The Kennesaw Journal of Undergraduate Research Volume 6 Issue 2 Article 2 Winter 2019 M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study (Addendum by Former and Current Executives at the Vodafone Group) Jackson Lott Kennesaw State University, [email protected] Mona Sinha Kennesaw State University, [email protected] Follow this and additional works at: https://digitalcommons.kennesaw.edu/kjur Part of the E-Commerce Commons, International Business Commons, Marketing Commons, and the Technology and Innovation Commons Recommended Citation Lott, Jackson and Sinha, Mona (2019) "M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study (Addendum by Former and Current Executives at the Vodafone Group)," The Kennesaw Journal of Undergraduate Research: Vol. 6 : Iss. 2 , Article 2. Available at: https://digitalcommons.kennesaw.edu/kjur/vol6/iss2/2 This Article is brought to you for free and open access by the Office of Undergraduate Research at DigitalCommons@Kennesaw State University. It has been accepted for inclusion in The Kennesaw Journal of Undergraduate Research by an authorized editor of DigitalCommons@Kennesaw State University. For more information, please contact [email protected]. M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study (Addendum by Former and Current Executives at the Vodafone Group) Cover Page Footnote This case study has been prepared under the guidance of Dr. Mona Sinha in Spring 2018, as part of the coursework for the International Marketing (MKTG 4820) class at Kennesaw State University. Thanks to Eady Connally, Michael Phillips, Kelly Herrera, Tyler Black, and Tyler Bohn for their assistance in researching and writing this case study. Special thanks also to Dr. Amy Buddie, Director of Undergraduate Research, and the Library and Writing Center staff at Kennesaw State University for their guidance and assistance. This case has been written as a basis for class discussion and is not meant to be an endorsement, source of primary data or as an example of effective and ineffective management. The content is based solely on secondary research and does not reflect the views of the company. This article is available in The Kennesaw Journal of Undergraduate Research: https://digitalcommons.kennesaw.edu/ kjur/vol6/iss2/2 Lott and Sinha: M-Pesa's Failure in India M-Pesa’s Failure in India: Why Couldn’t Vodafone Replicate its Kenyan Success? An International Marketing Case Study Jackson Lott and Mona Sinha (Faculty Adviser) Kennesaw State University ABSTRACT Vodafone’s mobile wallet service, M-Pesa, was originally created in 2007 for Kenya and was extremely successful in providing millions with access to mobile-based financial services. Essentially, a mobile wallet service enables payments via digital money in the form of mobile airtime. According to industry estimates, the global mobile money market is expected to reach USD 112.3 billion in 2021, with a compounded annual growth rate of 39.6% since 2016. Vodafone launched M-Pesa in India in 2013, but by mid-2019 it had announced its plans to merge its mobile wallet business with an associate company or a third party. Clearly, Vodafone had failed in its attempt to market M-Pesa in India even though India is a rapidly growing emerging market with a gross domestic product (GDP) growth of 8.2% in 2018. Currently over 90% of transactions in India are cash-based largely due to lack of access to bank accounts and low penetration and use of credit/debit cards. This not only hampers business but also exacerbates issues like corruption. India is seen as lucrative for mobile wallet providers due to its large population with growing disposable income, rising mobile phone penetration, increasing number of mobile internet users, government reforms, and government investment in telecom infrastructure. Indeed, the Indian mobile wallet market is poised to grow by 150% to reach $7 billion by 2023. Vodafone had hoped to repeat its Kenyan success by using M-Pesa to target Indians who either didn’t have bank accounts or rarely used them. However, it lost its early entrant advantage, and a host of new start-ups took over the market. The dominant player now is Paytm, the fastest growing mobile wallet in India with a 70% market share. This case study examines Vodafone’s marketing strategy in the context of the competitive, regulatory, and cultural challenges in India. The case questions initiate discussions on a wide variety of issues aimed at uncovering why Vodafone’s M-Pesa failed in India and what it could have done differently. The case study caught the attention of Mr. Michael Joseph, Chairman of Kenya Airways, who was the founder and former CEO of Safaricom, a Vodafone investee. After reading the case study, Mr. Michael Joseph gave an interview to Dr. Mona Sinha, Associate Professor of Marketing at Kennesaw State University. In the