Mobile Payment Systems:What Can India Adopt From Kenya’s Success?

40% of Indians currently do not have access to a bank, and most of these people belong to low-income rural areas. Starting in 2005, the Reserve Bank of India (RBI) has recommended that banks increase access to banking services for the unbanked population using the mobile payment (m-payment) systems. With nearly 51% of the population carrying a mobile phone, private partners in India developed m-payment systems modeled after the M-PESA system to increase financial outreach by providing deposit and withdrawal services to clients. Safaricom launched M-PESA in 2007; by 2009, nearly 40% of Kenya’s adult population used M-PESA services; and by 2011-2012 Safaricom estimated that over 14 million Kenyans use the service as of 2011-2012.

Missing file.Photo Credit: Jay Bendixen

A study conducted in Kenya to evaluate M-PESA’s community-level impact found (1) easier circulation of money allowed clients to remit money in times of financial distress; (2) conducting business transactions became easier and safer; and (3) vendors were able to reduce the transaction costs and apply savings towards business expansion. M-PESA’s phenomenal success has prompted Indian policy makers and private partners to consider using similar applications to achieve financial inclusion objectives and to provide a cost-effective alternative to brick-and-mortar bank branches.

Subsequently, in India the Interbank Mobile Payment System (IMPS) was launched – a mobile based funds transfer service for users registered with participating banks. MNOs and banks partnered to provide m-banking services all over India including Airtel’s (MNO) “Mobile Money Transfer”; and by other banks such as ICICI, HDFC, and State Bank of India (SBI) have launched their own mobile payment services in partnership with several MNOs experiencing varying degrees of success. Despite these initiatives taken in India, the adoption of mobile payment technology, especially among the low-income population, has been cautious. This is primarily due to stringent regulations and marketing models aimed at acquiring the predominantly urban and technically advanced users. Additionally, transactions need to be conducted on a phone via an internet connection, which is not only a relatively expensive service but also requires basic know-how about the internet technology. While these systems have been adopted by approximately 15% of urban mobile users as of 2009, cash continues to be a predominant mode of transaction for unorganized retailers and their clients.

Marketing models towards developing a strong client and agent base are also lacking. Though m-payment systems have been promoted on television and internet, the onus of enrolling into the m-payment system and understanding the application primarily lies on the client. Also, there is no clear client acquisition model in place; store managers and customer care representatives rarely advertise the products to the clients directly, and do not receive a separate incentive to enroll customers. Furthermore, retaining customers after signing them on to an m-banking service has been challenging as well.

A CMF-IFMR study found that while customer acquisition was fairly easy when the mobile money service was provided for free, a midway introduction of transaction fees led to almost a third of existing users dropping out of the services. The inactive low-income users expressed their keenness to restart using mobile money in the future subject to a reasonable pricing policy by the service provider. The study concludes that despite the immense potential of mobile money in promoting financial inclusion in India, very little efforts have been made by the RBI and banks to promote the model among the prospective low-income clients.

Regulations in India permit mobile transactions only they are linked to a registered bank account, through which transactions take place. While it is a well-intentioned regulation to protect clients, this excludes the 40% unbanked population and may also be a deterrent for those uncomfortable with the banking system.

Another study conducted by CMF-IFMR found that the financial inclusion mandate by the RBI does not allow private partners to charge appropriate fees for zero-balance accounts targeted for the low-income populations. This has discouraged agents to offer diversity of financial products to low-income clients through the m-banking channel.

In contrast, mobile money services in Kenya offered primarily through M-PESA experienced rapid and sustained take-up because of brand value, large outreach, a feasible incentive structure for the agents, and an intuitive product design. Safaricom provides the M-PESA service and built the distribution system for M-PESA on a well-established telecom brand and a widespread agent network. Safaricom also provides its agents help with storefront setup and training. Agents receive incentives for early adoption of M-PESA services as well as clearly defined commissions on person-to-person transactions and withdrawals. This enables them to experience sustained growth in their businesses. With active agent and client management, Safaricom avoided the “chicken-and-egg” trap by increasing the agent base and the client base simultaneously, and achieved critical mass by acquiring 9 million, or 40% of Kenyans in 3 years. Most importantly, regulations in Kenya permit Safaricom to provide mobile money services via M-PESA, where clients can conduct all transactions without their M-PESA account linked to a bank account.

What India can learn from Kenya?

