework, interoperability will be a challenge.
Second, successful mobile money systems live or die by the strength of their distribution networks. Critical mass requires national scale. We need to enlist agents across banks, NGOs and retailers and educate both consumers and merchants on how to use mobile money. Building this network will be nearly impossible with an uncoordinated, ‘go it alone’ approach.
Third, we have seen that the long term success of mobile money also requires strong government backing: for user trust, for stability of the system, and for durability over time. A ‘wild west’ model will end up serving wealthier, urbanized customers and very few else. If the goal is to cover 100% of the population with affordable financial services and mobile money, the government is in the best position to help subsidize the cost of serving those at the very bottom of the pyramid. A strong government champion is needed to shepherd this process along.
We in the banking sector realize we aren’t always at the cutting edge of innovation, nor do we have the economics or reach to serve the entire citizenry. We welcome the government coming in to orchestrate a consortium model, one where they set the standards for interoperability that allows banks accounts, mobile numbers and third player fintechs to join the dance. Our friends in India have done this well with UPI, and our friends in Peru have done with this Modelo Peru, we can do it do.
