This is an edited transcript of the discussion.
Matt Cooke, McKinsey: From McKinsey’s Banking & Securities Practice, I’m Matt Cooke, and this is Talking Banking Matters—new, short audio content for leaders in banking, securities, and beyond. For this episode, our New York–based senior partner emeritus Vijay D’Silva and Nairobi-based associate partner Carolyne Gathinji spoke with Sitoyo Lopokoiyit, managing director of M‑Pesa Africa and chief financial services officer at Safaricom. Here’s Vijay to tell you more.
Vijay D’Silva, McKinsey: About five years ago, economists from MIT Sloan School and Georgetown University found that the African mobile money service M‑Pesa had not only been quickly adopted by most Kenyans over the previous few years, but one impact was that 2 percent of households were lifted out of poverty as a result.
At the time, M‑Pesa was one of the best examples of the power of technology to reinvent financial services and increase financial inclusion in emerging markets. By making it easier for Kenyans at every economic level to use their mobile phones to reliably and quickly pay each other, M‑Pesa had also shown how quickly human behavior could change when given a better alternative.
Today, M‑Pesa Africa has become one of the most significant players in a vibrant African fintech ecosystem. M‑Pesa Africa is now in seven countries, and has over 50 million monthly active customers. The company also introduced a consumer super app last year and a business super app for merchants; it has Fuliza for overdrafts; and there’s M‑Pesa Global for remittances. M‑Pesa is now the most used service for remittances into Kenya.
We recently spoke with Sitoyo Lopokoiyit, managing director of M‑Pesa Africa and chief financial services officer at Safaricom. Sitoyo has worked in the payments business for over a decade. Prior to taking the helm at M‑Pesa Africa, he led the turnaround strategy to grow M‑Pesa at Vodacom Tanzania, and before that, he led M‑Pesa’s strategy and business development at Safaricom.
Joining us for the conversation was Carolyne Gathinji, a McKinsey associate partner based in Nairobi. To start with, we asked Sitoyo to talk about the path that led him to this point in his career.
Sitoyo Lopokoiyit, M‑Pesa Africa: I’ve been an entrepreneur all my life. When I finished high school, I started a garbage-collecting company that became the largest in Kenya, which I later sold. At university, I was good at playing pool and realized it’s better to be the owner of the pool table, so I bought pool tables and put them in the university when I was there, to earn a bit of money.
After university I was working for a supermarket chain, and I was taken to South Africa, where I realized that everything that’s in a supermarket is technology—the shelf space, the height, the depth, the reorder levels—and I knew nothing about tech. So I resigned and went to Lancaster University to do an MSc in IT and learn how business and IT coexist.
I’ve always done something that’s different from the core. I worked for the oil company Chevron for seven or eight years, but I was in charge of their non-oil business—the tire center, the convenience stores, and so on—across East Africa. That was great.
One of the most profound things that happened to me was going to Tanzania. The late Bob Collymore [then CEO of Safaricom] offered me five roles and told me, “The one you shouldn’t take is Tanzania. It’s minus 8 percent, there’s a new CEO who started two years ago who is joining,” and so on. I told him, “That’s the reason why I want to go there: because you said that it’s the most difficult.” Tanzania really challenged me. It was a difficult market—many players, where the market leader, Vodacom, had 33 percent market share. But we turned the business around. For me, those were three years of really understanding who I am and really challenging myself.
Vijay D’Silva: Much of what M‑Pesa has done needs to be understood in the context of when it was launched in 2007. At the time, it had the twin purpose of supporting Safaricom’s mobile-phone business loyalty while at the same time solving for the lack of money transfer options in Kenya. Since then, it has had a major impact on the Kenyan economy, including helping increase the country’s financial inclusion from only 26 percent in 2006 to 84 percent in 2021. Today, M‑Pesa now processes over a billion transactions each month across its markets.
Sitoyo Lopokoiyit: I find M‑Pesa’s story is best told through a story about a lady called Mama Lenna. This is a lady who took one of our lending products. At the beginning, she had a $10 credit, and she wanted to start a restaurant. And with that $10, she woke up at four in the morning, went to the market, bought some vegetables and some flour, and started cooking breakfast for workers at a construction site. Fast-forward about six or seven months later, her credit was at $50, and she had recruited four other women. Today their combined credit is slightly above $1,000, and the five women now support another 23 dependents.
