The mobile money community has watched (and compared) the adoption of M-PESA in Kenya and Tanzania with great interest. We're pleased this month to offer an article from Gunnar Camner and Emil Sjoblom from Valuable Bits, and Caroline Pulver from FSD Kenya, which provides a full comparison of the factors which have impacted adoption rates in the two countries. The in-field observations and market research that their paper draws on provides an excellent summary of the contributing factors in each country - from market level to service design.

“Are banks dead?” asked Gavin Krugel at this year’s Mobile Money Summit. Variations of this question been posed by provocateurs in the mobile money world for years. Is it possible that mobile money services will solve so many of its users’ financial challenges that people will see little need for bank accounts, choosing to keep their money in m-wallets instead? In this vision, bank accounts in the developing world will be a bit like fixed-line telephones: used by a few, but not by the mass, and certainly not the poor. A conversation I recently had with a taxi driver in Kenya—a country where more than half the adult population uses Safaricom’s M-PESA—illustrates why talk of the death of banks is unfounded. He explained that M-PESA is one of a portfolio of financial tools that he uses to manage his money, and that his bank is an indispensible part of that portfolio. In fact, I’ve come to believe that mobile money services can increase, rather than dampen, demand for traditional banking services.

Finally, M-PESA is connecting with banks in Kenya. And with a big bang too, as two big players in the financial inclusion scene in Kenya are joining forces: Safaricom (the mobile operator behind M-PESA) and Equity Bank are launching M-KESHO, a co-branded suite of financial products that will ride on the M-PESA transactional ‘rails.’ Three years ago, there were 2.5 million bank accounts in Kenya, out of a population of 39 million.

Why is insurance widely available to those in the developed world, but not the poor—whose demand for insurance, given how close they live to the economic brink, is arguably greater? The answer is simple: transaction costs. The cost of selling and underwriting insurance and of administering a claim does not decrease in proportion to the value of the policy. Using traditional channels and processes, insurance companies simply cannot write policies with values below a certain floor without pricing them unrealistically.

The diffusion of M-PESA in the Kenyan economy has been rapid and deep. While M-PESA was seen early on as a no-frills, if somewhat hi-tech, product aimed at the unbanked, it was initially adopted more widely by the better off. However, over a short period of time the service has spread to households who are poorer, less well connected to the financial system, and located in more remote areas. This pattern of technology adoption mirrors that of other product and service innovations, which are often first used by the better off. But the speed at which the service has reached less well-off Kenyans, and their apparently high valuation of it, is unprecedented, especially in the developing world.