Why Competing With M-Pesa Is Wrong Move For Kenya’s Fintech Startups

Kenya’s fintech sector dominates the country’s startup ecosystem. For every 10 startups in Kenya, 3 are in the fintech space.

On funding, fintech startups are also by far the most funded; making up approximately 31% of the funded startups every year.

Why are Kenyan fintech startups stuck in the shadow of M-Pesa?

The question is, is it because there is so much opportunity in the space? Or is it a case of herd mentality banked on the success of M-Pesa?

I was shocked to realise that the majority of fintech startups are in the payments and remittances sub-sector – where they directly compete with the juggernaut, that is M-Pesa.

This is closely followed by the lending and financing sub-sector, where the competition with M-Pesa is also direct.

About two years ago, I also gave it a go in the fintech space and interestingly, my startup was also in the payments and remittances sub-sector.

When my startup failed, I blamed M-Pesa in retrospect and justified my blame by explaining that they were a monopoly with too many unfair advantages.

I have sadly realised that the trend of clustering in the described sub-sectors can be attributed to the visibility and perceived success of existing solutions – mostly M-Pesa.

When founders observe the dominance and widespread adoption of M-Pesa, they naturally gravitate towards similar models, hoping to tap into an established market. Innovating is hard! It is easier to attempt to replicate or refine ideas with traction.

The high number of startups in fintech and, more specifically, in the mentioned subsectors are founded on the hypothesis that there is still room to innovate or offer a differentiated service within the same space.

I, too, am plagued with the mentality that I can excel where there is a monopoly, believing too much in the concept of innovation dilemma – big companies seek optimisation, not innovation and therein lies an opportunity for smaller companies to beat them.

The mentioned hypothesis and mentality caused founders to miss out on the exact reason why M-Pesa became the success it is today.

The Blue Ocean strategy

The blue ocean strategy is about seeking opportunities where there is no competitor; creating new markets, not sharing them!

The challenge, then, is to shift our mindset from competing within existing markets to exploring uncharted territory.

Instead of asking, “How can I do this better than M-Pesa?” we should ask, “What is the next M-Pesa? What needs is no one else addressing? Where are the opportunities to create new markets rather than enter crowded ones?”

Am I suggesting that there is no opportunity in the payments and remittances sub-sector? A resounding yes! Not in Kenya. If M-Pesa seized to exist today, there would be too much opportunity for more than double the number of the current players.

For now, there is no need whatsoever for another fintech where to deposit to its wallet, you use M-Pesa, only to make payments to other M-Pesa accounts. Pointless!

However, there is opportunity in the Fintech spaces as a whole. For example, opportunities in less saturated subsectors such as wealthtech, insurtech, or business administration, which could also offer significant returns with less direct competition, are ignored.

Can Fintechs break free from the herd mentality

I was recently advised to build a fintech that puts all the players on one app. After much thought, I realised I would be more interested in building or even using a fintech that cuts out the main player completely!

By the way, there are whispers of investors shying away from the Kenyan Fintech space because of the Mpesa behemoth.

While the temptation of competing in the Fintech payments and remittances space may be strong, it’s essential for fintech founders to recognise the limitations of this approach.

The real opportunities lie in breaking away from the herd mentality, embracing the blue ocean strategy, and focusing on creating new markets rather than vying for a share of existing ones.

Only by doing so can Kenya’s fintech startups hope to achieve the same level of success, or even more compared to M-Pesa.

The writer is Samuel Kagwe, Founder Reloid Ltd.

The views expressed here are the writer’s and do not in any way represent the position of TUKO.co.ke.

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