While protecting clients should be the top-most priority, regulation should also ensure that m-banking systems are lucrative for the MNOs, banks and their clients. The RBI and principal banks should consider creating a dedicated fund for promoting the use of mobile money  among low-income clients. Additionally, the RBI should incentivize private partners to develop platforms to reach low-income urban and rural populations, and create an intuitive interface for users with diverse economic and education backgrounds.

M-PESA was initially introduced as a simple remittance system to “Send Money Home”, and then added on other mobile money services. An increase in national remittances by nearly 35% between 2006 and 2009 is attributed to the widespread network of agents and usage of the M-PESA system. This market remains untapped in India, where “hawala” (method of informal transfer or remittance of cash based on an honor system of individual hawala agents) still remains a predominant form of payment in remittance corridors. A study by CMF-IFMR of 274 families from major migrant corridors found that 57% of the families used informal carriers to transfer money, especially “hawala”; half of these families had access to bank accounts but said they were cumbersome to use.

Considering the positive impact of an intuitive mobile payment system in Kenya, the RBI should recognize the significant positive externalities of this system, and incentivize MNOs, banks and private partners by providing knowledge platforms for lessons learned from other markets and creating learning opportunities for all. Additionally, there must be a larger focus on increasing the penetration of mobile phones in India, which stands at 51% compared to over 68% in Kenya. Lastly, the government can set the gold standard by using mobile systems for government payments, taxes and other payments via a mobile payment system.

--- Mudita is a program head, and Deepti is a senior program manager, both at Centre for Microfinance, IFMR Research, Chennai.

Recommended Readings:

  1. Mani Nandhi, CMF-IFMR Working Paper,  Impact of EKO‟s SimpliBank on the saving behaviour and practices of low income customers: the Indian experience, October 2012 (IMTFI Funded Project)
  2. CMF-IFMR Newsletter Article, A closer look at the financial viability of the Business Correspondent Model, October 2012
  3. Amrik Heyer and Ignacio Mas, Gates Foundation Working Paper, Seeking fertile grounds for mobile money: mobile money for the unbanked,  September 2009
  4. Isaac Mbiti, David N. Weil, NBER Working Paper, Mobile Banking: The impact of M-PESA in Kenya, June 2011


04 April 2013 Submitted by Michael Joyce (not verified)

An interesting paper, but I don't agree with your conclusion - after seeing that an easy-entry, fee-based system worked in Kenya based on free-market principles, and acknowledging that there is no business case for zero-balance accounts in India, you come to the conclusion that the RBI should incentivize the private partners and establish a promotion fund. Why not allow participants in the ecosystem to develop a fee-based business model that is sustainable without subsidies? Experience in other markets shows that customers, even the poor, are willing to pay for convenience and suitable products, but these will never emerge where the accounts are being provided free of charge or at loss-making prices.

06 April 2013 Submitted by Dr.V.Rengarajan (not verified)

Dear Mudita & Deepti
The study report is interesting from institutional economic perspectives. Perhaps more experiments in different context and time for perceiving the outcome ,would be worth for emulation. However, from sociological outlook , a must for researcher in the field of micro finance and poverty in developing countries be India or Kenya for that matter , there are some concerns unanswered. In particular, who gets ultimately benefited ? Does technology reach last mile unbanked vulnerable poor for their empowerment (MAYA declaration) ? Do small business/trade people alone grab the benefits of technology for their growth in the given community? To what extent the potentials of M Pesa such as money circulation, transaction, expansion business, employment, financial capital accumulation (as reported )could be harnessed for the inclusion of the bottom also who remain persistently excluded in all kinds of inclusion drive? Admittedly, in one of the discussion posted in CGAP linked in group on Jipange Ku sav in Kenya by Sara Rotman & others , it was reported that mobile enabled technology remain hardest to reach the poorest.and asserted the need to continue to think about responsible and effective way to reach them. This scenario is of any indication, then the bottom poor , mostly unbanked segment, would remain excluded in the inclusion process either by branch banking or branchless mode warranting more innovation in this technology intrusion. This is a major concern of ‘ inclusion’ mission both in Kenya and India (in fact both in Asia & Africa ) with sizable number of socially vulnerable and economically deprived poor in bottom pyramid. In the context of persisting poverty, inequality gap even among the poverty segment may widen if tech does not outreach (unbanked) last human being in the last mile from sociological perspectives. In the context of tremendous growth of mobiles in nook and corners in both the continents, intellectual debate continues on whether we need mobile phone or toilet in the given extent vulnerability in health sector ( majority with open defecation)
The above observation need not necessarily treated against technology . It is the question prioritization and sequencing the input contextually. Further, in the process of development or inclusion , equal distribution of end benefit is to be ensured both in supply and demand sides. Unlike functional department or institutions , research domain provides more flexibility and multidisciplinary perspectives to seek the truth on ground realities and provide concrete solution for policy makers I believe.
With good wishes
Dr Rengarajan

