The service has been lauded for giving millions of people access to the formal financial system and for reducing crime in otherwise largely cash-based societies.

Safaricom and Vodafone launched M-PESA, a mobile-based payment service targeting the un-banked, pre-pay mobile subscribers in Kenya on a pilot basis in October 2005.

[6] It was started as a public/private sector initiative after Vodafone was successful in winning funds from the Financial Deepening Challenge Fund competition established by the UK government's Department for International Development to encourage private sector companies to engage in innovative projects so as to deepen the provision of financial services in emerging economies.

The successful operation of the pilot was a key component in Vodafone and Safaricom's decision to take the product full scale.

The learning from the pilot helped to confirm the market need for the service and although it mainly revolved around facilitating loan repayments and disbursements for Faulu customers, it also tested features such as airtime purchase and national remittance.

In 2002, researchers at Gamos and the Commonwealth Telecommunications Organisation, funded by the UK's Department for International Development (DFID), documented that in Uganda, Botswana and Ghana, people were using airtime as a proxy for money transfer.

[16] The initial concept of M-PESA was to create a service which would allow microfinance borrowers to conveniently receive and repay loans using the network of Safaricom airtime resellers.

[17] This would enable microfinance institutions (MFIs) to offer more competitive loan rates to their users, as costs are lower than when dealing in cash.

In discussion with other parties, M-PESA was re-focused and launched with a different value proposition: sending remittances home across the country and making payments.

[28][29][full citation needed] With the support of Financial Sector Deepening Kenya and the Bill & Melinda Gates Foundation, Tavneet Suri from the Massachusetts Institute of Technology and William Jack from Georgetown University have produced a series of papers extolling the benefits of M-PESA.

"[31] However, these findings on the role of M-PESA in reducing poverty have been contested in a 2019 paper, arguing that "Suri and Jack’s work contains so many serious errors, omissions, logical inconsistencies and flawed methodologies that it is actually correct to say that they have helped to catalyse into existence a largely false narrative surrounding the power of the fin-tech industry to advance the cause of poverty reduction and sustainable development in Africa (and elsewhere)".

[32] M-PESA was first launched by the Kenyan mobile network operator Safaricom, where Vodafone is technically a minority shareholder (40%), in March 2007.

[17] M-PESA quickly captured a significant market share for cash transfers, and grew to 17 million subscribers by December 2011 in Kenya alone.

In December 2008, a group of banks reportedly lobbied the Kenyan finance minister to audit M-PESA, in an effort to at least slow the growth of the service.

[35] On 23 February 2018, it was reported that the Google Play store started taking payments for apps via Kenya's M-PESA service.

In 2010, the International Finance Corporation released a report which explored many of these issues in greater depth and analyzed the strategic changes that Vodacom has implemented to improve their market position.

[39] In 2008, Vodafone partnered with Roshan, Afghanistan's primary mobile operator, to provide M-PESA, the local brand of the service.

[41] In September 2010, Vodacom and Nedbank announced the launch of the service in South Africa, where there were estimated to be more than 13 million "economically active" people without a bank account.

[42] M-PESA has been slow to gain a toehold in the South African market compared to Vodacom's projections that it would sign up 10 million users in the following three years.

[54][55] M-PESA was shut down from 15 July 2019 due to regulatory curbs and stress in the sector,[56] with Vodafone surrendering their PPI licence on 1 October 2019.

[62] The Kenyan government issues national identity cards that M-PESA leveraged in their business processes to satisfy their KYC requirements.

The Bill and Melinda Gates Foundation warned in 2013 that lack of competition could drive up prices for customers of mobile money services and used M-PESA in Kenya as a negative example.

[64] A study sponsored by USAID found that poor uneducated customers, who often had bad vision, were a target of unfair practices within M-PESA.

They had expensive subscriptions for ring-tones and similar unnecessary services pushed on them, with opaque pricing, and thus did not understand why their M-PESA deposits depleted so quickly.

He concluded in his otherwise very friendly survey that the financial sector benefitted handsomely from the expansion of M-PESA, while the living conditions of the people were not noticeably improved.

They diagnose serious weaknesses in the much cited paper by Suri and Jack, which had found positive effects on poverty, as M-PESA enabled female clients to move out of subsistence agriculture into micro-enterprise or small-scale trading activities.

Bateman et al. call M-Pesa an extractive activity, by which large profits are created from taxing small-scale payments, which would be free if cash was used instead.