The Mathematics of M-PESA 101

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Welcome and in this blog we take look at M-PESA commission tables and try and see what they tell us about the M-PESA service. 
 
The analysis is based on 2012 Mpesa transaction Fees – the insights were very telling then and inform the design of mobile money economics today.

For my foreign readers, and they are the most, am sorry the figures in the following tables are in Kenya Shillings, you are welcome to convert them (using 1USD = 85KES), although not necessary in understanding and following the discussion.

What is M-PESA

M-PESA is electronic mobile money issued by Kenyan MNO, Safaricom Limited. The “M” = Mobile, and the PESA = Money is Swahili language.

M-PESA users buy the e-value by exchanging cash for e-value at agents (merchants) outlets, this transaction called a deposit is offered free of charge to M-PESA users at agents outlets.

Hence M-PESA users load e-value called Mpesa into their phones, the Mpesa is the money offered by the M-PESA service.

SMS notifications act as alerts for confirmation of user’s actions;
  • ·         Withdrawals, exchanging Mpesa for cash.
  • ·         Transfers, of Mpesa to other registered users and nonregistered users
  • ·         Deposits, putting Mpesa into a mobile phone wallet.
  • ·         Purchases, C2B transfers for payments of services.
The SMS always give a balance after the user’s action.

M-PESA Customer Charges.
Customer Charges





Transaction Range (KShs)
Transaction Type and Customer Charge (KShs)
Percentage of  Customer Transaction Paid as Commissions
Transaction Band
Min
Max
Transfer to other
Transfer to Unregistered Users
Withdrawal from
Analysis
M-PESA Users
M-PESA Agent
Mean of Transaction Range
Send To M-PESA Users
Send To Unregistered Users
Withdrawal From M-PESA Agents
1
10
49
3
N/A
N/A
29.5
10.17%
N/A
N/A
2
50
100
5
N/A
10
75
6.67%
N/A
13.33%
3
101
500
25
60
25
300.5
8.32%
19.97%
8.32%
4
501
1,000
30
60
25
750.5
4.00%
7.99%
3.33%
5
1,001
1,500
30
60
25
1250.5
2.40%
4.80%
2.00%
6
1,501
2,500
30
60
25
2000.5
1.50%
3.00%
1.25%
7
2,501
3,500
30
80
45
3000.5
1.00%
2.67%
1.50%
8
3,501
5,000
30
95
60
4250.5
0.71%
2.24%
1.41%
9
5,001
7,500
50
130
75
6250.5
0.80%
2.08%
1.20%
10
7,501
10,000
50
155
100
8750.5
0.57%
1.77%
1.14%
11
10,001
15,000
50
200
145
12500.5
0.40%
1.60%
1.16%
12
15,001
20,000
50
215
160
17500.5
0.29%
1.23%
0.91%
13
20,001
25,000
75
250
170
22500.5
0.33%
1.11%
0.76%
14
25,001
30,000
75
250
170
27500.5
0.27%
0.91%
0.62%
15
30,001
35,000
75
250
170
32500.5
0.23%
0.77%
0.52%
16
35,001
40,000
75
N/A
250
37500.5
0.20%
N/A
0.67%
17
40,001
45,000
75
N/A
250
42500.5
0.18%
N/A
0.59%
18
45,001
50,000
100
N/A
250
47500.5
0.21%
N/A
0.53%
19
50,001
70,000
100
N/A
300
60000.5
0.17%
N/A
0.50%
Table 1: Mpesa End User Charges

 

Observations and Comments

 The Transaction Bands

Current M-PESA (June 2012) has 12 charge bands corresponding to different amounts that an M-PESA user can transact, ranging from KES 10.00 to KES 70,000.00
Transaction bands 1 could as well start at minimum value KES 1.00 and end at maximum value KES 50.00, then band 2 at KES 51.00 and end at 100.00, that way uniformity down the bands could have been maintained. These two bands are the latest addition to Mpesa transaction bands.
The Spacing of the bands is very instructive in getting an indicator where the most transactions are prevalent; between KES 10 and KES 10,000 there are ten transaction bands, while between KES 10,000 to KES 70,000 nine bands. Ordinary M-PESA users transact over 95% of their transactions below KES 5,000.

