Vodafone to partner Western Union to allow M Pesa payments from UK to Kenya

Source: Amol Sharma, Total Telecom & WSJ

U.K. pilot scheme will enable consumers to send money via handsets to Safaricom users in Kenya.

Vodafone Group PLC plans to announce a partnership Monday with Western Union Co. to allow international money transfers via mobile phones, as the wireless carrier seeks to tap into the increasing flow of cross-border remittances.

Cross boarder remittances is a market all of the mobile networks are hugely interested in seeing it as a way to tap into their comparative competitive advantages in banking in the developing world.

The service is building upon Vodafone’s successful M Pesa service also run through Safaricom. The M Pesa service uses SIM PKIs to digitally sign SMS instructions to move money between agents in Kenya and is typically used on long jounreys to move money ahead of the traveller as it is safer than carrying cash in a country with little banking infrastructure.

The companies are initially launching a pilot program that will allow residents of Reading in the United Kingdom to send money to family members and friends in Kenya, where Vodafone is the 40% owner of local wireless operator Safaricom Ltd. If that program is successful, the companies will expand it to other countries.

There is growing interest in using cellphones as a conduit for money transfers, with financial institutions such as Citigroup Inc. and Visa Inc. taking steps into the business. Wireless carriers in the U.S. and in emerging markets such as India and the Philippines are having some success with programs that let users transfer money domestically via cellphones.

Research firm Aite Group expects that by 2010 global workers’ remittances will amount to $465 billion, up from $369 billion last year. To be sure, the World Bank said in a recent report that growth in international money transfers has begun to moderate in the past few months as a result of the global financial crisis.

Remittances are a big contributor to gross domestic product in many emerging markets as workers migrate around the globe, maintaining ties to family in their native countries. Most of these transfers are in the range of $300 to $350 and happen a few times a month, but Vodafone wants to encourage much smaller and more frequent money transfers via cellphone. Not all of the transfers are from the developed world to the developing, indeed the UK is a net recipient of funds as friends and fa,ily put students through college or otherwise support relatives!

Vodafone, which owns or has stakes in wireless operators in Africa, the Middle East and India, sees mobile money transfers as an attractive add-on service in markets where users generally just buy prepaid phone minutes.”It’s got the backing of the company to take into our emerging-market footprint,” said Nick Hughes, Vodafone’s head of international mobile payments.

Expanding the service to allow cross-border transfers through Western Union agents allows Vodafone to not only increase the volume of cash it is handling, but also move into a higher-margin business: It charges only 18 U.S. cents for domestic money transfers in Kenya, but the charge for international remittances from the U.K. will be GBP 4.90 ($7.22) for as much as GBP 100, and GBP 6.90 for larger amounts.

Western Union, which processed $64 billion in cross-border remittances last year and has 365,000 agent locations in 200 countries, is hoping to expand its reach through cellphones.”Mobile financial services have tremendous potential in places where people don’t have other choices,” said Matt Dill, head of digital ventures for the company. He said Kenya has relatively few workers with bank accounts, yet 10 million cellphone users. Western Union only has 400 agent locations in Kenya, mostly in urban areas.