M‑Pesa Africa’s managing director Sitoyo Lopokoiyit shares his views on running one of Africa’s first fintechs.
McKinsey’s 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.
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 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. In 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, with 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, and 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: lending, the savings program, wealth management solutions, and 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 the 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, you see a huge opportunity for us to disintermediate 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-sized 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.
Culled from McKinsey Insights