M-Pesa is a mobile banking system developed by Kenyan mobile service provider Safaricom which allows its customers to transfer prepaid mobile credit to other mobile phone users and to redeem prepaid mobile credit for money.

In this way, M-Pesa can be used to store and to transfer tokens (prepaid credit) which can be redeemed for money. These services are similar to those offered by wire transfer services (a remittance tool) and bank accounts (a secure store of value and a value transfer tool).

Long before M-Pesa was developed as a financial tool, residents of Kenya and other African countries used prepaid mobile credit or “airtime” vouchers as a cash equivalent for the settlement of purchases. The fact that unused prepaid vouchers could be returned and refunded at near their face value at Safaricom prepaid voucher vendors helped to drive their use as a cash equivalent.

When mobile service providers added the option of gifting prepaid mobile credit to other users within the same network via SMS, mobile phone users began to transfer prepaid credit directly between themselves to settle payments.

The M-Pesa service was originally designed to facilitate the receipt and repayment of microfinance loans using Safaricom’s prepaid credit vendors. But by allowing mobile users to redeem their prepaid credit for cash at numerous merchants which sold Safaricom prepaid credit vouchers, M-Pesa turned prepaid credit into a bona fide cash equivalent.

Today, the M-Pesa service is available in Kenya, Romania, Tanzania, Mozambique, South Africa, India and Fiji (where it is known as M-Paisa). However, it is only widely used in Kenya. This is most likely due to the dominance of Safaricom in the Kenyan mobile service market and the long-established network of Safaricom vendors, as well as the large number of Kenyans who do not have access to conventional bank accounts.

In 2015, Safaricom partnered with Tanzanian M-Pesa operator Vodafone to enable cross-border transfers between M-Pesa users in Kenya and Tanzania.

M-Pesa operators charge fees for each transaction made. Fees vary depending on whether credit is redeemed for cash at vendors, redeemed for cash at automated teller machines (ATMs), transferred to other M-Pesa users or transferred to mobile phone users who do not use M-Pesa.

Pesa is a Swahili word for money.

See also: M-Akiba