It’s amazing to see some of the data on MPESA. According to the financial results from Safaricom, the number of users of MPESA has risen to 9.5 million from 6.5 million a year ago with person-to-person transactions worth 28.6 billion shillings (~$350 million).

When we talk of all these players we tend to group them under the head mobile banking and payment providers. However there is quite a significant difference between the services utilised in emerging markets and in the US and European markets. In emerging markets, service providers are catering largely to the under-banked – to enable money transfers and cash deposits and withdrawals. In the case of MPESA there is an authorised agent who collects the physical money and makes the transfer from their online cash account.

In developed markets, the focus is more on using the mobile phone as a payment provider. Before I am attacked on this demarcation let me clarify that the difference is not in black and white but more in degrees. There are service providers like Boku and Zong which are pure payment providers and then there is Obopay with a much wider range of services.

The demarcation may phase out with time but it can only improve services. One of the first steps is the agreement we are seeing between MPESA and Equity Bank to launch a new service – M-KESHO. In this case, the users account will actually be managed by the bank rather than just being a mobile account. Since the cash is now available to the bank as float, the user also earns an interest rate on the money deposited. One way of looking at it is that it’s a stepping stone for MPESA customers into formal banking institutions. Another way to see it is that it is an initiative by Equity bank to provide mobile banking services to a larger audience by riding on an existing network. They will with time be able to bolt on more services. In either case, it is a big step forward.

Another significant fact to consider is the reduced cost – after all, it’s not just the convenience of m-banking that draws users. A recent study by CGAP compared the pricing of these service providers vis-a-vis formal banks. On an average branchless banking was 19% cheaper than formal banking with the difference increasing to 38% as the transaction size reduced. Pricing models vary currently ranging from free accounts to free airtime and will continue to stay in a state of flux. This indicates that even though there may be an impact on margins, the number of services will also increase thus increasing the revenue potential.

With the recent highlighted acquisitions across the South Asian sub-continent and Africa, there should be a lot of movement of services and service providers across borders. It certainly is a segment worth watching closely.