Why M-PESA Should Offer Savings Accounts

A recent CGAP brief on M-PESA, which I co-authored with Mark Pickens, revealed an interesting finding on savings. Nearly one in three of the informants in Kibera (an informal settlement in Nairobi) kept a balance in their M-PESA accounts. A survey conducted in 3,000 homes in Kenya by FSD found this number to be even higher. A majority of users stored money with M-PESA. Some used the stored value for daily consumption. Others made frequent deposits of “small money” to accumulate a larger amount.

The fact that M-PESA is being used for savings illustrates the latent demand for appropriate savings products in Kenya. By appropriate, I mean accessible, affordable and safe. M-PESA scores very well on two of the three. In regards to accessibility, there are about 11 times more M-PESA agents than there are bank branches in Kenya. With no monthly or maintenance fees, and free deposits, M-PESA is much more affordable than most other savings services. However, it was not designed to be, nor is it regulated as, a savings mechanism. As a result, there are risks involved with this type of savings; liquidity being the most pertinent. If the network goes down, or the agent is out of float, customers cannot access their cash. Despite these inconveniences, many continue to use M-PESA to store their “small money”. My informants explained that the benefits outweigh the costs. Some also made clear that M-PESA was actually safer than the banks. Given the history of bank crashes in the country, this is no surprise.

Users did have one complaint—M-PESA does not pay interest. Since Safaricom is not registered as a financial service provider, providing interest on savings is not an option. This is a shame. The electronic value stored in M-PESA is backed by cash in the Central Bank of Africa (CBA). This account is generating a significant amount of interest for Safaricom. What the mobile operator plans to do with this money is yet to be seen. But one thing is clear—it should be poor Kenyans that benefit from the interest on their savings and not Safaricom. For this to occur, M-PESA wallets should be linked to accounts managed by formal financial institutions. This is something that Zap, Zain’s mobile money service, has already done. Poor users could then use their M-PESA wallet to accumulate cash, as deposits are free. The accumulated amount could then be transferred to the formal account, which provides interest.

Why Safaricom has not made the move towards the mobilization of savings is not clear. But it should. This would make it easier for Kenyans to reap the benefits of formalized savings by having an account that is affordable, accessible and pays interest. It is not just Safaricom that has shied away from savings. This year’s CGAP/GSMA Mobile Money Market Sizing Study claimed that by the end of this year there will be 120 mobile money deployments (live or in pilot) around the world.

Mobile operators are not launching savings products due to business model and regulatory constraints. Most will focus on developing their core mobile money services before supporting cross-domain business models with micro-deposit institutions including microfinance institutions and savings and credit cooperatives (thanks to Mike Catalano, of OpenRevolution, for making this point).

If this is the case, then it could be a while before we see the mobilization of savings via the mobile. This is unfortunate. There are currently billions of dollars stored under mattresses in the developing world. This means that the market for savings could be just as lucrative as the one for remittances. Perhaps the mobile money industry needs to shift its focus.