This story is replicated millions of times every single day. When we lend out $14 million a day, these are the stories that empower the society we operate in, that empower SMEs, that empower micro-SMEs. For us, it’s purpose and people, and we believe the profits follow.
Carolyne Gathinji, McKinsey: M‑Pesa has become almost ubiquitous in some of its current markets. Penetration rates are as high as 90 percent of the GSM network [Global System for Mobile Communications] in countries such as Kenya, up to $2.70 in monthly average revenue per active user, and 18 chargeable monthly transactions per active user. Globally, we have seen super apps with a captive base extend to additional customer services in ecosystem offerings such as e-commerce, ride hailing, delivery services, et cetera. We asked Sitoyo how he sees this evolving, and he described a future that interlocks a network of products into an ecosystem of customer services.
Sitoyo Lopokoiyit: I think M‑Pesa is a tale of two sides. One is our history from the last 15 years, where we’ve been an exciting wheel in the ecosystem, especially because there’s no product called “M‑Pesa.” M‑Pesa is a massive ecosystem with over three million businesses. Customer-to-business payments exceed $8.5 billion on a monthly basis. The velocity of funds is in excess of $315 billion on a yearly basis.
But I think the other side is even more exciting—the next 15 years, with the advent of the smartphone and the tech architecture, in terms of cloud services, microservices, active-active architecture, Always On architecture, cybersecurity advancements. And then more importantly is the youthful population that’s available. Today over 50 percent of the population of the continent of Africa is below the age of 18.
The way the future is shaping up sets us up very well, especially for M‑Pesa, because we are anchored in payments. A lot of fintechs look for an anchor product. We’ve got thousands of anchor products within our ecosystem.
When we launched M‑Pesa, it was about loyalty for GSM. But today, I can count almost ten products that are loyalty for M‑Pesa: the lending, the savings program, the wealth management solutions, international remittances.
Vijay D’Silva: With M‑Pesa’s growing product portfolio, Sitoyo imagines a world in which M‑Pesa becomes a core part of consumers’ lives. This increasingly becomes a distribution game in which the company tries to increase penetration of new services with its existing customers while targeting new segments.
Sitoyo Lopokoiyit: When you look at M‑Pesa, it’s such a broad ecosystem. In most places, over 50 percent of the GDP of the country is flowing [through a digital payments ecosystem]. In Kenya it’s about 70 percent. Imagine if Google had 70 percent of the US GDP flowing through it. What would happen? Our scale is small, we are 51 million [people], but the impact to the government and to the country is systemic. So the responsibility for us is beyond just our organization. It’s really ensuring that it’s safe, secure, and continues to power the society which operates on our system.
The second bit is on the consumer side. It’s well entrenched in terms of payment, but still, when you talk about a target addressable market, M‑Pesa is used by customers only 13 days in a month, even in Kenya. So we’ve got a huge way to go. We do 20-plus transactions per month, on average, per customer. We’ve got to push that up. And then the number of products used is about 4.5. So if we move that 4.5 to 5.0, it generates about $50 million in revenue.
And then for consumers, it’s more that we are moving from financial inclusion to financial health. So when M‑Pesa started, the financial inclusion was 23 percent. Now it’s over 84 percent. But financial health has remained relatively low, at 20 percent. Out of 51 million customers, only about 11 million have access to credit. So there’s a huge amount still unaddressed.
When we look at our savings product—the savings and lending product that we have is more famous for lending, which is M-Shwari, which is a 30-day term loan—if you look at the savings there, because it’s a savings-led credit proposition, we have three times more savings than what we lend. So the bank has never used its balance sheet.
When you look at how much money is sitting on the M‑Pesa ecosystem that has not been intermediated on, you see a huge opportunity for us to disintermediate on that with partners. We’re looking at more of a platform play, whether it’s insurance or wealth management.
Carolyne Gathinji: In emerging markets, the ability to offer credit-based products is critical to developing the market and helping businesses, especially small and medium-size enterprises. Data is critical to offering credit, and one aspect of telco-based payment systems is that telcos have data that can enable a credit system. But actually putting the data to use and monetizing it well can be complicated. Between M‑Pesa’s Fuliza overdraft service and the KCB M‑Pesa microloans products, M‑Pesa disburses the equivalent of more than $4 billion annually. We asked Sitoyo how M‑Pesa leverages data across its products.
