Executive Summary: In 2007, M-Pesa started in Kenya as a CSR pilot

project by Safaricom, a Vodafone subsidiary, to transfer money over

mobile because it was unsafe to carry cash. But soon it changed into a
financial service and became a big hit. Vodafone brought the platform to
India in 2010 as a pilot in Rajasthan, and launched it in April 2013.
But it has had a slow start considering only 1.5 million of Vodafone's 170
million subscribers use this service. This case study looks at how a service
that originated in Kenya was tweaked for India and whether it can
succeed.
Geeta Devi, Choti Devi and Lilima Kachaap, three poor women in the
nondescript area of Namkum near Ranchi, Jharkhand's capital, had
recently given birth to healthy offspring. But their joy was tempered by
exasperation. Their wait for due money from Janani Suraksha Yojana
(JSY), a financial assistance plan under the National Rural Health Mission
(NRHM), was getting never-ending. The scheme, which promotes
institutional delivery among poor women, gives Rs 1,400 on the birth of
every child to the mother.
Thankfully, the trio would get their due unlike thousands of others who do
not, and from quite an unexpected source. It all started when Vodafone,
India's second-largest mobile operator by subscriber base, tied up with
NRHM to do a pilot project in Namkum. The objective: disburse money
directly to the beneficiaries through M-Pesa - its financial mobile service
better known as a mobile wallet. M-Pesa is a USSD-based (an SMS-based
service that does not need Internet) technology that helps people send and
receive money over the mobile, apart from making utility bill payments,
and recharging mobile and DTH accounts.
The Jharkhand government shared the list of beneficiaries with Vodafone.
In turn, Vodafone identified its customers on the list, and activated the MPesa service for them. For people who were not on Vodafone, the company
put up camps in Namkum so that they could get Vodafone SIMs and the MPesa service.
Once that was done, the government sent information on the beneficiaries and the money - to the banking system that was linked with the M-Pesa
accounts. Vodafone's agents - some of who are also business
correspondents - then hand over the money to the recipients. So, Geeta,

Choti and Lilima - and several others - finally got their money through MPesa.
WHY MOBILE MONEY MIGHT WORK IN INDIA
Mobile money has worked elsewhere in the world. M-Pesa was started in
Kenya in 2007 by Safaricom, a 90- per cent Vodafone subsidiary, as a
corporate social responsibility (CSR) activity. Due to Kenya's high crime
rate, it was near impossible to carry money physically. So M-Pesa started as
a money transfer project and was hugely successful. Today, M-Pesa has 70
per cent penetration in Kenya and is no more a CSR activity.
India might not have the same problem as Kenya, but mobile money still
holds up an interesting solution for money transfer to rural areas.
Consider the facts. India has 100,000 bank branches, five per cent of which
are in rural areas. Sending money through banks becomes impossible for
the millions of villagers who migrate to big cities for work. The post office
system is also used a lot to transfer money, but is not considered entirely
reliable. As a result, most migrant workers send money home in cash
through travelling relatives or acquaintances - a method fraught with
chance and risk.
At the same time, government assistance schemes like JSY and
employment plans like MNREGA (Mahatma Gandhi National Rural
Employment Guarantee Act) have given rise to a new breed of middlemen.
This unscrupulous lot takes commissions to disburse the money to the
beneficiaries, but don't always deliver. And the cheated beneficiary is none
the wiser, largely due to ignorance and illiteracy. Plus, there are the
inevitable delays due to red tape.
In Odisha, for instance, a large chunk of rural employment comes from
MNREGA, which ensures 100 working days to every enrolled individual in
rural India each financial year. In the current financial year, according to
estimates by experts, 6.48 crore payments are delayed by more than 15
days, worth Rs 4,629 crore, much behind the government's desire to clear
all payments within 15 days.
In Odisha, Vodafone did another pilot and tied up with the state
government to disburse wages of MNREGA workers through M-Pesa in the
Hinjilicut and Chikiti blocks in Ganjam district. It solved two problems. For
those with accounts in local cooperative banks and post offices, it reduced

