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Date
I
DECLARATION
Declaration by the candidate
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………………………………………………………………………………………………………
……………………………………………………………………………………………………..
Sign ………………………………………..
Date…………………………
Name ………………………………………..
Adm. No. …………………………………
Declaration by the Supervisor
This Project has been submitted for examination with my approval as university supervisor.
Sign………………………………………..
Date…………………………
Name………………………………………..
Department of……………………………….
II
COPYRIGHTS
Copyright © 2015 by Abubakar Njumwa Musa
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, and scanning without either the prior
written permission of the Publisher. Requests to the Publisher for permission should be addressed to
the author only.
III
DEDICATION
This project is dedicated to my family. Without your support this project wouldn’t be possible. Thank
you for being by my side and supporting me while I was doing my writing!
For Mobile payments, past, present and future. To many in the mobile development community you are
more than mentors, you are the unknown invincible great friends without your work I wonder where we
would be!
This book is dedicated to the many who fight money laundering only they can understand what happens
IV
ACKNOWLEDGMENTS
I am likely to leave many deserving people out this time, but a few names cry out for special mention.
The lecture, Eric Omuya, not only took the initiative for teaching but did a lovely job of nursing the
author’s ego.
I’d also like to extend a special thanks to my classmates, who unexpectedly have been an absolute
delight to work with in getting the project through its final tense stages.
I also want to make special mention to Machakos University College.
V
Contents
DECLARATION ………………………………………………………………………………………………………………………… II
COPYRIGHTS ………………………………………………………………………………………………………………………………. III
DEDICATION ………………………………………………………………………………………………………………………………. IV
ACKNOWLEDGMENTS ………………………………………………………………………………………………………………….. V
Contents ……………………………………………………………………………………………………………………………………. VI
CHAPTER 1 …………………………………………………………………………………………………………………………………. 1
Introduction ……………………………………………………………………………………………………………………………. 1
Background …………………………………………………………………………………………………………………………….. 1
How does money transfer work ………………………………………………………………………………………………… 2
Problem statement ………………………………………………………………………………………………………………….. 3
Purpose of the study …………………………………………………………………………………………………………………. 3
Objectives of the study……………………………………………………………………………………………………………… 3
Hypotheses of the study ……………………………………………………………………………………………………………. 3
Scope ……………………………………………………………………………………………………………………………………… 3
Justification …………………………………………………………………………………………………………………………….. 4
CHAPTER TWO ……………………………………………………………………………………………………………………………. 5
Introduction ……………………………………………………………………………………………………………………………. 5
Potential economic impacts on Businesses …………………………………………………………………………………. 5
Payment Integration ………………………………………………………………………………………………………………… 6
Access Channels ………………………………………………………………………………………………………………………. 7
Security in Money transfer ……………………………………………………………………………………………………….. 7
Security ………………………………………………………………………………………………………………………………….. 8
CHAPTER THREE………………………………………………………………………………………………………………………… 10
Methodology…………………………………………………………………………………………………………………………. 10
Introduction ………………………………………………………………………………………………………………………….. 10
Four Corned Method ……………………………………………………………………………………………………………… 10
Research Design …………………………………………………………………………………………………………………….. 11
VI
Questionnaire Details ……………………………………………………………………………………………………………… 11
References ……………………………………………………………………………………………………………………………….. 13
VII
CHAPTER 1
Introduction
Mobile phone technology has reduced communication costs in many parts of the developing world from
prohibitive levels to amounts that are, in comparison, virtually trivial. Nowhere has this transformation
been as acute as in sub-Saharan Africa, where networks of both fixed line communication and physical
transportation infrastructure are often inadequate, unreliable, and dilapidated. While mobile phone
calling rates remain high by world standards, the technology has allowed millions of Africans to leap‐frog
the land‐line en route to 21st century connectivity.
Background
In March 2007, the leading cell phone company in Kenya, Safaricom, formalized this procedure with the
launch of M‐PESA, an SMS‐based money transfer system that allows individuals to deposit, send, and
withdraw funds using their cell phone. M‐PESA has grown rapidly, currently reaching approximately 38
percent of Kenya’s adult population, and is widely viewed as a success story to be emulated across the
developing world.
As I write this proposal Safaricom is currently the most profitable company in Kenya and the major force
behind their success is money transfer. Government records show that 20% of the country’s GDP is
transacted through money transfer in MPESA.