10 April 2013 Submitted by Raghav (not verified)

Mobile money models that worked in Kenya may not necessarily work elsewhere. Move from cash to electronic money is huge behavioral and psychological change, we cannot expect the poor (suspicious of such alien interventions) to adopt mobile money quickly. Urban consumers too took considerable amount of time using credit cards in India and urban users are still not comfortable using credit card - emergence of cash logistics business is partly due to this behavior. India needs to fundamentally change the way mobile money models are developed. I believe it must be the rural businesses that need to first begin incorporating mobile money in their transactions, gradually passing it on to the individuals. G2P payments is a good starting point, but transactions in rural business can be more effective in building the market.

10 April 2013 Submitted by Dire chidi (not verified)

Good presentation Mudita and Deepti, i quite agree with 70 percent of your findings.
from my point of view market equillibrium should be the driving force in terms of price.For penetration sake let RBI create demand by bringing values to the unbanked taking care of their basic banking need like savings ,remmitance and credit accessibility after which the market force will reward the stake holders.
Best Regard Chidi

19 April 2013 Submitted by Amit (not verified)

A couple of things-

1. M-Pesa was launched in India early this month-

2. 2 key points highlighted by the M-Pesa India Head while comparing Africa with India-

(a) Sethi says there are differences between India and Africa: “Firstly Africa was a largely unregulated business, with mobile money transfer done more like a telecoms company than a financial services company. In India, mobile banking is under the guidance of the RBI [Reserve Bank of India].”

(b) Identification is also an issue. “In India we don’t have a national ID card, like a social security number”, Sethi explains. “In Kenya, surprisingly, they has one so it was easy to check identity to open a mobile account.”


The current suite of offerings from M-Pesa primarily cover money transfer and payments to select entities like telcos (mobile re-charge), utilities (power companies), etc. I am not sure if this is "innovative" enough to attract the un-banked segment in India.



22 April 2013 Submitted by Hyung-Gon Paul Yoo (not verified)

Thank you for the good, thoughtful piece. However, there is an important factor being overlooked--namely the essential role of network effects in user adoption, and the corollary requirement for operator independence. In Kenya, Safaricom started with circa 60% of Kenya's mobile subscriber base, growing to over 70%, meaning that early M-Pesa users--myself included--knew on Day One that I could send money to just about everyone in Kenya possessing a mobile. In India by contrast, there is no single operator in a monopoly position that can gaurantee ubiquitous acceptance. As in any payment system (be it cards, hawala or otherwise), network effects is crucial to success. And therefore, any mobile financial service provider must be able to reach every user regardless of the type of mobile phone being used (not only those with mobile internet, as the article observes), but also basic phones; and must be able to reach users regardless of whether they are using an Airtel, Idea, Reliance, Vodafone, or any other SIM card available in India. One need look no further than Safaricom/Vodacom's failure to successfully export M-Pesa into Tanzania to see how crucial network effects are: Vodafone/Vodacom's more modest circa 20% subscriber base was nowhere big enough to get to network effects acting alone. We welcome further dialogue on the topic also on twitter: @mistralmobile

24 April 2013 Submitted by Mudita Tiwari &... (not verified)

As authors, we are very appreciative of all your comments and feedback. The biggest motivation for this article was to address the issue that regulators need a more inclusive and innovative approach to Financial Inclusion (FI) in India. As you have correct pointed out, most FI initiatives are bank led, or associated with the bank in some form or another. With dormant No-Frills Accounts and a vast population still unbanked, the traditional bank-led model might not be sufficient to meet the demand. There is a very strong demand for financial (savings, loans etc) products among the poor; we therefore support the need for incubation of innovative ideas for FI - including mobile banking (that's not associated with a bank account per say). While a single solution is not clear in the Indian context yet, we do think that RBI must seek input from stakeholders before setting the ground work for any FI initiatives.