Sitoyo Lopokoiyit: I remember when I was building the product in 2012, our first savings and lending product, we used about 500 parameters from GSM and M‑Pesa to create a credit score. We did that credit score on an Excel spreadsheet. We were able to let customers opt in and still get credit within a couple of seconds. But it has evolved significantly since then and become more sophisticated. Today we use roughly 3,500 to 10,000 parameters to do lending. But we’re still scratching the surface.
I think information as collateral is more valuable than somebody providing a fixed asset to lend. The intention for us, for the consumer side, is short-term lending, in 30 to 60 days, and then overdraft. From the business side, that’s even more exciting, because we’ll actually be looking at working capital with more term loans that are more suited to different industries. So we are busy building the scorecards that enable that to happen.
Vijay D’Silva: Setting up a fintech today is a very different process than what it was 15 years ago, when M‑Pesa was launched. The technology has evolved, and so have operating models within technology organizations. An added complexity for M‑Pesa is being embedded within a telco where technology may not be the main point of differentiation. Sitoyo explained how M‑Pesa has evolved its tech stack and adapted its organization over the years.
Sitoyo Lopokoiyit: When we started mobile money, there was no tech available for it. We had to push Huawei to do our platform in 2015, which was great. But in 2015, the architecture that can go globally wasn’t there as readily for some of our products and services, including high-transaction processing capacity in real time. Even Alipay processes transactions by notification, and the back end happens a few seconds later. M‑Pesa is real time.
So the technology architecture is something we’re really looking at. We need to have a standardized platform that is 90 percent common across all our markets. The configuration needs to be common, because today we have a common platform, but the configuration is different in each market. So if I build the app in Kenya, it takes me another three, four months to reconfigure it in Tanzania.
Solving that is the role M‑Pesa Africa is playing. The mission is to build standardized digital platforms, so we are working hard to ensure that we have a common platform. We will test in Kenya first and then deploy enterprise-wide immediately so that there’s no gap in products and services between Kenya and, let’s say, Lesotho.
Vijay D’Silva: One of the big topics today is attracting talent. M‑Pesa has had to compete with global players for engineers and other talent. Over the last few months, we have seen announcements in Kenya by Google on setting up its first African product development center, Visa launching its first African innovation hub, Amazon setting up an AWS Cloud Zone, and Microsoft launching its African Development Center. The war for talent, at least in the short term, seems pretty intense.
Sitoyo Lopokoiyit: For us, without the people and our staff, this all doesn’t work. With M‑Pesa Africa, we are lucky, as we were starting almost from a clean slate. So we are operating on a SAFe agile methodology with the release trains, the flat structure, and so on. And even the executive committee members are in-depth into supporting the teams, and their role has changed in terms of that.
This industry is very difficult. To attract and retain staff is very difficult. The Big Tech companies are coming in, offering my team three or four times the salary that I’m paying.
I look a lot at how I motivate my staff. With M‑Pesa Africa, they have the freedom to grow in their career, to do big things. You can be an engineer in M‑Pesa, and you’re running the whole of Fuliza, the lending platform for all markets. I think the freedoms that they have on a small team are huge.
We have about 130 people in M‑Pesa Africa and maybe another 100 contractors. That’s the size of the team that’s delivering all of this. It’s important that we motivate them differently.
Carolyne Gathinji: Over the years, M‑Pesa has tried to take this model and apply it to different markets. At the end of this year, M‑Pesa will be in eight African markets that cover more than 450 million of Africa’s population of 1.2 billion people. Within these markets, impact and penetration have varied. For instance, M‑Pesa has 7 percent penetration of the GSM base in Egypt and 40 percent in Ghana, versus 90 percent in Kenya. They entered and then had to retreat from some markets, such as South Africa. We asked Sitoyo about the lessons learned from these international expansion experiences.
Sitoyo Lopokoiyit: I think one of the lessons learned was that we wanted it to work exactly the way Kenya worked. We wanted to create a wallet; we wanted to create an agent network; we wanted to create a whole infrastructure. That, to me, was one of the biggest lessons learned: work with whatever wallet you have within the space that you’re in.
And let me just step back. M‑Pesa is quite successful, but we’ve been operating in a silo. Kenya does its own thing. Tanzania does its own thing. Mozambique, Democratic Republic of Congo, Lesotho, Ghana, Egypt—we’ve got the same platform but configured differently. Technically, we are in this market but operate individually, and that has been the Achilles’ heel of M‑Pesa. That’s why M‑Pesa Africa was formed—to bring all this together.
