“As a mobile operator, this is a value-added service for us,” says Michael Joseph. “We can provide it at cost or even below cost, because our main business is calls and data, and we are doing this to encourage our customers to stay with us and bond with “Banks tend to want their services to be profitable from day one, and their infrastructure is quite expensive.”
Joseph insisted, however, that at least initially M-Pesa would complement rather than compete with Romania’s existing banking sector.
“We operate at the bottom of the pyramid, where the sums involved are mostly too small for banks to deal with,” he says, pointing out that in Africa, where M-Pesa has so far gained the most traction, the average transaction size is just $7.
Vodafone customers in Romania will be able to transfer as little as one leu ($0.39) through the service, which will operate via a countrywide distribution network of 300 cash-in and cash-out outlets – a number that is expected to grow to 2,000 by the end of the year – comprising local stores, garages and pharmacies, as well as the telecoms firm’s own shops.
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Customers of other networks will be able to receive payments but not send them, and will pay a higher fee to withdraw cash than Vodafone’s own client base.
With more than 8 million subscribers, Vodafone is the second-largest mobile operator in Romania, providing coverage for 99.4% of the total population of 21.3 million. It is also frequently cited as one of the country’s strongest brands, a quality Joseph says is as essential for success in the mobile payments market as an extensive network.
“You’re talking to people who don’t have a lot of money and asking them to entrust that money to a telecoms company, which is not the normal way of doing things, so you need a trusted brand,” he says.
Originally introduced in Kenya in 2007, M-Pesa today has close to 17 million active users and transfers nearly $1.5 billion a month. Romania is the 10th new market for the service, which has expanded particularly rapidly over the past year, with launches in India, Mozambique, Egypt and Lesotho.
Joseph acknowledges that, at first glance, Romania differs markedly from M-Pesa’s locations in Asia and Africa in terms of banking penetration and wealth. At $8,910, Romania’s per capita GDP is nearly three times that of Egypt and seven times that of India.
He points out, however, that not only is Romania relatively poor by European standards – GDP per capita is close to $13,500 in Poland and Hungary – but banking coverage is mainly confined to urban areas.
“The only financial institution that really serves rural areas well is the post office; in many of the villages there are no financial services at all,” he says. “The eastern part of the country in particular is completely neglected in terms of banking services – in those areas this could change people’s lives.”
Even among Romania’s banked population, adds Joseph, a strong preference for cash transactions makes it a promising market for M-Pesa.
“Romania is still very much a cash economy,” he says. “Most salaries are paid into bank accounts in Romania, but many people still withdraw their salaries on payday and keep the money in cash.”
Initially, Vodafone expects transfers between urban and rural areas to make up the bulk of demand for M-Pesa’s services. In the longer term, however, the firm has its eye on the large Romanian migrant worker community, which according to the World Bank last year sent home around $4 billion in remittances – a total only topped in central and eastern Europe by Ukraine and Tajikistan.
Vodafone already has agreements in place with transfer agents Moneygram and Western Union, as well as an international money transfer hub in Brussels, and expects to apply for a licence to receive transfers into Romania via M-Pesa in the next few months.
Joseph notes that the ability to handle international transfers would make M-Pesa’s services attractive for other markets with large migrant populations, but says Vodafone has no plans to expand elsewhere in Europe at present.
“Turkey could be an interesting option, but we will see how Romania goes first,” he says.
He also warns that building critical mass for M-Pesa in Romania – which he puts at between 500,000 and 1 million customers – might take as long as 18 months. “With a mobile payments product it takes time and effort to get established because you’re talking about financial services and you’re talking to the bottom of the pyramid,” he says.
“To ensure M-Pesa is successful we will concentrate on initially building a strong and extensive distribution network, and then undertake a tremendous amount of education and publicity. Once people start to understand how it works then momentum tends to build naturally.”