Central Bank of Kenya’s (CBK) report shows the value of mobile payments grew by nearly a third to
Sh1.1 trillion in the first six months of the year compared to Sh872.1 billion last year. This means that
consumers moved an average of Sh186.4 billion monthly or Sh6.2 billion per day compared to the Sh4.8
billion a day they moved in a similar period last year.
The data includes Kenya’s six main mobile money platforms Safaricom M-Pesa, Airtel Money, yuCash,
Orange Money, MobiKash and Tangaza Pesa backed by a network of about 120,781 agents.
The figure speak for themselves nothing more needs to be added. The need for stable secure and use to
use applications which cut across the whole population.
Fast advancing technology means better ways of doing business hence the choice for my topic.
1
How does money transfer work
Mobile carriers accepts deposits of cash from customers with a cell phone SIM card and who have
registered as money transfer users. Registration is simple, requiring an official form of identification but
no other validation documents that are typically necessary when a SIM card account is opened.
Formally, in exchange for cash deposits, Mobile carries issues a commodity known as “e‐float,”
measured in the same units as money, which is held in an account under the user’s name. This account
is operated and managed by the carries, and records the quantity of e‐float owned by a customer at a
given time. There is no charge for depositing funds, but a sliding charge is levied on withdrawals
increasing with the amount of money to withdraw.
E‐float can be transferred from one customer’s account to another using SMS technology, or sold back
to the carrier in exchange for money. Originally, transfers of e‐float sent from one user to another were
expected to primarily reflect unrequited remittances, but nowadays, while remittances are still an
important use of mobile transfers, e‐float transfers are often used to pay directly for goods and services,
from electricity bills to matatu fares. The sender of e‐float is charged a flat fee of about 20 KShs, but the
recipient only pays when she withdraws the funds.
Transfers are, of course, subject to availability of network coverage, which has expanded consistently
over the past decade.
To facilitate purchases and sales of e‐float, carriers maintains and operates an extensive network of
agents across Kenya. Agent growth has accelerated and the number of users per agent has fallen back
greatly.
Registered business are now using Paybill and Till number for the customers to directly pay for the
services that they offer instantaneously. The number of business using this services on the rise including
the government implementing this across its Huduma centers country wide.
However the problem business face is that the customer has to show the SMS they receive after making
the payment and this is where we seek to make a change. With this system the business will be notified
immediately after the customer’s payment and all his records will be updated immediately
The system using special money transfer APIs is able to integrate the business system with the money
transfer system enabling him to monitor payments as the come and account of all records
2
Problem statement
This wide use of Mobile money transfer and payments has pushed Banks, Small Enterprise Systems
(SMEs) and even small business such as matatus to adopt and integrate mobile payments to their
business.
Its east to account for and make financial models to evaluate business and future growth.
However most of this business lack the proper integration facilities to analyze the mobile payments
forcing them to request for stamens for the appropriate carrier to evaluate their business.
My system move to integrate mobile payments to business such that as soon as the customer makes a
payment the business owner receives an immediate notification informing him of the customer’s
payments and make necessary updates to the system files and balances on the fly.
Initially the problem was handling statements from all MNO so as to do all the account balancing and
accounting
This takes into account money transacted across the different Mobile Network Operator (MNO) so it
does not matter what service carrier the customer is using the business will be able to receive
notifications and updates as they arrive.
Purpose of the study
To successful integrate mobile payments to business allowing business to receive payments updates as
they occur in real time. And eliminate the troublesome waiting for statements for the service providers in
order to make a simple decision.
Objectives of the study
1. To integrate mobile payments to business.
2. To enhance the use of simple fast and secure payments using mobile hand held devices.
3. Development of mobile applications used for money transfer.
Hypotheses of the study
Mobile payments can be integrated into business
Scope
Small and medium sized enterprises using or accepting mobile payments. For the businesses
handle are still too small for formal banking to make sense. Third parties to provide useful
services for small enterprises. From access to capital or credit through micro-finance to hedging
risks with micro-insurance.
3
Justification
In the current set up a strong 8% of mobile users are actively using mobile payments to the range of 1
billion Kenya Shillings being transacted across mobile payments platforms. The need to properly
integrate this large number of transaction into business is extremely crucial for further expansion of the
system.
With payments ranging from the simplest services such as paying for a hotel bill or a matatu to paying
school fees and performing large business transactions.
