It’s a painfully First World problem: Splitting dinner with friends, we do the dance of the seven credit cards. No one, it seems, carries cash anymore, so we blunder through the inconvenience that comes with our dependence on plastic. Just as often, I encounter a street vendor or taxi driver who can’t handle my proffered card and am left shaking out my pockets and purse.
When I returned to the United States after living in Nairobi on and off for two years, these antiquated payment ordeals were especially frustrating. As I never tire of explaining to friends, in Kenya I could pay for nearly everything with a few taps on my cellphone.
Every few weeks, I’d pull cash out of my American bank account and hand it to a contemplative young man stationed outside my local greengrocer. I’d show him my ID and type in a PIN, and he’d credit my phone number with an equivalent amount of digital currency. Through a service called M-Pesa, I could store my mobile money and then, for a small fee, send it to any other phone number in the network, be it my cable company’s, a taxi driver’s, or a friend’s. Payments from other M-Pesa users would be added to my digital balance, which I could later withdraw in cash from my local agent.
For me, M-Pesa was convenient, often simpler than reaching for my credit card or counting out paper bills. But for most Kenyans, the service has been life-changing. Kenya has one ATM for every 18,000 people—the U.S., by contrast, has one for every 740—and across sub-Saharan Africa, more than 75 percent of the adult population had no bank account as of 2011. When Safaricom, the major Kenyan telecommunications firm, launched M-Pesa in 2007, pesa—Swahili for “money”—moved from mattresses to mobile accounts virtually overnight. Suddenly, payment and collection of debts did not require face-to-face interactions. Daylong queues to pay electric- or water-utility bills disappeared. By 2012, 86 percent of Kenyan cellphone subscribers used mobile money, and by 2013, M-Pesa’s transactions amounted to some $35 million daily. Annualized, that’s more than a quarter of Kenya’s GDP.
M-Pesa isn’t the first mobile-money service. The Philippines has had at least rudimentary mobile money-transfer systems since 2001, but nine years later, fewer than 10 percent of Filipino mobile users without bank accounts actively used them, while the long tail of mobile-payment systems has already transformed Africa. Parrot programs like Paga, EcoCash, Splash Mobile Money, Tigo Cash, Airtel Money, Orange Money, and MTN Mobile Money have sprung up in several African countries. Even government has elbowed its way in: the Rwanda Revenue Authority has introduced a service that allows citizens to declare and pay taxes right from their cellphones.
Mobile money exploded in Africa because the continent’s cash economy was ripe for disruption. Even as the number of city dwellers wishing to send money to rural relatives surged, the prevailing technology was still pressing an envelope of cash into the hands of a bus driver or trusted friend heading home. Some paranoiacs would wedge a parcel above the wheel of a bus, sending the intended recipient instructions for how to retrieve it many dusty miles later.
Money transfer was just one problem for the millions of informal-sector workers who had no standardized tools for managing cash flow—no checking or savings accounts, no credit cards. “You have a huge informal economy—a lot of people who are not part of the banking system,” Lohini Moodley, a co-author of McKinsey’s “Lions Go Digital,” a report on technology in Africa, told me. This gray economy has historically operated using a blend of ad hoc and do-it-yourself financing processes, with cash and IOUs featuring prominently.
But, first in Kenya, then around the continent, mobile money has changed everything. Perhaps most important, M-Pesa and its cousins offer a long-sought ability for individuals in poor countries to build assets. If you squint, digitally stored currency looks like a simple checking or savings account. M-Pesa has nearly 80,000 agents, like my man at the grocer, who function as tellers for a massive virtual bank.
This competition has not gone unnoticed by the African banks that once ignored the bulging mass market: between 2005 and 2009, the number of bank branches in Kenya roughly doubled. Across Africa, new ventures are using mobile money as a platform to facilitate other services like insurance, analytics, consumer credit, and e-commerce. “There’s a huge appetite from people to conveniently and reliably access services they are already accessing in less convenient and more expensive ways,” Rachel Balsham, who does business development for the Mauritius-based mobile-finance start-up MFS Africa, told me.
In a pleasing inversion of development logic, Africa has leapfrogged way ahead of the wealthy world. Though about half of Americans now have smartphones—driving major changes in the way we learn, work, and socialize—mobile innovation has only grazed the realm of finance. A 2012 report on global financial habits found that the most technologically advanced economies have actually been among the slowest to catch on to mobile money. Across sub-Saharan Africa, 16 percent of adults said they used mobile money. In all other regions, including Europe and the Americas, by contrast, that figure was less than 5 percent.
Compared with Africa’s mobile revolution, digital financial innovation in the U.S. doesn’t seem all that innovative. Sure, you can photograph a paper check to deposit it. Some apps link bank accounts to sleek budgeting interfaces. But the majority of third-party mobile apps simply replicate the desktop experience of balance transfers or bill paying. PayPal’s core product has remained roughly unchanged since the company was founded in 1998, while Square, the fast-growing service whose mobile attachments allow vendors to accept credit and debit cards for lower fees, hasn’t fundamentally changed the market—just adjusted revenue shares.
How did a continent still struggling to guarantee clean water and reliable electricity beat Silicon Valley to this groundbreaking mobile solution? After years of reporting on African innovation, I came to a conclusion both surprising and obvious: necessity drives creativity, and institutional failures accelerate the process of experimentation and problem solving.