27 April 2013 Submitted by Dr V.Rengarajan (not verified)

Dear authors
In agreement with your reconsidered views on strategies for financial inclusion, there is a need for paradigm shift to demand oriented and indigenous based incubation of innovative ideas for FI. In India I feel number of banking innovation schemes related to financial inclusion in rural area like RBI’s Lead Bank scheme (branch expansion, district credit plans, service area credit plans banking coordination committees etc) , village adoption scheme, specialized branches like Grama vikas Kendra (PNB) Gramodaya kendras (IB) rural credit development division(IOB) Farm clinic(SYB) etc., Non-public business working days(NPBW) for branch officials to have direct consultations with the service area village folks, door to door campaign for savings in the village , have potential for responsible financial inclusion but remain neglected or being implemented lackadaisically. Adding insult to the injury , directed lending seems to focus more on indirect lending to the institution like MFI/NBFCs and other branchless modes without any face to face human relationship between the banks and the ultimate poor clients leading to non transparent exclusion phenomenon in the form of drop outs in SHGs, group mortality, defunct a/c, inoperative a/c etc. It is therefore RBI need to consider rejuvenation of our own indigenous schemes as stated above well suited for unbanked areas in rural India. In the context of cry over for financial inclusion of unbanked/under served (nearly 51.4 % of the farming HHs-NSSO data) on the one side, it is not clear why regional rural bank which has emerged as champion for inclusion of rural poor is shrinking and merging with sponsored banks (from 196 in 2000 to 82 in 2012 )loosing its own identity with rural flavor and pastoral products? If this RRB scenario is of any indication , growth on supply side actors and mere inclusion for the sake of inclusion particularly branchless mode for the said mission is harmful and may cause exclusion of already included also.
In view of the above trends in banking scenario, I agree with you that RBI need to seek input from stakeholders before setting the ground work for any FI initiatives. Towards this direction kind attention of the researchers, the proponents and policy makers on the subject , is drawn to my just published book entitled “Microfinance Principles and approaches –Ten commandments for responsible financing to the poor” suggesting a new framework for rejuvenation of lead bank approach for outreaching unbanked areas and responsible inclusion of bottom poor through prudent Micro finance planning with appropriate pro poor integrated micro finance products and services. The access platform for the book

Notion Press Store:…
Welcome for further improvements in the ways and means towards sustainable inclusion and empowerment of the bottom pyramid who remain hitherto excluded.
Dr. Rengarajan

29 July 2013 Submitted by Anil (not verified)

Dear Authors and Others,
Just came across this paper. I have few comments for all to think through…
1. The canvass for the study was quite limited.
2. Kenya model is only P2P.
3. In India, we have both Bank and Telco led model working.
4. The regulations in India allow / hinder a lot of things. The whole of the mobile based payment / banking / commerce would be governed by this model
5. The so called “hawala” is a wrong comparison considering the ticket size.
6. The market is moving towards a very large throughput, complex, efficient and instant mobile money provided consumer adoption can be ensured.

This is based on my experience as I manage the leading mobile payment platform that is close to 50% of the M-PESA and has a host of additional features including security elements.

30 April 2014 Submitted by Chirag rathod (not verified)

Hi anil,

Could you please share your email id? I am planning to get into mobile payments space and would like to learn more about norms & your experience.


12 June 2014 Submitted by Balu (not verified)

1. 'Trust' is important for financial services. I remember reading somewhere that the trust in the banking system in India is higher and therefore, bank led model may be better suited for India.
2. Poor are willing to pay.. I think there was a microsave research paper on the Indian context. They are willing to pay a reasonable price for the services - as often the alternate cost is far too expensive for them. Take micro finance for example.. the poor were willing to pay 24-36% interest as alternate cost was often 100% or more!!
3. Not clear why RBI should incentivize.. They have done their bit and opened up payment services to all prepaid operators by allowing them to connect to NPCI for free movement of money from and to bank account to wallets of all kinds..
4. The biggest problem in the country is everyone wants everything free or some incentive ( including for voting!!!)... not realising the impact it has on many other aspects including repayment culture and behaviors. The only incentive required is an enabling environment.. I think it is there in India with respect to mobile financial services..

07 September 2014 Submitted by KRISHNAN SUBRAMANIAN (not verified)

Absolutely correct. the main element which is missing today in the FI sphere is Trust. Banks and POs are trusted by the rural population. The agent who moves about with a hand held device is not trusted because of various issues in the system mainly discipline and regularity.
For building trust, customers would look at some brick and mortar models combined with the mobile agent which will work out the best for the country.

04 August 2015 Submitted by David Kabata (not verified)

an interesting paper but it is also important to understand what really drives Kenya's consumers to use mobile money transfer.
my PhD paper statistics showed that in Kenya the most important factors was perceived usefulness and perceived ease of use for men while women were mainly motivated by perceived enjoyment and perceived ease of use. Security and image are also important factors.

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