Vodafone's M-Pesa mobile money service, known for quickly developing a devout following of users in Africa, will help the telecom expand in parts of Europe that its more high-tech payment offerings can't reach.

Vodafone already has numerous mobile payment initiatives running throughout Europe. Many of these projects, such Vodafone's efforts in Spain and Germany, launched in partnership with major banks and card networks. By contrast, M-Pesa is launching in Romania, where such partnerships would not provide as much reach.

"M-Pesa is ideally suited to countries which are not already served nationwide by traditional banking infrastructure such as Romania, where more than one third of the population mainly carry cash," says Simon Gordon, senior media relations manager for Vodafone Group Services Ltd.

Vodafone began offering 4G service in Romania in 2012, and there are 300 Vodafone stores in the country where people can activate M-Pesa's service. It plans to offer M-Pesa to more than 7 million residents (a little more than one-third of the population) of the Eastern European country. The service will operate over Vodafone's mobile network, allowing users to send as little as one Romanian leu (€0.22) or as much as 30,000 lei (€6,715) per day.

M-Pesa debuted in Kenya in 2007 as a service of Safaricom, a company in which Vodafone owns a 40% stake. The mobile money system took off like a rocket, reaching 10 million customers by mid-2010.

"There are some overarching similarities [between Kenya and Romania] that may aid in the mobile platform's success in this Eastern European country," says Michelle Evans, senior research at research firm Euromonitor International.

Romania, like Kenya, has experienced an enormous uptake of mobile phones due to the absence of fixed telephone lines and the general affordability of mobile phones, she says. The number of households that possessed a mobile telephone as of 2013 in Romania is more than double the number of households that possessed a landline phone, according to the latest figures from Euromonitor International.

And perhaps even more important, she adds, Romania has one of the lowest rates of banked population of any market that Euromonitor researches. Many Romanians who have a bank account still eschew cards and checks for cash. Like Kenya, Romania has a very rural population (about 45% of households in Romania are classified as such), which makes it a good fit for an electronic money movement service.

 At the end of 2013, M-Pesa had 16.8 million active customers and approximately 186,000 authorized agents worldwide, mostly concentrated in Africa. M-Pesa customers make in excess of €900 million worth of person-to-person transactions per month, according to Vodafone.

"Kenya's M-Pesa has become the poster child for how innovative mobile-based payment products can be used to extend financial services to the unbanked population," says Evans. "Mobile phones have not only transformed Kenya, but also the entire African continent over the last decade as they reached areas where fixed telephone lines could not and, as a result, these devices turned into a lifeline for the poor and introduced many to the concept of digital payments."

M-Pesa has been duplicated in other countries like Tanzania, Afghanistan, the Democratic Republic of Congo and South Africa, but it hasn't always met with success, Evans says. It fared poorly in South Africa due to differing regulatory, retail, financial services and cultural environments, she says.

Gordon admits that there will be challenges for M-Pesa in Europe.

"Each market is different," he says. "It depends on the in-country regulations, the geographical reach of existing traditional banking services as well as establishing a wide network of retail outlets and M-Pesa agents."

Before launching Romania, M-Pesa made substantial investment, "not just in monetary terms but in addressing the specific needs of the population it is aimed at, as well as ensuring that there is a suitable regulatory framework in place to allow M-Pesa to operate," Gordon says.

Vodafone already is setting its sights on other European markets. In countries where there is already a strong banking network, Vodafone plans to offer Near Field Communication-based products and services, says Gordon. Vodafone plans to roll out NFC-based payment services in the United Kingdom and Italy soon, he says.

"M-Pesa is ideal for unbanked customers and works on a range of mobile handsets, including the most basic models. NFC complements existing banking services and point of sale 'tap and pay' technology as well as other applications such as customer loyalty vouchers and travel cards," Gordon says.

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