• Suryansh Singh Dhatwalia

M-Pesa and The Future of Mobile Payments in India

With technology progressing at full tilt, it seems like life is becoming simpler with each passing day. The effects of this technological progression are vast and can be experienced in nearly every sphere of life. Amongst these various boons of technology lie mobile payments. In this article, we will briefly understand what mobile payments are, how they transformed payments in Africa, and what is the future of mobile payments in India.

Essentially, mobile payments are services that allow users to conduct regulated transactions through portable devices such as mobiles and tablets. These transactions might be payments for goods and services or simply sending money to family or friends. Mobile payment technologies have become increasingly popular in recent years and are now being used by all sorts of stores, from convenience stores to multinational retailers, to accept payments by scanning images containing barcodes.


A pioneer in mobile payments is M-Pesa, one of the most successful money transfer and microfinancing services in Africa. Launched initially in Kenya, by Vodafone and Safaricom (the largest mobile network operator in Kenya) in 2007, M-Pesa has revolutionized mobile payments in large parts of Africa. It was introduced as an alternative way for Kenya’s large unbanked population to have access to secure financial services. Users can swiftly convert between cash and e-cash at M-Pesa outlets which are evenly spread across the region. The transactions at the outlets take place through retailers who are also called “agents”. These “agents” basically function as human ATMs, they are not directly employed by Safaricom, they are simply retailers who are authorized to trade cash for e-cash. The network of these agents has played a big role in M-Pesa’s success all over Africa. According to data from Vodafone, currently, there are around 430,000 active M-Pesa agents who help over 42 million people conduct safe transactions across 10 countries in Africa.

How M-Pesa Works

To use M-Pesa, a user requires a national identity card and a SIM card. M-Pesa enables users to make transactions using a SIM card through SMS. Once inserted into a mobile phone, the SIM card allows users to send and receive payments through their M-Pesa account. Users that do not have bank accounts need to visit M-Pesa outlets (which are distributed across the region) and deposit cash with the outlet attendant. After receiving the money in cash, the attendant transfers the money to the user’s M-Pesa account. To conduct transactions, the parties in question have to exchange their phone numbers which act as their M-Pesa account numbers. On completion of their transaction, the parties receive mobile receipts as text messages that act as proof of transaction. These digital receipts involve the amount in question and the full name of the parties involved, this helps promote transparency and ensures users that their transactions are safe.

Since a lot of the transactions are remittances from cities to real areas, there are more cash deposits in cities and cash withdrawals in rural areas, for this there is a system of layering and pooling within M-Pesa’s distribution system.

Reasons for Success

Launched by Safaricom which is the largest mobile network operator in Kenya, M-Pesa had a great platform because of Safaricom’s excellent marketing techniques and strong customer belief in the company. Being one of Kenya’s most recognizable brands, Safaricom’s brand image played a key role in M-Pesa’s success. Another important factor that helped M-Pesa was the demography of the nation. The demographics heavily favored M-Pesa, according to the rural population data by the world bank, in 2007, when M-Pesa was launched, around 77.5% of the population in Kenya resided in rural areas. With limited sources of income, as shown by world bank data, this population primarily relies on remittances from those working in cities. The majority of the Kenyan population was and still is unbanked, this meant that there was a major problem for the rural population to receive money and sustain themselves. At such a time, M-Pesa presented people with a quick and secure way of transferring money and making payments and thus proved to be a revelation.

Another contributing factor was the protection through strict laws passed by the Commercial Bank of Kenya, this secured the customers' trust in the safety of their transactions and solidified their faith in M-Pesa. M-Pesa’s secure relationship with commercial banks further lowered the risk.

Lastly, probably the most important factor that lead to M-Pesa’s success not just in Kenya but in large parts of eastern Africa was its widespread distribution system. M-Pesa’s network of agents allowed consumers to seamlessly conduct transactions. M-Pesa has made a significant improvement in poverty as well. An economic study has shown that if a family in Kenya happened to live close to an M-Pesa agent, they are much less likely to be living in extreme poverty and less likely to be living in poverty. In Kenya, more than 96% of households have access to mobile money, this simply highlights the convenience and efficiency of this system. With time, M-Pesa has evolved and now it even offers loans and savings products. The presence of a reliable mobile banking service saw growth in start-up projects in Nairobi, the capital and largest city of Kenya. M-Pesa has not only revolutionized money transfer but has also spurred economic growth in the region.

