Over-regulation is killing mobile money in SA

While SA has largely embraced technology innovations, the country has yet to conquer the mobile money conundrum, as it’s caught in the grip of excessive legislation.
Rabelani Dagada
By Rabelani Dagada, Professor, University of Johannesburg
Johannesburg, 19 Aug 2021

South Africa is characterised by huge contradictions. This is more apparent in digital commerce. While most mobile technology innovations were invented or enhanced in SA, the country is a decade behind its peers in terms of universal access to internet services.

Although SA has not yet achieved universal access to internet services, it tends to jump technology and use sophisticated equipment and services before many other countries.

For example, instead of using pagers, and thereafter graduating to mobile phones, consumers in SA went straight to mobile phones. Pagers were mostly confined to people doing technical jobs and were never really used for social communication in SA.

In this country, companies and individuals started using compact discs (CDs) when Americans were still using floppy discs. By the time the Americans graduated to CDs, South Africans were already using memory sticks and some cloud computing services.

From the onset, mobile network operators in SA deployed digital technology; our counterparts in the US are still stuck in the old-fashioned analogue system.

Whereas large parts of SA remain underserviced in broadband network and electricity infrastructure, SA was the first country to deploy wireless ATMs that are powered by solar energy.

In fact, the lack of infrastructure and the high levels of crime boosted innovation in SA in digital commerce in general and digital banking in particular. SA has arguably the most sophisticated digital banking sector in the world; while on the other hand, the uptake of mobile money and digital commerce in SA is lagging behind. This should be attributed to over-regulation.

Though internet regulation is good in terms of protecting consumers, it should not inhibit new direct investments and growth in digital commerce.

Inspired by the high uptake and sophistication of M-Pesa in Kenya and Tanzania, Vodacom and the Nedbank Group introduced the system in SA in 2010, with the hope of gaining a sizable market share of the 15 million unbanked South Africans who were economically active.

Vodacom brought the cellphone technology to the relationship, while Nedbank provided a banking licence in line with the requirements of the Reserve Bank.

Within a year, it was very apparent that M-Pesa would not be successful in SA. M-Pesa had a slow start in its first months, with 100 000 registered customers at the end of March 2011 and 140 000 at the end of July 2011. In early 2012, the number of M-Pesa subscribers in SA stood at 652 000. Compared to Kenya and Tanzania, the numbers were disappointing and the growth rate far less than had been anticipated.

At some point in May 2016, news media published stories reporting Vodacom’s discontinuation of M-Pesa in SA, while at the same time reporting how the remarkable income from M-Pesa improved Safaricom’s revenue.

Inasmuch as the use of various payment standards in SA and the lack of interoperability worked against M-Pesa in the local market, the main culprit was excessive regulation.

South African regulations require a merchant to have a specific financial services provider licence. Countries like Kenya and Tanzania do not have these kinds of regulations and therefore, the growth of their mobile money usage has been exponential. Whereas internet and mobile banking uptake has been impressive in the local market, mobile money services have struggled to make tangible impact.

Though internet regulation is good in terms of protecting consumers, it should not inhibit new direct investments and growth in digital commerce.

It is important to remember that M-Pesa is not the first mobile money platform which was adversely affected by over-regulation in SA. The implementation of mobile money through 20Twenty, and the partnership between Standard Bank and MTN (called MTN Go Banking) also failed dismally.

In July 2014, MTN, Bank of Athens, Pick n Pay and Boxer announced their mobile money joint venture. In September 2016, MTN announced it was decommissioning this service owing to poor adoption and lack of commercial viability.

Nevertheless, in January 2020, MTN announced it would relaunch mobile money services. The mobile operator claimed the time would be ripe for its mobile money venture to be commercially viable in SA and Nigeria.

The legislative environment and the regulatory bodies have enormous influence on digital commerce adoption broadly and mobile money usage specifically. Governments and regulators are sensitive to the security and tax implications of integrating technology into financial and other commercial transactions.

The use of mobile money will grow steadily if mobile banking operators, retailers and policymakers are mindful of the needs of consumers.

The Kenyan Central Bank and Communications Commission have created a regulatory environment which promotes the use of mobile money. In November 2018, the Central Bank of Nigeria announced a new licensing dispensation which also caters for mobile money.

If SA wants to reap the benefits of mobile money, it should encourage the creation of mobile money infrastructure. Regulation should endeavour to strike a balance between eradicating crimes related to digital banking and promoting the use of digital commerce and mobile money.

The South African regulatory regime is inflexible and biased towards consumer protection and money-laundering, while unintentionally discouraging the use of mobile money to promote digital commerce and financial inclusion.

Policymakers should amend legislation to remove regulatory impediments so that mobile money can increase financial inclusion, particularly for the previously disadvantaged. Removing regulatory obstacles will promote innovation in mobile money models and standardisation of various digital platforms.

This should be achieved without compromising cyber security and digital commerce governance. Mobile money can be one of the major drivers of digital commerce in SA.

* This opinion piece is an extract from Dagada’s recently published book by UNISA Press titled: Digital Commerce Governance in the era of 4IR in SA (2021)