This case study shows how an innovative idea can have applications that its originators never intended. By closely examining the development of M-PESA, Vodafone’s phenomenally successful mobile payments system in Kenya, it shows how there are no limits to a good idea.
One of the characteristic features of innovation is that ideas developed with one particular need in mind often turn out to have applications well beyond that original need. Solutions created by fresh thinking in one area can often result in solutions in other areas, creating new markets and fostering fresh opportunities for innovators and entrepreneurs.
This case study examines the creation and growth of M-PESA, a mobile payments service launched by Vodafone in 2007 with its Kenyan associate Safaricom. Originally designed as a corporate social responsibility project, the service soon turned out to have many applications and had a transformative effect on consumer behaviour, business practice and economic possibilities.
M-PESA was conceived by London Business School alumnus Nick Hughes after he joined Vodafone’s corporate affairs department in 2001 with a remit to help the company understand what its role could be in addressing sustainable development initiatives. Discussions about the so-called digital divide were on the global development agenda at the time and, with mobile phone penetration in developing countries growing much more quickly than originally expected, Hughes saw an opportunity for Vodafone to use its technological expertise in this area.
His idea was for Vodafone to use its technology to enable the movement of funds in developing countries via mobile-money transactions, helping to meet a desperate need for access to basic financial services. In Kenya in 2006, only 26% of the population had access to formal financial services. The typical way for the many breadwinners working away from home to send money back to their families was to have it carried by hand by a friend or family member or by sending heavily disguised packages on buses or minibuses, both highly risky methods.
Hughes’s idea faced significant barriers in a Europe-based, technologically focused company traditionally targeting higher-value customers. He worked his way through these challenges and received substantial funding from the Challenge Fund, and in 2005 launched a pilot project.
The pilot was highly successful and produced some surprising qualitative insights. Instead of simply sending money to family members and repaying loans, customers also used the service to pay for business-to-business trading, as an overnight safe, as a secure way to hold money while travelling from one place to another and as a way of repaying loans for others in return for cash. What had been designed as a basic personal financial tool was being used as a platform for a wide variety of business applications.
The success of the pilot quickly led to a full-scale commercial launch, in which the same breadth of use was repeated. Within two years of launch, 40% of all economically active adults in Kenya were using M-PESA. Not only those without access to formal banking services but many with bank accounts also began to use the service, attracted by its flexibility and its suitability to many business and consumer needs.
What had started out as a corporate sustainability project had become an important and growing tool of personal financial security and economic development in Kenya. Its success triggered the development of similar programmes in Tanzania, Afghanistan and India. By 2009, Vodafone was discussing how to capitalise on M-PESA’s astonishing success, either by rolling it out to more regions including possibly Europe, by expanding the range of services offered within existing territories or, as a non-core business, by spinning off the service.
The development of M-PESA is a remarkable case of the power of innovation to go beyond original intentions and to make a very real difference in the world. Nick Hughes’s idea and his determination and skill in making it a reality contain important lessons about how innovation works that will benefit all entrepreneurs.
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