addendum at the end of the paper, Mr. Michael Joseph explains why M-Pesa did not perform as well in the Indian market as the company had originally hoped. Keywords: mobile payments, mobile wallet, mobile money, mobile phone, emerging market, India, Kenya, Vodafone, M-Pesa, Paytm, marketing strategy, Digitization, e-commerce, e-tail Published by DigitalCommons@Kennesaw State University, 2019 1 The Kennesaw Journal of Undergraduate Research, Vol. 6 [2019], Iss. 2, Art. 2 Introduction such as infrastructural issues with mobile networks, lack of merchant education, and E-commerce is growing rapidly unfavorable government policies (Srivastava, across the world aided by the rise in 2016). By using mobile wallets, many in digitization of money. India is a high growth India will gain the convenience of cashless emerging market with a population of 1.13 transactions, and for the first time in their life billion, a gross domestic product (GDP) they will get access to loans, micro- growth of 7% in 2018 (“GDP Growth Annual financing, and e-commerce. Indeed, industry % – India,” n.d.), and the fastest growing e- estimates indicate that the mobile wallet commerce market in the world, expected to market is poised to grow by 150% to reach $7 be worth $200 billion by 2026 (“E-commerce billion by 2023 (“India Mobile Wallet Industry in India,” 2019). However, a key Market Size & Analysis, 2018-2023,” 2018). deterrent for the growth of e-commerce is that India is still a cash-driven economy with This case study first explains what over 90% of transactions being cash based mobile wallets are and how the use of mobile (“What government plans to do with the old phones for currency transactions can replace Rs. 500, 1,000 notes - How to get rid of old the use of cash. Then the case examines notes,” 2016). The rates of counterfeit Vodafone’s mobile wallet solution, M-Pesa, currency as well as ‘black money,’ i.e., which despite spectacular success in Kenya income on which tax has illegally not been and an early entry into India, has not paid, exacerbates the problem of over- managed to survive the onslaught of local reliance on cash (D’Cunha, 2017). Many hide competitors, especially Paytm. Indeed, by their money in cash, jewelry, other liquid mid-2019, Vodafone began looking for an forms of currency, or even real estate either associate company or third party to merge its to avoid paying taxes or because they do not M-Pesa mobile wallet (“ET Bureau,” 2019). have bank accounts. Indeed, 92.5% of By understanding the socio-economic, Indians do not have or use bank accounts technological, and cultural context of the (Pradhan & Beniwal, 2018). ‘Black money’ Indian market, readers can evaluate is so widespread and difficult to track that it Vodafone’s strategy and answer the case is estimated to impact anywhere from 23- questions regarding what changes Vodafone 75% of the country’s GDP (Banik & Padalka, can or should have done to make to its 2016). Additionally, low adoption of marketing plan for M-Pesa succeed in India. credit/debit card point of sale (POS) systems makes use of credit/debit cards difficult in What are Mobile Payments? daily life (Sashidhar, 2016). Digital wallets are payment systems The cash-based economy hampers that store users’ banking and/or credit card business in India but is an untapped information in encrypted form and enable opportunity for mobile wallet providers users to make purchases digitally without because India has 813.2 million mobile using cash. Digital wallets can be operated phone users (Pahwa, 2016) and 500 million using desktops, laptops, or mobile phones mobile internet users (“The World Factbook (Williams, 2019). Using mobile phones to India,” 2019). However, not only do Indians make digital payment transactions is safe and seem to have a cultural preference for cash, easy and is becoming a popular alternative to there are also other factors that impede the bank accounts. Digital wallets can be used on growth of the mobile wallet market in India, both smartphones and basic no-frills phones. https://digitalcommons.kennesaw.edu/kjur/vol6/iss2/2 2 Lott and Sinha: M-Pesa's Failure in India What sets apart mobile payments from other In 2006, Safaricom, a Vodafone digital wallets is that users create an account subsidiary in Kenya, was the first to linked to their mobile phone and can recognize that their customers were purchase and store money on it in electronic exchanging minutes as currency, so they form. This ‘airtime’ or ‘mobile minutes’ or expanded on what customers were already ‘talk time’ can be purchased from the mobile doing by creating M-Pesa (M stands for providers either online or from a physical Mobile and Pesa is the Swahili word for store and doesn’t require users to link their cash), a mobile wallet that enables Vodafone phones to a bank account or debit/credit card.