But in terms of success, one of the key things is a deep commitment by the management to see it work. Purpose and people first; profits will follow.
In South Africa, we’ve launched differently—not as another M‑Pesa, but as VodaPay with the Alipay platform. And we’re looking at it more as a super app connecting a bank account to your bank card to the app. The initial numbers are quite promising, so you will be seeing that and more now.
With regard to the new countries, since M‑Pesa Africa was formed, we have probably ten or 15 countries in Africa that want it. What caught us by surprise is South America; we’re seeing a lot of interest on that side.
A lot of markets, especially mobile money, they want to make instant profits in a year’s or two years’ time. The intention is to make an impact on society, and then eventually the money will flow.
Vijay D’Silva: Small and medium-size enterprises contribute significantly to African economies. For instance, in Kenya, they make up 90 percent of the private enterprises and 93 percent of the labor force.
M‑Pesa has grown steadily and now has more than 500,000 agents and more than 300,000 unique merchants, but it has much greater ambitions across the continent. Sitoyo said he sees widening access to financial services as critical to unleashing the opportunity for SMEs.
Sitoyo Lopokoiyit: As I said, we’re a two-sided network: we serve business, and we serve consumers. I think the more exciting part of it is the business side, whether the target enterprise is the SME or the micro-SMEs. It’s in that sector in Africa especially—in the SME and the micro-SME—where a lot of new products and services that we have are needed, whenever we can launch it.
When it comes to SMEs, it’s the first time an SME has a proper overview of their business at a glance in Africa. I can be in South Africa today and have four restaurants in Nairobi. I can see everything that’s happening. I can make payments, I can sell air time, I can pay my workers, I can do everything that a consumer can do in it.
I believe that for every dollar that we charge them in payment-processing fees, a business should be able to make an extra $5 in revenue. That’s why we add value-added services—accounting packages, inventory services, and lending services—and leverage and leverage the Alipay technology that we’ve put into the business app to make it a true super app for businesses.
Vijay D’Silva: The African fintech sector has been heating up, and time will tell to what degree Africa will be affected by this year’s drop in global fintech valuations. But over the last year, we have seen three unicorns emerge, with accelerated and multiple investment rounds. While the revenues of these fintechs are not completely known, M‑Pesa, with over $1 billion in annual revenues and sustained annual growth of more than 15 percent, contributes significantly to continent-wide fintech revenues. Sitoyo has worked in fintech longer than most, and we asked him about his views on the increased activity and valuations.
Sitoyo Lopokoiyit: It’s great to see entrepreneurs and the fintech community starting to get some of the valuations that I think they deserve. I would like to see every year Africa produces five to ten unicorns—hopefully get a “decacorn” from the fintech.
For me, what’s underlying the business will be key in the future. I think COVID gave a really big boost to digital services, and the valuations rose significantly, but for me, the underlying business is what really matters. How are they performing? And are they generating enough cash flow that it can be profitable?
Most of them, when you look at them, they’re still not there yet. I think the promise of a huge target addressable market was driving that, but the underlying business may have some challenges. That’s my personal view, and that’s why I say with M‑Pesa, it’s the other way around. We’ve got a great underlying business, yet we are not valued the way we should be valued. Or even Safaricom: the share price is it not where it should be. So we’re on the reverse side of the coin.
Where I struggle is getting M‑Pesa looked at as a fintech that has demonstrated value over 15 years, but also that we are growing 20 percent year on year. How do you take M‑Pesa, position it globally, and get the visibility that I think it deserves? I think M‑Pesa gets lost in its history, rather than its future.
Vijay D’Silva: Sustaining a company’s growth for over a decade takes innovation and reinvention, at the root of which is tracking a changing market which will continue to grow. Africa is by far the youngest continent, in terms of population.
Smartphone penetration will continue to increase, and mobile data usage in sub-Saharan Africa alone is expected to quadruple in the next four years.
Over the long term, the future looks great, with many players and a lot of opportunity, but it’s never a straight line. It will be interesting to watch how the landscape evolves as more players enter and battle for the same space.
Matt Cooke: It’s Matt Cooke here again. On behalf of McKinsey’s Banking & Securities Practice, thanks for listening to Talking Banking Matters today. We’ve got a series of conversations planned, so we look forward to you retaking your front-row seat to listen in on more industry leaders from the world of fintech, banking, and digital talk about their work shaping the future of this industry. For now, wherever you are today, thanks again for listening.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.