delay in payment. And it helped deliver the money to the people who didn't
have bank accounts.
What works in mobile's favour is that India has 900 million mobile
subscribers, 40 per cent of which are rural consumers. "Time will tell if it is
the best possible way, but it definitely seems that m-banking is the best
available medium, because of mobile telephony's penetration in rural
India," says telecom regulatory expert Mahesh Uppal.
HOW VODAFONE DID IT
After travelling through Tanzania, Fiji, South Africa and Congo, M-Pesa
finally made its launch in India in April 2013, after a pilot in 2010. That was
when Vodafone had tied up with HDFC Bank to become a banking
correspondent in a small village called Sikar, in Rajasthan's Jaipur district.
The pilot was small, and wasn't scalable then due to regulatory problems the government had yet not given mobile wallet licences to operators.
Vodafone was dependent on HDFC Bank to get the wallet activated, which
took anything between eight and 10 days. As a result, people would often
lose interest and never come back. "We wanted to understand distribution
and customer need," says Suresh Sethi, head of M-Pesa in India. "It was a
good learning process for us."
Things changed in June 2012, when the Reserve Bank of India (RBI)
started giving out licences to start mobile wallet, and Vodafone applied. In
November, the operators, including Airtel, were given licences to operate a
semi-open mobile wallet - which allowed consumers to send and transfer
money, pay bills and do recharges, but did not allow the user to take out
cash. But the RBI did allow interoperability with a bank, which enabled
Vodafone to tie up with ICICI Bank to allow cash out options.
Finally, Vodafone's M-Pesa service was rolled out in April 2013, in the
circles of West Bengal, Kolkata, Bihar and Jharkhand. A lot of people from
these states migrate to bigger cities for jobs. M-Pesa users, who could enrol
in M-Pesa by a one-time payment ofRs 100, also needed to open an account
with ICICI Bank.
So Vodafone started collecting Know Your Customer (KYC) forms, a
mandatory requirement to open a bank account, and started instant
activation. "We are doing a quasi-banking service. We collect KYC forms

like any bank does," says Sethi. Thousands of Vodafone dealers became MPesa agents or business correspondents, and started banking the unbanked.
The only problem at the time was that all M-Pesa agents had to be within
30 km of their parent bank, especially since ICICI Bank does not have deep
penetration in rural India. (The RBI subsequently removed the 30-km
restriction this June.)
Within a year of M-Pesa's launch, Vodafone completed its pan-India
rollout. Today, it has 80,000 outlets or banking correspondents, 60 per
cent of which are in rural India, and all of them have the ability to cash out.
Even though M-Pesa has other services like utility bill payments and
recharge options, money transfer accounts for 60 per cent of the business.
To Vodafone's advantage, therefore, is the limited banking infrastructure in
the country and the migrant workers' need to send money home in a secure
manner. What helps is that Vodafone has a distribution network that spans
1.7 million touch points, and deep penetration in rural India - of its 170
million users, 53 per cent are in rural areas.
Of course, Vodafone isn't the only company offering money transfer on
mobile. India's biggest mobile operator Bharti Airtel launched Airtel Money
in January 2011. But its inherent disadvantage is that it doesn't allow cash
out, as it does not have a pan-India tie-up with any bank, except a very
small footprint with Axis Bank. Airtel's older tie-up with State Bank of India
(SBI) has also long come to an end. SBI itself runs a banking correspondent
service called Eko India Financial Services. Eko works as a mobile wallet,
but is not dependent on any mobile operator. But the network is much
smaller than Vodafone's.
Idea Cellular, India's third-largest mobile operator, also has an M-Wallet.
"In its current form, the segment that it appeals to is the urban and semiurban user," says Ambrish Jain, Deputy Managing Director of Idea Cellular.
"But m-banking is needed for the unbanked population who don't
have debit and credit cards. And they require cash out, which is not
available today."
Telecom companies are expecting that once the RBI comes out with the
final guidelines, it will allow them to provide cash out services without any
intervention needed from banks.
LONG WAY TO GO

