Selling Banking Services to the World's Poor

A primary teaching point that Harvard Business School gives entrepreneurship students is the importance of running experiments and learning by doing. Better to launch with an unfinished business plan and be ready to change course based on customer feedback than wait to create the "perfect" plan. It's the art and science of the "pivot."

This makes sense because business plans often reflect our own perception of reality, what we think the market wants based on our own experience, rather than what the market is telling us it wants.

This is exactly what happened in South Africa when startup WIZZIT, hoping to take advantage of almost 100 percent cellular phone penetration in the impoverished county, decided to offer banking services on a mobile platform. It offered a fully array of services at low cost, affordable even to people without much money.

M-PESA, a competitive mobile service, had a better understanding of the real needs of its potential customers. It understood South Africans weren't interested in interest-bearing checking or in depositing the little money they had into savings accounts. But there was desperate demand for another financial service: money transfer. For people working in urban areas, getting money back to families in local villages was a daunting process involving sealed envelopes and couriers traveling long distances.

So M-PESA hit on the idea of replacing couriers with handsets as a better way for families to move money to each other. The company franchised thousands of existing mom-and-pop food stores to act as agents, where customers could safely give money to an order taker, who in turn would process the transaction and allow the family on the other end, using their mobile phone, to collect the funds at another franchisee.

The result: M-PESA is a profitable $500 million operation, far outpacing the performance of WIZZIT, now a division of The South African Bank of Athens.

"The beauty of M-PESA is that they understood a fundamental theorem of marketing: understand what your customers really want," says Kash Rangan, a marketing professor at Harvard Business School. His case study of WIZZIT and M-PESA is profiled by Carmen Nobel in HBS Working Knowledge.

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(Photo by Flickr user Ken Banks, CC 2.0)

Sean Silverthorne

Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.

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