ANALYSIS OF FACTORS THAT CONTRIBUTED TO RAPID ADOPTION OF M-PESA IN KENYA (Cross-Country Comparison of Kenya, Tanzania and South Africa)

M-PESA is a unique mobile banking application that has achieved enormous success since the very first year of its introduction in Kenya. The uniqueness of M-PESA not only in the context of Kenyan market but also globally, was a motivation for the researcher to investigate the factors that lead to fast growth of M-PESA in Kenya as there was no similar application in existence even in the developed countries.
The objective of the study was to explore the factors that contributed to rapid integration and adoption of M-PESA by Kenyan users. The data was collected through extensive review of literature on economic, technological, regulatory and social factors characterizing Kenya at the time of implementation of M-PESA.
The findings unveiled that rapid adoption of this new technology was enforced with the lack of alternative solutions. Effective targeting and ease of using the mobile application for a wide variety of purposes also contributed to the popularity of M-PESA. The comparative analysis of M-PESA success in Kenya and its failure in Tanzania and South Africa proved that Kenya’s environment was uniquely suitable for the emergence of M-PESA due to favorable regulations, large percentage of the unbanked and increasing mobile coverage.
The recommendations on further expansion of M-PESA in Kenya include simplification of use of M-PESA, customization to address needs and preferences of local users, effective marketing through network of agents.



1.1       Background
1.2       Motivation
1.3 Objectives

2.3 Research Methodology
2.4 Limitations

3.1Technological Factors: Mobile Penetration and Social Characteristics
3.4 Regulatory Factors
3.5 E-commerce Factors
3.6 M-PESA Technology
3.7 M-PESA Trial Results and Feedback
3.8 M-PESA in Tanzania
3.9 M-PESA in South Africa
3.1.0 Impact of M-PESA on society, banking sector and e-commerce

4          DISCUSSION
4.1 Analysis of M-PESA Factors
4.2 Evaluation of Thesis Project
4.3 Ethical Considerations

5          CONCLUSIONS

This chapter discusses the background of the thesis. Additionally, it discusses motivation and the thesis objectives. Lastly, this chapter describes the thesis structure.

1.1 Background
M-PESA was launched in Kenya in 2007 by Safaricom, a subsidiary of Vodafone. M-PESA is a unique system of money transfer, where M stands for mobile and Pesa is the Swahili word for money. (Katz & Berry 2014, 241.) M-PESA is the SMS-based money transfer system introduced in Kenya (Moore 2015, 102). Latusek (2010, 161) adds that M-PESA is a mobile banking application that offers a variety of financial services via mobile phones. Users can check their account balance, make deposits, withdraw cash, pay bills, purchase credit and transfer their mobile phone credit to other users within the system (Latusek 2010, 161).

The system empowers users to make electronic payments via ordinary mobile phones without the requirement to connect to online banking using the Internet (Katz & Berry 2014, 241). Users merely need to register at M-PESA retail stores by carrying their national identification (henceforth ID) cards. Users create electronic accounts and link those accounts to their phone numbers and Subscriber Identity Module (henceforth SIM) cards. (Katz & Berry 2014, 241.)

In addition, users create a private PIN for using when accessing the account. The M-PESA users deposit cash money in the retail stores and they in-turn receive equal float (henceforth e-float). Transactions are confirmed with a notification in the form of an SMS for both users and the retail agent. Through the confirmation and notification, users are able to see new account balance and the retail agent as well remains with the transaction records of the money sent and received. (Bosire 2012, 6.)

Cash up to $500 can be converted into electronic money, which can be used to pay bills, purchase goods and transfer funds. It is free to register and deposit the money, whereas users pay a flat fee of $0.40 per transfer. There is no interest payment to customers. (Katz & Berry 2014, 241.)

The PaymentView software provides solutions by diverting the payment processes through the FrontlineSMS platform that uses M-PESA enabled SIM card, computer and GSM Modem to aggregate payments into the software interface. Due to the use of the PaymentView software, users can conduct transactions without access to an Internet connection. (Richardson 2014, 1.)

1.2 Motivation
M-PESA is unique not only in the context of Kenyan market environment but also on a global scale makes M-PESA interesting to investigate as no similar system was in existence even in developed countries in other parts of the world. The choice of Kenya to launch such an innovative system of money transfer raises many questions.

On one side, Kenya has a largely underdeveloped economic environment and a significant proportion of people are poor, not to mention lack of bank accounts. There is a shortage of electricity supply in the majority of rural areas (Katz & Berry 2014, 241). On the other side, the innovative approach proposed by Vodafone could not be tested in developed countries, where users already have the advantage of credit card-facilitated payments and do not rely on cash payments. Yet, despite this assumption, the question of why M-PESA gained so much support in Kenya and became the primary avenue for money transfers even in the most remote parts of the country remains unanswered.

The launch of M-PESA was an enormous success because it brought instant benefits to the users, financial institutions and mobile providers (Katz & Berry 2014, 241). Within a short period of time, M-PESA outperformed Kenya’s bank branches, reading 17 million users by the end of 2013. Today, two-thirds of the population actively uses M-PESA, which handles 25% of the national gross domestic product (henceforth NGP). The adoption of mobile phones and M-PESA in Kenya occurred at the fastest pace of any consumer-level technology in the history. (Jack & Suri 2011, 2.)

What is more, M-PESA became the target of deep research and analysis because the initial intention behind creation and launch of M-PESA differed greatly from its application and use by consumers. In other words, M-PESA was started as the service to bridge the gap between financially-underserved people in rural areas in their access to financial services, but it was consumers who started using the system for money...

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