Mobile Banking in Tanzania: Can Kenya's success be replicated next door?

July 21, 2009—The Web is full of stories singing the praises of Safaricom’s M-PESA, a service that allows Kenyans to safely and cheaply send money to family and friends throughout the country using a mobile wallet. In neighboring Tanzania, M-PESA has been in the market for over a year. Yet it is not garnering the same level of media attention. Despite the close proximity of Tanzania and Kenya, the mobile banking landscape in each is quite different.

Tanzania boasts no fewer than three mobile network operators angling to tap into its mobile banking market. CGAP recently visited the country to see just what’s happening on the ground, not only in terms of how Tanzania’s new M-PESA service is faring compared to Kenya’s M-PESA, but more important how it compares to the other mobile payments services in the Tanzanian market.

Vodacom’s M-PESA
Perhaps the easiest way to become more acquainted with M-PESA in Tanzania is to compare it to its counterpart in Kenya. While most people may assume that what happened in Kenya could be easily replicated in neighboring Tanzania, there are important differences in country demographics and cultures, market structures, business models, and strategic implementations that make the markets in these two countries quite distinct. While Kenya’s experiences should serve as a useful guide for other implementations around the world, a carbon copy replication is impossible even next door. View the latest numbers from Vodacom (pdf).

Kenya vs. Tanzania
Geography and culture
Tanzania is almost twice the size of Kenya and is less densely populated (43 people/km2 vs. 66 people/km2). It has only three main urban centers. Tanzania’s Dar es Salaam, Arusha, and Mwanza are significantly smaller than the three main urban centers in Kenya: Nairobi, Mombasa and Kisumu (2002 census: Dar es Salaam: 2,497,940; Mwanza: 476,646; Arusha: 270,485. 1999 census: Nairobi: 3.1 million; Mombasa: 891,594; Kisumu: 574,280.) In addition, Tanzania’s population is spread thinly in the interior of the country. These geographic differences mean that, in some respects, Kenya’s geography lends itself much more readily to establishing agent networks than Tanzania’s.

Market and competition
Vodacom is not nearly as dominant in the Tanzanian market as Safaricom is in Kenya. Its market share was 41 percent in 2008 (down from 45 percent in 2007), whereas Safaricom holds 79 percent market share as of Q1 2009. And in terms of sheer numbers, Vodacom has far fewer subscribers than Safaricom: 5.2 million vs. 12.5 million, respectively.
The competitive landscape is quite distinct. When M-PESA Kenya launched, it did not have any competitors. In Tanzania, on the other hand, M-PESA is facing stiff competition. Two other mobile payments systems have launched within the last year. Read about M-PESA competition from Zain and Zantel on CGAP's Technology Blog.

Agent networks
The agent network is a critical element of any mobile banking implementation. Like most operators, Vodacom works directly with the wholesalers of its airtime. Vodacom currently has relationships with six such dealers, whereas Safaricom has roughly 300 such relationships. What this means is that Safaricom had more points of direct control within distribution channels for the purposes of presenting and offering M-PESA as a new product line. Vodacom only had six such contacts. Perhaps as a result, Vodacom has not had the same opportunity to directly transform its airtime resellers into M-PESA agents, and it has had to be more involved in directly signing up agents outside of its airtime network. View a comparison of agent commissions (pdf).

Marketing and strategy

Unfortunately, Vodacom’s initial marketing campaign in Tanzania seemed to target the wrong audience by featuring situations that were foreign to most Tanzanians. For example, one ad showed images of people buying textbooks in city bookstores. In contrast, Kenyan ads featured urban workers sending money to their families back on the farm. As a result of these types of early marketing missteps, M-PESA Tanzania was perceived as a service for the upper class.

To correct this misconception, Vodacom has adjusted its marketing to make it more relevant to the average customer. It is now focusing its marketing campaign on being more educational and highlighting cases where “M-PESA is easy, affordable and for everyone.” In addition, M-PESA in Tanzania is a USSD-based application whereas M-PESA in Kenya uses SIM Application Toolkit (STK). While they both have their advantages and disadvantages, STK is known to be easier to maneuver, an especially important characteristic when targeting an often illiterate customer base.

Pricing Schemes
M-PESA in Tanzania uses a pricing scheme that applies a tiered scale for person-to-person transfer; M-PESA in Kenya charges a flat fee. Also, the scale for cash-out amounts is more segmented in Tanzania, which means that while it is more affordable for customers to transact in small amounts of money in Tanzania than in Kenya, it scales up to prices higher than that in Kenya for very large cash-out amounts. View a comparison of pricing (pdf).

In the world of mobile payments, M-PESA Kenya is the clear outlier in terms of the large scale and large numbers reached. In this respect, perhaps the better question is not “why has M-PESA Tanzania not taken off?” but rather “what is it about M-PESA Kenya that has led to such success?”