Where Will the Next Mobile Money Innovation Come From?

Kenya grabs a lot of attention with mobile money, but is all the innovation happening at the top of the food chain? We don’t think so. In fact, working with FSD Kenya and some great ex-Unitus folks, we’ve found a veritable hotbed of Kenyan entrepreneurs spinning out one exciting idea after another. The next round of mobile money innovation could easily come from the little guys, if only they could gain traction with the right financing and other support. Unfortunately, the entrepreneurs tell us that’s not there in Kenya. There seems to be a clear market failure with willing, able and attractive entrepreneurs finding a wilderness empty of the kind of angel and early VC financing, mentoring plus nuts and bolts advice they need to soar.

I recently spent an intense week in Nairobi scoping out the landscape. We found out 2 things:

1. There are a ton of small entrepreneurs working in mobile money and they are arriving from 4 vastly different directions.

• Adjacent industries: Mamakiba’s founder started by asking why so many women want to give birth in a clinic with trained medical professionals, but do not: the discovery… it’s hard to save up the USD 40 cost, even knowing months in advance (shades of Sendhil Mullainathan’s findings in the domain of behavioral economics). Mamakiba starts with a savings calculator to help pregnant women figure out how much they need for the kind of birth they want, links them to M-PESA to do the saving, and pairs regular saving reminders with health messages via sms. Take away: not all the innovation is coming from financial experts, but other fields where financial services are part of the solution to some altogether different problem. mHealth is particularly exciting — if mobile money is like PayPal, mhealth could be its eBay, driving usage to huge levels.
• Premium mobile content providers: Cellulant is a profitable company which got its start selling mobile music but really got active in banking 3 years ago when its founder – Ken Njoroge – decided they needed to make it easier for their clients to buy their products. Cellulant has since built platforms for many of Kenya’s banks (for more than music, these days) and is trying to bridge the divide between the multiple banks and mobile network operators. It may very well be a third-party, non-bank, non-MNO player who figures out how to connect everyone’s platforms to everyone else’s. Lofty goal indeed, but it would make mobile money truly interoperable for the first time in Kenya. Symbiotic has its sights set on a similar target, and is also thinking about how to make it social.
• Silicon Valley meets the Rift Valley: Then there are the classic tech entrepreneurs who write great code and see grand visions of the electronic future. One is PesaPal, which aims to aggregate massive amounts of data on electronic transactions and do 3 things: (1) offer the data to banks to do credit scoring, (2) personal software to help people “see” their finances and plan for goals, (3) supply chain management for SMEs. PesaPal is the only startup we found which had successfully attracted VC funding.
• The financial services sector: Chamgamka was founded by 2 guys who worked in mainstream insurance for decades. They launched in 2009 offering a reloadable health savings card stocked in stores next to maize, batteries and Coca-Cola. This effectively turns saving from something that’s abstract and has to be planned for, into a physical product one can buy on impulse. This is just the kind of product-side innovation we called for in CGAP’s latest Focus Note. Going with cards also allowed them to launch immediately, avoiding a long and potentially unsuccessful negotiation with mobile network operators to use the mobile network. They have several thousand profitable customers. Chamgamka allows top-up via M-PESA but their focus on cards as their main transaction instrument shows mobile isn’t the only game in town.

2. But as exciting as their ideas are, nearly all these entrepreneurs are somewhere in the “valley of death”, past funding from friends and family, short of commercial investment.

• There are some good resources out there. iHub and Mobile Monday have surged into the gap providing a space — literal and figurative — for networking. In fact, Mamakiba’s founders were introduced through the iHub. Several incubators provide training, work space and some other forms of support: particularly exciting is the new Mobile Application Lab supported by Nokia, the Government of Finland and infoDev. There are also a few high profile contests. Outfits like Virtual City have won big awards from Nokia. The Kenya ICT Board ran a successful competition. And the US Department of State’s Apps for Africa contest handed out a $2,000 prize to Mamakiba and a few other designers addressing development issues. While these help get entrepreneurs excited, and raise the profile of the winners, no one can build a business off the small, infrequent sums.
• Money money everywhere, but not a drop to drink. We found a growing community of VC firms (mostly foreign), some angel investors (mostly Kenyan), and an incredibly vibrant tradition of investment clubs (chamas) which by one count have USD 469 million in assets in Kenya. But no one is investing in tech startups. The smallest investment we found a VC making was USD 150,000. Local angels strongly prefer businesses with physical assets which can be sold in extremus, particularly real estate and service businesses like restaurants. And the chamas – though widespread – tend to invest in the stockmarket and more traditional businesses. In other words, nearly all the entrepreneurs we spoke to have a hard time seeing the path to commercial investment and business success.
• As a result, many ambitious ideas are in danger of staying on the drawing board, untapped. Ideas that have a long gestation period and which can’t be immediately self-financing typically don’t get tried. When they are, there is enormous pressure to focus on the surest bet, quickest. In other words, the runway is very, very short — far shorter than the window of opportunity for Silicon Valley entrepreneurs. Kenyan entrepreneurs have maybe a few months, half a year. It’s almost impossible to iterate an idea to find the right recipe in time.

How can we shift this equation?

- Mark Pickens