One of the engines driving Kenya's mobile-money transformation is poised for export.
Building on more than two years of experience, Nairobi-based Kopo Kopo is planning to bring its mobile currency acceptance platform to other nations in East Africa this year. But the company, founded by Americans, is adopting a new approach at it moves across the border.
In Kenya, Kopo Kopo marketed its platform directly to businesses that wanted to accept the country's popular mobile money system, M-Pesa. It essentially worked as a merchant acquirer for Safaricom, the country's dominant telco and M-Pesa's creator.
In other nations, Kopo Kopo anticipates piggybacking on existing distribution networks of independent sales organizations, banks, telcos and merchant acquirers, according to Ben Lyon, director and co-founder of the company, whose backers include Javelin Venture Partners and Khosla Impact Fund.
"If we don't do this, someone will in the next one to three years, because there's a demand for it," Lyon said.
The company plans to launch its white-label service with partners in Ghana and Uganda in the first quarter of 2015, with Rwanda likely to follow. It also has its eyes on markets in Latin America and Southeast Asia, including Bangladesh and Pakistan.
"We definitely aspire to be global," Lyon said.
As it woos potential partners, the company is pointing to its track record in Kenya.
Since 2012, roughly 15,000 small and midsized businesses have begun accepting M-Pesa using Kopo Kopo's software via PC, laptop, tablet, text message or Android app, Lyon said. A transaction fee of 1% is split between Kopo Kopo and its partners. The company's software also accepts Airtel Money, another mobile currency in Kenya.
However, transactions are not expected to be a significant source of revenue, especially as competition heats up and margins shrink, Lyon said. "There's a lot of competitors looking at transactions as a loss leader."
Instead, Kopo Kopo is developing value-added services that appeal to small retailers in Kenya and that its partners can offer in other countries. Among the most popular is a cash-advance program called Grow, tested in the second half of 2014. It's similar to services offered by Square and PayPal in the U.S.
During the test, between 500 and 600 merchants borrowed roughly $2 million, with the typical advance falling between $2,000 and $3,000, Lyon said. Borrowers repay the advances, plus a 15% fixed fee, out of their ongoing cash flows. Companies typically deduct between 30% and 40% of mobile transactions toward settling the debt, Lyon added.
In the absence of credit scores and bureaus, Kopo Kopo relies on alternative signals to determine a borrower's creditworthiness, Lyon said. These include historical cash flows and customer loyalty. If regular customers stop coming, Lyon said, "That's an indicator that your business may be going south."
The measurements worked well overall, he said. The biggest risk stemmed from merchants who took an advance and then tried to avoid repayment by turning off mobile acceptance, Lyon said. Kopo Kopo is working on ways to identify those risks, he added. "There's not a clear set of characteristics just yet."
Another service being tested allows merchants to pay suppliers directly from their Kopo Kopo accounts without having to withdraw the money and then cut a check, Lyon said. "That's where it gets really interesting."