This interview follows the recent publication of the GSMA report “Sustainable Access to Energy and Water through M2M connectivity” and the M-KOPA article “Unlocking a New Market: Ultra-Low-Cost M2M Opportunities and Barriers to a New Mobile Frontier”.
After announcing its partnership with Safaricom in October 2012, M-KOPA is currently scaling its operations throughout Kenya and their Pay As You Go Solar Home Systems are now available in more than 300 Safaricom shops. To understand more about M-KOPA’s overall strategy and perspectives on the usage of Machine-to-Machine (M2M) connectivity, I recently caught up with Nick Hughes, Co-Founder and Executive Chairman of M-KOPA, to gain some insights into their service and their journey towards scale.
MN: Nick, can you tell us more about the M-KOPA concept and what was its origin?
NH: M-KOPA makes clean energy affordable to customers in Kenya by combining machine-to-machine technology and mobile payments. We offer customers the chance to purchase solar energy equipment on a pay-as-you-go basis; they pay a deposit and get a good quality home lighting system. The customer then makes payments to us by phone to top up the number of days credit on their system. They pay us whenever they want and can buy as many days credit as they like. We use M2M technology and software embedded in the solar equipment to turn it on or off according to the customers’ payments. In brief, we are ‘asset-financing’ clean energy hardware that would otherwise be unaffordable. In fact, our customers save money when they use M-KOPA, each day of credit costs about US$0.40 and is less than they would spend in cash, day-to-day for inefficient fuel like kerosene or batteries (often US$0.50 to US$0.70). What’s more, after 12 months (or sooner) they own the system outright and do not pay anything from that point.
M-KOPA has its roots in my belief that mobile technology can be a major enabler for new, innovative services. For me, this started nearly 10 years ago when, at Vodafone, I began to explore the mobile payment concept that became M-PESA. We launched M-PESA commercially in 2007. In what is a relatively short space of time, mobile money schemes are growing all over the world and changing the way people transact. Today, I am more convinced than ever that mobile technology can allow us to tackle development issues such as access to energy. Plus they can be commercially exciting. On the rails of existing infrastructure, we can now reach many more consumers than was ever thought possible and business models are starting to emerge that utilize this connectivity.
MN: The ability of users to pay for energy by small installments using their M-PESA account is one of the key features of the M-KOPA products. Can you tell us more about the impact of these Pay As You Go solutions?
NH: Mobile payments provide the flexibility to mirror how people pay for things in cash – especially people on low, variable income, and that’s the majority of people in developing economies.
It is all about making small transactions securely and at a low price, as and when you need to. Through the work of people like Stuart Rutherford (one of the authors of Portfolios of the Poor), we know that people on low-income deal with cash up / cash down challenges every day. With M-KOPA, we have designed the service to allow customers to use flexible payments via their mobile wallet (M-PESA). In doing so, we are simply aligning to the reality of their day-to-day income and ability to pay.
What has been fascinating to watch since we launched, is how some people buy more credits than they need when they have spare cash. In other words, they use M-KOPA to lock up that spare cash against a future ‘known need’ (days of energy). Also pleasantly surprising is the extremely low number of people who are slow repayers. In a recent independent survey of 300 customers, over 97% said they had recommended M-KOPA to friends and family.
MN: Do you see the M-KOPA model being replicable in countries where the deployment of mobile money services hasn’t been as successful as it is in Kenya?
NH: Yes, for sure. There are multiple ways to make small transactions work, conveniently and at relatively low cost, remotely or over long distances. Further, very few people now doubt the emergence of mobile money. What remains debatable is how quickly these schemes will grow. This is complex and depends on appropriate regulatory frameworks and who is driving the business model (banks/MNOs/third parties etc), but at the end of the day scale is a function of time. We sometimes forget how long change takes – mobile money has only been around for five years or so at scale. Credit cards took more than 20 years to become established, check out Visa’s history. What is also very clear to us – is the gap in access to energy. There are probably close to 1.5 billion people that lack access to reliable grid electricity, the majority of whom are likely to own a phone. So, at a fundamental level, our business model works because it’s a solution addressing a massive problem. We have the challenges that all new businesses have – but we are focused on making this replicable and scalable across markets and products.
MN: You partnered with Safaricom in Kenya last year for the distribution of the M-KOPA units through its agent network. How did you build this partnership and what’s the situation today?
NH: Safaricom has always been at the cutting edge of innovation. Their brand and reputation is huge in Kenya and when we had the opportunity to share the M-KOPA concept with Bob Collymore, Safaricom’s CEO, we jumped at the chance. Bob saw a lot of alignment with Safaricom’s ambition to bring new services to their customers, especially around digital inclusion and green power. Also, our business model works on an agent commission basis, where re-sellers of M-KOPA units collect commission over time as the customer pays down the balance on the unit. So, there is a good fit with the way Safaricom and many other MNOs build and incentivise their distribution channels. We are pleased to continue working with Safaricom and we are very excited that Safaricom and M-KOPA have just been short-listed for a GSMA Award this year.
MN: At the recent AfricaCom conference in South Africa, Alan Knott-Craig Sr, CellC CEO, talked about the rise of machines as the main users of mobile telephony in the next decade and quoted: “In 5 to 10 years, don’t be surprised if more machines have SIMs than people”. How do you see M2M connectivity impacting emerging markets and underserved populations in the next years and what are the big challenges?
NH: I am in 100% agreement – M2M will be huge and we are just at the start of the growth curve for services like M-KOPA. This is especially so in developing economies where the opportunities to ‘connect’ via other infrastructure is limited. One key challenge is finding the technology price point that will unlock the market demand & supply constraints. Cheaper handsets and pay-as-you-go price plans opened up access to mobiles for vast numbers of people. We need to see M2M develop the same way. For example, today a simple M2M modem might cost $15. I can buy a whole, simple phone for almost the same price. There is a lot of complexity here – but the core underlying technology costs need to adjust. There are also challenges for the service providers about making this work seamlessly for the consumer. Whilst we use smart technology we are running a service model and M-KOPA has built a great customer care team and set of tools to manage this side of the business. For example, we have invested a lot in our billing and customer care system that manages and monitors every customer and their device(s). This allows us to immediately support customers with problems. At any point in time we can check their payment status and usage history, and tell whether the unit is working well or needs attention.
MN: What do you think is needed to build a conducive environment to the growth of M2M connectivity in resource constrained economies?
NH: It’s a good question with many potential issues wrapped up in it, but for M-KOPA it starts by solving real problems for customers. If we get that right, the rest should follow. If we can either save a customer some money or help them increase their productivity in some way, then we have the fundamentals in place to make this happen at scale.
MN: Does M-KOPA have any ambition beyond developing access to energy in emerging markets?
NH: There is a lot to keep us busy right now and 90% of our team is focused on operations. That said, this space is moving fast and we allocate time and resources to new product development. With generous support from organizations like the Shell Foundation, DFID (UK Government) and the Lundin Foundation, we are pushing on with new M2M concepts and ideas. The sweet spot for us is where M2M can be coupled with mobile payments. The breadth of opportunity is massive – just step back and consider what else you might want to monitor, turn on / off remotely and collect payments against.
Thank You Nick.