M-PESA; good but far from great

The original title for this article was going to be ‘Is Safaricom Africa’s biggest predatory lender’. You can tell I was either in a bad mood or just creating clickbait to try and get new subscribers. Luckily I had a calming lunch and decided to take a more constructive approach. So what’s my issue with Safaricom? Everywhere in the West, Safaricom, because of its mobile money platform M-Pesa, is hailed as revolutionary - the face of inclusive fintech blah blah blah. I agree, but I also think they are underperforming.

It's like that friend who was the fastest runner in primary school but hasn't improved since. Or like fried over-ripe & oily plantain - these plantains almost attained immortality and then someone just screwed it all up.

Three reasons why I am a relative ‘hater’ of M-Pesa

1. They make too much money on lending. The fundamental tenet of lending is that your interest rate should be representative of the risk of the loan. If I'm not sure whether you, the borrower, will pay me back, then I'm going to charge you a high interest. Now, if you pay me back over successive loans and I seem pretty comfortable that you're not a thief, then I can start lowering the interest rate.
   
   The head of M-Pesa, Sitoyo Lopokoiyit, says that they use over 3,500 features in credit decisions; but M-Pesa still charges everyone the same rate/fee. If the interest rate doesn't reduce over time, it means M-Pesa either doesn’t know how to use the information or they're charging the same price irrespective of risk.
   
   It's like your insurance company charging the same premium to an 18-year-old newbie driver and your accident-free auntie who's been driving for 16 years. Something's off, right?
   

2. There has been limited product innovation given M-Pesa’s data trove. All the innovation I have seen post the initial payment product has been around loans and overdrafts and you already know how I feel about that. As an example Kenya’s insurance penetration was still at 2.2% of GDP in 2021, the third lowest in Sub Saharan Africa.
   
   Transaction & loan data are amazing predictors of income and risk behaviour so I am surprised an innovative insurance offering has not been developed since 2007. Or other products that are a bit more involved than payments. This is not too underestimate the difficulty in getting payments right. But from where I sit, product innovation has been driven by the maxim “which other bank wants to get in on the act” and “how can I make up for declining voice / data revenue”.
   

3. They won’t let others eat goat: If M-Pesa doesn’t know how to innovate, then they should style themselves as platform and aggregator of customers for other services. Recently M-Pesa was shouting about how they had reached 50million active customers in Africa. This is no mean feat and should be celebrated. They also have 45k developers and 200k businesses on an open API but I suspect the bulk of these are using the service for payments - how boring.
   
   -Where is the ambition in using the customer activity, data and brand trust to do something truly innovative like their mates Alipay & WeChat?
   
   -Where is the investment fund to seed the companies that can build on M-Pesa’s infrastructure?
   
   -Where’s the hunger to go beyond gobbledgook (otherwise known as a strategic focus goal) such as
   
   Leverage M&A, Licences and partnerships to unlock growth and shape our investment profile (with emphasis on Financial Services).
   
   When this is what you aspire to, inevitably you spend most of your money on big ticket & boring deals like a $157mm investment in Ethiopia. I get it, Ethiopia is a huge market but this deal hardly makes one’s innovation heart flutter. Safaricom & IFC tearing shit up in Ethiopia - let me watch paint try instead.

My fear is that Safaricom’s innovation strategy is heavily influenced by their position as a public company with cash-hungry owners. Their two core shareholders are the Kenyan Government and Vodafone who together own >75% of the company and clearly enjoy dividends. In 2023 KSh 48 billion of dividend payment was a meaty 77% of declared profit (or 92% if you ignore foreign exchange differences). What???? I was surprised till I learnt that its Safaricom’s policy to pay a minim of 80% of net income as dividends.

The Safaricom 2023 Annual report has a lot of guff about strategic priorities and ecosystem growth and wonderful sound products they have launched across various sectors. But at the end of the day, dividend policy and R&D spend (couldn’t see any in their report) are true indicators of intent.

Rooting for Change

Despite what may be perceived as a rant, I am cheering for Safaricom like I do when Eliud Kipchoge is running and hope that like him, M-Pesa is saving their best for last. And if I am wrong let Kenyans and others rise up en masse to give me examples of my errors. Nothing would give me greater pleasure.

The in-built dominance should be a fertile ground for innovation and continuous value to customers in the same mould as Amazon & Costco. If Safaricom ‘wins’, then the continent wins because the best innovations are copied (hat tip to Mark Zuckerberg) and typically consumers are the ultimate beneficiaries.

But if Safaricom’s strategy is forever driven by the cash needs of its hungry shareholders then we shouldn’t hold our breath. A shame, as the company has an amazing opportunity to do some real ground breaking innovation.

Thanks for coming this far - as a reward this is what great looks like. Again, if M-Pesa really is the one we have been waiting for, let me know. I want to be corrected