What Can You Do With M-PESA

Once an M-PESA user has Mpesa (e-float acquired via a deposit operations) in their phones they can do the following;
  • ·         Transfer e-float (Mpesa) to other M-PESA users.
  • ·         Transfer e-float to other non-registered users.
  • ·         Withdraw e-float; convert to cash
Other uses of M-PESA not covered in table 1 above are:
  • ·         ATM withdrawals, the withdrawals in table 1 are at an agent’s outlet.
  • ·         Pay bill transactions, this are C2B transfers, and are commonly used for utility payments, subscription services, school fees.
  • ·         Buy Goods transactions; also a C2B transfer at payment counters in restaurants, bars, supermarkets.
  • ·         Buy Airtime, for your phone or somebody’s else phone

 Analysis of Customer Charges

To simplify the analysis, the mean of the transaction band is used, (min+max)/2.

Based on this the following three graphs derived to depict what an M-PESA user is charged as a percentage of the value of the transaction.

Graph 1: Mpesa Transfers to Other M-PESA Users


The first three bars are packed with information and interpretations.

Band 1, the first bar, KES 10-49, first this value cannot be withdrawn at an M-PESA agent, secondly if I were sending it to you to buy airtime top up, we are both better off if I just bought for you through my phone.

Hence the only situation I would be sending you that value (between 10-49) must be in a situation where you needed a top up of your e-float so as to enable you to carry out another M-PESA transaction like a withdrawal, and so in a monetary emergency.

Safaricom could also be envisaging a situation where small merchants, who cannot register to get M-PESA business accounts could be receiving Mpesa transfers from M-PESA users as payment for services, actually very feasible taking cognizant of the many, varied and unintended (by design) uses Mpesa is used for.

M-PESA transfer volumes are highest between transfer band 3 and 7 (KES 101 - KES3, 000).

Graph 2: Mpesa Transfers to Non-registered M-PESA Users


Note that transfers between KES 10 and KES 100, band 1 and 2, and those above KES 35,000, band 16, 17, 18 and 19, are not allowed.

The whole structure of the commissions is to deter sending money to nonregistered users.

This in effect turns the registered M-PESA users into product champions, extolling the benefits of registering on M-PESA to their relatives and friends that they send money too.

Graph 3: Withdrawal From M-PESA Agents


The bars in this particular graph show a beautiful motion dumping curve and further dove tails in an earlier observation (20,000 beautiful ones) that Tier-3 M-PESA agents are always ready to transact higher withdrawal services than deposit service.

But that is not even the beauty of it, this curve is business analytics and strategy applied to the max.

One, withdraws of KES 10 to KES 49, band 1 are not allowed.

Two, withdraws of 50 to 100, band 2 are punished, hence if it is airtime, better buy it from the M-PESA menu, thereby driving, encouraging and showing it is safe to carry out mobile commerce.

Three, the highest volumes of withdrawals occur in band 3, KES 101 to KES 500 and this is the same for the other two types of transactions above; transfers to registered and nonregistered users.
M-PESA agents’ commissions tariff structure next.

M-PESA Agents Commissions.


Agent Commissions for Withdrawal Transactions
Percentage of Transaction Value Received As Commission
Transaction Bands (KShs)
(Registered Customers)
(Unregistered Customers)
Deposit Registered Users Only
Mean of Transaction Range
Withdrawal
Users
Withdrawal
None Users
Deposit
Users Only
10
49
N/A
N/A
N/A
29.5
N/A
N/A
N/A
50
100
5
N/A
4
75
6.67%
N/A
5.33%
101
500
8
8
8
300.5
2.66%
2.66%
2.66%
501
1,000
10
10
9
750.5
1.33%
1.33%
1.20%
1,001
1,500
12
12
10
1250.5
0.96%
0.96%
0.80%
1,501
2,500
15
15
11
2000.5
0.75%
0.75%
0.55%
2,501
3,500
20
20
12
3000.5
0.67%
0.67%
0.40%
3,501
5,000
25
25
14
4250.5
0.59%
0.59%
0.33%
5,001
7,500
30
30
20
6250.5
0.48%
0.48%
0.32%
7,501
10,000
35
35
28
8750.5
0.40%
0.40%
0.32%
10,001
15,000
45
45
40
12500.5
0.36%
0.36%
0.32%
15,001
20,000
60
60
55
17500.5
0.34%
0.34%
0.31%
20,001
25,000
65
65
71
22500.5
0.29%
0.29%
0.32%
25,001
30,000
70
70
87
27500.5
0.25%
0.25%
0.32%
30,001
35,000
70
70
103
32500.5
0.22%
0.22%
0.32%
35,001
40,000
100
N/A
119
37500.5
0.27%
N/A
0.32%
40,001
45,000
150
N/A
135
42500.5
0.35%
N/A
0.32%
45,001
50,000
180
N/A
150
47500.5
0.38%
N/A
0.32%
50,001
70,000
200
N/A
190
60000.5
0.33%
N/A
0.32%
Table 2: Mpesa Agents Commissions

