Kenya: In the Market for School Fees
Thursday, 20 January 2011
Teaming up with Safaricom to market their school fee payment service is going to give Verviant’s PesaPal a lead in competing with other payment platforms.

Catch Them Young
Agosta Liko from Verviant, a Nairobi ICT firm, estimates that there are around 70,000 educational institutions in Kenya, and more than 11m students - and where he sees, above all, lots and lots of fee payments: Verviant’s PesaPal service provides merchants with a platform to manage mobile payments, but also bank and credit card payments. In an offer specifically tailored for the education sector, PesaPal gives schools an online platform to manage the multitude of fee payments: the service gives schools the capacity for immediate payment reconciliation and they can send invoices, notifications and reminders to mobile phones. Any transfers go immediately into the school’s bank account.

Using mobile money transfers makes fee payments easier for parents: rather than queue at the bank, they can simply send their children’s school fees from their handset. If the parents’ bank is part of the PesaPoint ATM network, they can also make bill payments at the ATM. And if relatives abroad pay school fees for family members, they can use the PesaPal platform for credit card payments, a faster and cheaper mechanism than using an international remittance service like Western Union, and again the recipient will not have to queue to pick up the remittance.

School fee payments typically involve a large number of transactions: There is the overall size of the market, and many parents have a payment plan for school fees, which means that they make more than three transactions annually, so any system that makes this easier for both fee payer and recipient becomes even more attractive. Making this process easier for both parents and the managers of schools was Verviant’s objective. It is affordable for the users, too: Schools - like any other merchant - pay PesaPal a flat annual fee to use the platform, whereas parents incur the fees charged by the mobile money operator.

Partnered up for the Roll Out
For Verviant, school fees were a key element of their marketing plan from the beginning. There are perhaps flashier, more high-profile uses, but in contrast to e.g. the traffic on Kenya emerging e-commerce sites, the school sector simply offers volumes. Part of the challenge was to find an affordable marketing strategy to roll out the product and let schools know about it.

This has become a lot easier since Verviant entered into a partnership with the largest mobile operator, Safaricom, their pioneering M-PESA mobile money service, and three banks, Kenya Commercial Bank (KCB), CFC Stanbic and Co-operative Bank. The joint service is marketed Lipa Karo M-PESA. Revenue distribution - often an issue that applications developers complain about - is simple and straightforward: Safaricom keep the fee for the M-PESA transaction, and Verviant charge schools an annual one-off fee for the software. The real draw is that Safaricom advertises the service: the mobile operator is one of Kenya’s highest-spending advertisers and for a young venture like PesaPal, this provides a public platform of otherwise inaccessible reach.

Market Consolidation
The success of Safaricom’s M-PESA product, the pioneer in mobile money services, has triggered an ecosystem of economic activity around it, both in terms of the immediate transactions that it enables, but also in terms of innovation of complementary services. Several companies have developed payment platforms that link mobile money services from the different network operators, i.e. M-PESA, Zap, Orange Money and YuCash, with credit card payments and bank accounts. MobiKash, JamboPay, IPay, Moca (formerly pay.zunguka) are all trying to establish a foothold in this sector. Companies like Craft Silicon are planning to launch mobile money services.  

It is unlikely that all these companies will survive and thrive: there will necessarily be a consolidation. Payment platforms are a business that requires a long breath, argues Verviant Agosta Liko: ‘You need to get a lot done on a small budget and won’t make much money in the beginning. Clients need to do a sizeable number of transactions first before you see any revenues.’

None of PesaPal’s competitors have tackled the school fee market yet, and teaming up with Safaricom will PesaPal a lead over its competitors: A co-operation with the largest network operator - Safaricom has more than 16m subscribers and over 70% of the market share - and its massive advertising spend drives volumes. And it will act as a catalyst for other business: Liko found that the partnership gives his company added credibility in the market, and PesaPal have subsequently been approached by several corporates who are interested in their services.

M-PESA may have started out as a product designed for low-income clients with no or very limited access to formal banking facilities, but has quickly become a completely different animal. Initially, Safaricom denied that there was any competition with banks as that they were not, in fact, targeting a clientele that the banks would consider worth doing business with. But banks have pushed into the retail market in recent years, and mobile money has become across all income levels, to which product developments attest: mobile money payments at supermarket checkouts and for airline tickets, utility services, and connections to bank accounts are just some of the services added. Banks will soon find it impossible not to co-operate with mobile money operators (Banking: Mobile phone users present new business opportunities ).

Because M-PESA has become the most successful mobile money service to date, and because Kenya already had a critical mass of competent developers and high mobile penetration rates, Kenya has taken the lead in innovation around mobile money. But it is a fluid, rapidly developing market, and Agosta Liko thinks that this space will change substantially: ‘Whoever will win the mobile money game that will be a completely different animal from what the current players, i.e. the telcos and companies like Craft Silicon, are.’

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