Today a report came out that M-Pesa processed 99.6% of the value of mobile money deposits in Kenya. This should raise eyebrows for a couple reasons.
- M-Pesa processes about $38.5 billion a year, or almost half the Kenyan GDP for the year.
- M-Pesa is wholly owned by a private company – Safaricom.
I don’t know many businesses that are as effective monopolies as M-Pesa. M-Pesa first took off in Kenya during the 2007-2008 election crisis. The violence on the streets prevented many people from leaving home, and as a result, people turned to a digital wallet and payment platform for transactions. It was often too dangerous to get to a bank, but your local agent was likely safer. People didn’t have to travel as far to get money, and they could instantly send money to people who couldn’t leave their homes at all. After that, M-Pesa continued it’s extraordinary growth in large part thanks to the late Bob Collymore’s excellent vision and domineering strategy.
M-Pesa also leveraged the network effects that exist as part of a payment platform. As more users joined the service, it became more appealing for other users to join, and then businesses when M-Pesa launched their pay merchant features.
M-Pesa also made it extraordinarily difficult for their competitors to gain any sort of value from the growing ecosystem. They lobbied hard against payment neutrality, or inter-operable agents. They bullied agents who wanted to operate other payment networks, and they bullied startups too. I’ve on and off in Kenya over the last ten years, and saw how ruthless they actually can be.
Now, while that’s just good business and I can’t say I’m not concerned that a private business processes over 99.6% of all mobile money transactions in Kenya. That’s overwhelming market power. If they wanted to begin extracting rents, or limiting innovation, there’s nothing anyone can do. It’s M-Pesa’s way, or the highway. That should scare startups, the government, and private citizens in Kenya. It scares me.