New Payment Technology - Case Study Example

New Payment Technology Course Student ID Institution Date New Payment Technology Introduction There are various new payments that have emerged in the recent years due to technological advancements. M-pesa refer to a money transfer and microfinance service which makes use of mobile phones and was established in the year 2007 by Vodafone for Safaricom and Vodacom, which are the hugest mobile networks in Kenya and Tanzania. This paper seeks to give a report on M-pesa to a management of an existing company that requires the understanding how the technology works. Afterwards, it has gained popularity in countries like India, South Africa, and Afghanistan. This technology gives users an opportunity to make cash deposits into a mobile phone account. The users are able to make money transfers by us of PIN-secured processes to other users (Jack and Suri, 2011, p. 1). It is possible to make payments for goods and services and withdraw the money deposited. The company charges users a small fee for any transactions made using this service. The microfinance service is non-branch and the users are able to make any transactions from numerous agents distributed all over the countries, who act as bank agents. M-pesa has gained popularity really fast and by the year 2010, it had become the most flourishing mobile phone based monetary technology in the third world. About 2 years ago, the company reported that it had registered more than 17 million users. This technology has presented majority of people with access to the official monetary system leading to a significant reduction in crime in communities that are majorly based on cash. How M-Pesa Works Origin of M-pesa In the year 2002, pollsters at Gamos and the Commonwealth Telecommunications Organization reported that in some of the African countries, majority of individuals were utilizing airtime as the method of funds transfer. The people would send money in form of airtime to other people who would in turn resell it. The researchers made approaches to MCel in Mozambique and in the year 2004, the company launched the first legal airtime credit transfer; a pioneer of M-pesa. This idea was debated by the Commission for Africa and the DFID linked the researchers to Vodafone who were in support of a microfinance and mobile banking. It was debated on how a framework of cash transfer could be established in Kenya (Mbiti and Weil, 2011, p. 1). DFID altered its terms of suggestion for its endowment to Vodafone and piloting started in the year 2005. In the year 2007, a student developed a software project which was used by Safaricom to establish a novel mobile phone cash transfer, and was given the name M-pesa. The original work of product development was passed on to a company by the name Sagentia. The obligations were later handed over to IBM in late 2009 where majority of the Sagentia staff moved to. Concept The idea behind development of M-pesa was to establish a service that would give microfinance users an opportunity to acquire and make loan payments by use of network of Safaricom airtime vendors. This would make it possible for microfinance organizations to provide more competitive loan rates to borrowers as costs are more considerable compared to working with cash. The borrowers would get an opportunity to track their finances more easily compared to before (Hughes and Lonie, 2007, p. 65). Mobile banking architecture M-pesa is run by Safaricom and Vodacom, who are mobile network operators. Unlike banks, M-pesa are not categorized as deposit taking organizations; the users van make deposits and withdraw cash form a numerous agents that involve airtime resellers and retail ines who act as bank agents. Through M-pesa, users are able to make deposits and withdraw cash; make cash transfers to other people; make bill payments; buy airtime; and make cash transfers with other banking organizations. The basis of M-pesa operation is the same in but Kenya and Tanzania; however, Safaricom makes use of SIM toolkit for menu provisions while Vodacom majorly uses USSD but also utilizes SIM toolkit. The cost of each transaction varies depending on the individuals involved and the amount of cash. For non-registered users, the cost of a transaction is around 0.66% of the cash involved while for the registered users; the charge is around 0.22 of the cash involved. The charges of making withdraws from an agent is around 1% of the transaction value (Mas and Morawczynski, 2009, p.80). Markets The service was originally launched by Safaricom in 2007 and Vodafone accounts for only 40% of the shares. The service captured a significant market share for cash transactions and rose to have over 17 million registered users by the year 2011 in Kenya only. The service was growing at a fast rate which made banking organizations approach the then finance minister in the attempt to slow down its growth rate. The ploy did not succeed as it was recognized that the service was robust. By the year 2014, Safaricom reported that M-pesa transactions accounted for 2.1 trillion which was a significant increase from the previous year. The company later established Safaricom M-Ledger, an application which provides users with all their past M-pesa transactions. The service was launched in Tanzania in the year 2008 and by the year 2013, the service had gained about 5 million registered users. The service was introduced in Afghanistan in 2008 and in South Africa in 2010, India in 2011, and in East Europe in 2014. M-pesa has also been introduced to Mozambique, Egypt, and Lesotho (Morawczynski and Miscione, 2008, p. 290) Pros and cons M-pesa offers users with an opportunity to make transactions easily and instantly while at the same saving considerable amount of money (Mas and Radcliffe, 2010, p. 1). However, there are fears that this service is not safe for storage of huge amounts of cash as the service is prone to hacking. Conclusion This paper is about a new payment technology which is M-pesa. The service was launched by Safaricom and Vodafone in Kenya and Tanzania, and since then, it has spread to other different countries. Kenya has the largest number of subscribers and M-pesa transactions account for 2.1 trillion in Kenya alone. Subscribers are able to make cash deposits and withdrawals from a network of agents all over the country at a small fee. Bibliography Hughes, N. and Lonie, S. 2007. M-PESA: mobile money for the “unbanked” turning cellphones into 24-hour tellers in Kenya. Innovations, 2(1-2), pp. 63-81. Jack, W. and Suri, T. 2011. Mobile money: the economics of M-PESA (No. w16721). National Bureau of Economic Research. Mas, I. and Morawczynski, O. 2009. Designing mobile money services lessons from M-PESA. Innovations, 4(2), pp. 77-91. Mas, I. and Radcliffe, D. 2010. Mobile payments go viral: M-PESA in Kenya. Mbiti, I. and Weil, D. N. 2011. Mobile banking: The impact of M-Pesa in Kenya (No. w17129). National Bureau of Economic Research. Morawczynski, O. and Miscione, G. 2008. Examining trust in mobile banking transactions: The case of M-PESA in Kenya. In Social dimensions of information and communication technology policy (pp. 287-298). Springer US. Read More