However, the success of M-Pesa in India on a scale comparable to Kenya

looks like a long haul. Of Vodafone's user base of 170 million, only 1.5
million are enrolled in M-Pesa. And less than one-third of these are active
users. A lot of this is because people still rely on the bank to deposit money,
and are not comfortable transferring money over mobile.
Write your view
The problems with microfinance in India had raised a question: is it too
early for financial inclusion in India? And now, there is a new question: is it
too early for inclusion through mobile? Marten Pieters, CEO of Vodafone
India, doesn't think so. "No, we feel that we are well positioned and aligned
to enable financial inclusion," he says confidently.
Vodafone is also upgrading the M-Pesa platform. The old platform was an
import from Kenya, and is not scalable. The new platform being built will
also work on the Internet. "We have built capability to provide Internetbased services also, given that reduction in price points of smartphones and
increased availability has led to (their) greater adoption," says Pieters. "MPesa will also be available on a mobile app shortly."
In 2011, industry estimates and experts had said that by 2015 there will be
anywhere between 200 and 300 million people using financial inclusion,
but numbers haven't yet reached a sixth of that. Even though Vodafone has
got initial success with M-Pesa, the bigger challenge is to get the numbers
like its mobile service has garnered.
EXPERT VIEW:
OPTIMUM ADOPTION OF M-PESA WILL TAKE AT LEAST TWO
YEARS
Sanchit Vir Gogia
"M-Pesa's adoption has been low owing to factors such as
awareness and lack of information and communication
technology"
SANCHIT VIR GOGIA
Chief Analyst & CEO, Greyhound Research
Financial inclusion is the need of the hour in a country like India and it has
been emphasised enough by government, companies and individuals. The
RBI's pilot project on M-Wallet has been an important factor within the ecommerce industry and I believe it is heading in the right direction.
Talking about M-Pesa, which is Vodafone's M-Wallet offering, the adoption
has been low owing to factors such as awareness and lack of ICT

(information and communication technology) networks. For this platform

to thrive it is imperative that India also reaches a healthy stage of digital
inclusion, that is, connectivity for all. Adoption is a key factor for such a
service. It is important to understand that for any new service, a mind-shift
to use that particular service takes time. This will happen when the
government brings vendors, suppliers and the customer on a single
platform to promote M-Wallet or, in this case, M-Pesa.
Word of mouth is the greatest tool for influencing people. If the service
picks up in tier-1 and metropolitan cities, it is bound to have a ripple effect
in tier-2 and tier-3 cities. However, the success and the growth of M-Pesa
will depend on the merchants who will promote and integrate M-Pesa with
their business needs. We still need to understand the fact that there are
many uneducated people in the tier-2 and tier-3 markets who do not
understand the concept of M-Wallet in its complete functionality.
Educating them is a primary concern for vendors. If this problem is
approached strategically, it is only then that M-Pesa can achieve its
optimum growth.
Therefore, Vodafone needs to approach the Indian market very strategically
by ensuring that people are digitally educated on the advantages and
convenience of a platform like M-Pesa. In order to achieve optimum
adoption of M-Pesa platform, Vodafone needs to give at least two years.
M-PESA FIRST NEEDS TO FIND ACCEPTANCE IN URBAN
AREAS
Rajesh Chakrabarti
"The enrolments and benefits of M-Pesa are not
likely to grow smoothly over time"
RAJESH CHAKRABARTI
Executive Director, Bharti Institute of Public
Policy, Indian School of Business, Mohali
Campus
Mobile money, or M-Pesa as Vodafone introduced it, has been a much
awaited product in India. Given India's enviable mobile penetration and
massive financial exclusion and significant cash management problems in
certain areas, mobile money appears like the most sensible solution.
However, one has to understand that a product like M-Pesa becomes useful

only when a significant number of people begin using it, particularly the
people you are usually transacting with or sending remittances to.
So, the enrolments and benefits of M-Pesa are not likely to grow smoothly
over time, but are likely to exhibit significant "breaks" as the service crosses
certain critical thresholds. Hence the thrust on hooking up large-scale
vendors like railway ticket service, a node that touches hundreds of
thousands of people and helps M-Pesa jump over to a new threshold in its
network effect.
Given this nature of the product, it remains too early to evaluate the success
and impact of M-Pesa. Customer acquisition will be the name of the game
and Vodafone has chosen to replicate its successful African model in India
by spreading a large number of agents, over 75,000, across the country and
has already crossed the million-customer mark. A strategy for customer
acquisition, particularly focused at the bottom of the pyramid, is likely to be
the key driver. However, here too, a conscious, focused approach of taking
M-Pesa to the financially excluded may actually be less productive than
seeking to create M-Pesa as the "in" thing and find initial acceptance in an
affluent urban demography and then have it "trickle" or "gush down" to the
financially excluded.
Service providers are likely to see more benefits of signing up if their
customers are into mobile money. As a result, convenience rather than
ending exclusion may end up being the USP. There, of course, M-Pesa will
have to battle it out with other bank account or credit card-based forms of
mobile payments, but that should be a familiar battleground for Vodafone.