Observations and Comments


The Transaction Bands

The agents’ commission table has nineteen transaction bands, same as the customers.
Mpesa customers cannot deposit or withdraw values below 49 KES at an agent’s outlet, but can transfer that amount to other users.

Withdraw Commissions

This is a cash out operations, with customers giving the agent Mpesa and receiving cash money in exchange.
Two graphs below show agents’ commissions against what the customer pays Safaricom for this service and the second one agents’ commissions against the money they pay out.

Graph 4: Percentage of Agents Commissions Against Customer Fees



Graph 5: Percentage of Agents Commissions against Cash Paid Out


Please note that withdraw commissions for non-Mpesa registered users are the same as for registered Users.

Deposit Commissions

Customers don’t pay for depositing Mpesa into their e-wallets, but the Agent carrying out that service is paid a commission by Safaricom.

Graph 6: Agents Commission For Deposits


Safaricom Commissions

Safaricom Limited is both the platform owner and also the access network provider for M-PESA.

Through the M-PESA platform Safaricom enables electronic mobile money service that provides Mpesa money.

Agent buy Mpesa from Safaricom through commercial Banks, they then sale exchange it for cash to customers.

M-PESA customers get equivalent Mpesa money at M-PESA agents’ outlet equivalent to the cash they hand in, for this service called a deposit from the perspective of the customer no commission fee is paid, although the agent gets a commission for that deposit transactions.

With the Mpesa money in their mobile wallets, customers can transfer to other registered or non-registered users (C2C or P2P) at a commission fee, withdraw (change to cash) at an agents outlet at fee, transfer to corporate bodies (C2B) at a fee or buy Safaricom top up airtime at no fee.

So starting when a customer deposits and moving to a withdraw and then a transfer, the following is noted;
On deposit Safaricom pays out a commission to the agent carrying out the transaction, Safaricom is hence on a negative position, since it has paid out and as long as the customer keeps that mobile money (Mpesa) in their mobile e-wallet and don’t transact on it Safaricom has no other means to earn of the equivalent cash it is holding, unless the holding banks give it an interest.

Hence Safaricom is always on the lookout for ways and means that can compel the customer to spend the Mpesa in their mobile wallets.

The initial push for Mpesa usage was C2C transfers enabling transfer between individuals.

The current push for Safaricom is to make the customers comfortable buying digital goods (airtime etc) and paying for services using mobile wallets.

Now back to our analysis.

So, Safaricom pays a commission to agents on customer deposits, then when the customer does a withdrawal it charges the customer for this service and also pays the agent a commission for facilitating the withdrawal.

Looking at this two operations, deposit and withdrawal, where agents get a commission, Safaricom position is depicted on the next two graphs below.

On withdrawal, we get the graph Safaricom Gross 1: what Safaricom keeps (KES) on a withdrawal after paying the agent.
 
 Graph 7: Safaricom Gross 1
On a deposit operation, the customer does not pay but the agent gets a commission, Safaricom Gross 2 below depicts this situation.
 
Graph 8: Safaricom Gross 2
 

The above graph tells the story of M-PESA, why and how it is designed: 
This is supposed to be a transaction engine, profits can only be made when transactions happen; transfers between customer to customer, customer to business, business to customer and business to business.

Next with the M-PESA platform doing only customer to customer transfers, the picture changes and now it becomes a worthwhile business.

Safaricom Gross 3 graph below shows the gross effect of withdrawal, deposit, and transfer between customers, that is we add the transfer commission gotten from customers doing a registered to a registered customer transfer to the graph above.
 
Graph 9: Safaricom Gross 3
 
And here you can see the KES 3 shillings fee for customer to customer transfer appearing for band 1 gross income in the above graph.

Well that brings us to the close of this session; hope you got an insight or two in the design and operations of a mobile money offering.

Comments as usual are welcome.

Thank You.
Last update April 25 2022 23.37Hrs

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