M-Pesa in India

Vodafone was a well-known mobile operator in India and in hopes of replicating its success in Kenya, Vodafone introduced M-Pesa in India in 2013. Despite strong advertising, sizeable investment and a similar structure to that of its Kenyan counterpart, the response to M-Pesa in India was tragically underwhelming. It can be argued that there were a variety of factors and not one single factor which led to M-Pesa’s failure in India. India’s cash culture is one of them, over 90% of the transactions in India are carried out in cash. The fact that there are just 712 million debit cards in India with 130 million debit transactions per year simply highlights the cash culture. India’s banking regulatory body, the Reserve Bank of India viewed M-Pesa more as a banking service rather than a money transferring service and so anyone who would want to use M-Pesa would have to complete a lot of formalities, similar to opening a bank account and this discouraged a lot of people since it is an extremely time-consuming process. According to the Telecom Regulatory Authority of India (TRAI) consultation paper, the adoption rates in India have been below expectations. There were problems regarding M-Pesa’s service charges per transaction in India since users were being charged even for failed transactions. A mix of various reasons scuppered Vodafone’s mobile banking operations in India. In 2019, Vodafone CEO Balesh Sharma announced that the company would be shutting its M-Pesa business, he attributed these decisions to regulatory changes for the banking business and deterioration of the telecommunications sector (Donkin, 2019).

Other Mobile Payments in India

M-Pesa’s failure does not mean that mobile payments have been entirely unsuccessful in India. Applications like PayTm have been hugely successful and it currently occupies a market share of a whopping 50%. Other payment services like PhonePe and GooglePay also occupy substantial shares at 30% and 10% respectively. According to a report by RedSeer Consulting, mobile payment users in India will surge five times from the current 16 crores to 80 crores by FY25. Unsurprisingly, digital wallets are expected to play a key role in this growth. Another report by S&P Global Market Intelligence in its 2020 India Mobile Payments Market Report highlighted how the pandemic has bolstered mobile payments in India and even primed them to overtake card payments in the near future.

Future of Mobile Payments in India

Mobile payments in India have seen ups and downs in the past decade however in the recent past, the pandemic and the lockdown have heavily influenced consumer behaviors and how they choose to pay for goods and services. According to a recent survey, the usage of mobile payments in India rose from 73% in January 2020 to 78% in July 2020. This clearly shows how the pandemic had a major impact on mobile payments. The government has also encouraged the use of mobile payments through initiatives like FASTags and promoting all-in-one QR codes for merchants and retailers. The RBI is also exploring interoperability guidelines for the use of UPI QR codes on ATMs. This will ensure that large digital wallets can not monopolize payments by developing a closed-loop system, it will also make digital payments more attractive to retailers and consumers alike since they can engage in hassle-free transactions without worrying about downloading different applications. If progress is made and QR codes in India can be made interoperable, a notable improvement will be seen in the user experience since users will only need to download one application which will allow them to participate in a variety of transactions, payments, and other services. With government support, the future of mobile payments in India looks more promising than ever before.



Lott, Jackson and Sinha, Mona (2019) "M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study (Addendum by Former and Current Executives at the Vodafone Group)," The Kennesaw Journal of Undergraduate Research: Vol. 6 : Iss. 2 , Article 2.

The Economic Times. 2016. What government plans to do with the old Rs 500, 1,000 notes - How to get rid of old notes. https://economictimes.indiatimes.com/economy/what-government-plans-to-do-with-the-old-rs-500-1000-notes/how-to-get-rid-of-old-notes/slideshow/55579484.cms

Donkin, C., 2019. Vodafone Idea abandons m-Pesa after bank failure - Mobile World Live. [online] Mobileworldlive.com. Available at: https://www.mobileworldlive.com/money/news-money/vodafone-idea-abandons-m-pesa-after-bank-failure

(Other references are hyperlinked)

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