For small non-mobile sector enterprises, mobile money platforms afford a new channel for doing
business with existing customers that can provide a number of advantages. Principal amongst these is
the reduced handling of cash and mitigation of risks associated with the handling of cash. This is
important given that the amounts of money that these businesses handle are still too small for formal
banking to make sense. Savings in terms of cost and time when it comes to making or receiving
payments would be another advantage. For example, it would be much easier for businesses to make or
receive remote payments, reducing the need for travel. Tanzanian small businesses managed to double
their sales (with the same working capital) by increasing the velocity of their money through paying
providers with mobile money.
4
CHAPTER TWO
Literature Review
Introduction
This chapter aims to explore similar work on the project and to analyze the gaps that exist currently to
and to address user and requirements needs as a result of new technologies and emerging trends in the
mobile money transfer world at large.
Potential economic impacts on Businesses
Mobile money facilitates the safe storage and transfer of money. As such, it has a number of potential
economic effects. First, it simply facilitates trade, making it easier for people to pay for, and to receive
payment for, goods and services. Electricity bills can be paid with a push of a few buttons instead of
traveling to an often distant office with a fistful of cash and waiting in a long queue; consumers can
quickly purchase cell phone credit (“airtime”) without moving; and taxi drivers can operate more safely,
without carrying large amounts of cash, when they are paid electronically.
By providing a safe storage mechanism, Mobile money payments could increase net business savings.
Because it facilitates inter‐personal transactions, it could improve the allocation of savings across
businesses by deepening the person‐to‐person credit market. This could increase the average return to
capital, thereby producing a feed‐back to the level of saving.
By making transfers across large distances trivially cheap, Mobile money payments improves the
investment in, and allocation of, human capital as well as physical capital. Customers may be more likely
to send money to business in distant locations, either on a permanent or temporary basis, and to invest
in skills that are likely to earn a return instead travelling all the way.
Mobile money payments could affect the ability of individuals to share risk. Informal risk‐sharing
networks have been found to be an important, although not fully effective, means by which individuals
spread risk, making state‐contingent transfers among group members. By expanding the geographic
reach of these networks, it may allow more efficient risk sharing, although the risk‐reducing benefits
might be mitigated due to issues of observability and moral hazard when parties are separated by large
distances. Jack and Suri (2011) describe the risk sharing impacts it has had in Kenya in more detail.
A further risk‐related effect arises if Mobile money payments facilitates timely transfer of small amounts
of money. Instead of waiting for conditions to worsen to levels that cause long term damage, it might
enable support networks to keep negative shocks manageable. For example, a business head with
access to M‐PESA who suffers a mild health shock might receive a small amount of money via customers
using Mobile money payments that allows him to keep his business running. If this money was delayed,
or the sender waited until the recipient “really needed it”, the business might collapse, the effects of
which may be hard to reverse.
5
Payment Integration
Isolated progress to date, but innovation rates are quickening
To date, innovations in mobile money across the world have taken place in a largely isolated way to
meet specific local needs. Starting in 2000, with the introduction in the Philippines of Smart Money the
world’s first electronic cash card linked to a mobile phone by mobile operator Smart, mobile payment
services have gained traction in a number of emerging markets, such as Kenya.
Although operators in emerging markets were the first to develop and offer transformational mobile
money transfer services, innovations in developed markets are now gathering pace, encouraged by
developments such as widening availability of near field communications-enabled handsets, growing
usage of mobile wallets, and hardware and app-based innovations from the likes of Square and PayPal.
As the momentum of innovation increases, accelerating growth is expected in the value and volume of
mobile payments transactions globally, with non-banks accounting for a rising share
Lipisha a Local company here in Kenya started by Martin Kasomo a university student during the
inception of the business has made amazing steps in integrating mobile payments. Some his clients
being KPLC (Kenya Power and Lighting Company) a large parastatal in Kenya.
Lipisha make use of range of APIs specifically developed for Money Transfer which can be used across a
wide of platforms being used by the mobile carries such as Safaricom, Airtel, Orange, YU and
international carries as well.
Since KPLC is able to sell electricity tokens to customer’s country wide they need a robust system that
can handle of all the payments as they keep coming. Apart from that they need a system to keep track
of the payments and accountability.
Initially all these were being handled by the service provider but KPLC had to request statements from
the service provider to balance their own accounts now imagine having to handle statements from
almost four different providers since the customer pays via his/her service provider.
With Lipisha KPLC is able to have all payments integrated from all the service providers and merge then
forming a single statement with all the records and now you can balance and account fast and easy and
that’s the beauty of mobile money paymen …
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