Big gains for Vodacom as M-Pesa surges
M-Pesa, Vodacom’s mobile money offering, is growing faster than expected, with first-quarter earnings data showing the telco posted big gains from the mobile money platform.
Vodacom recorded sharp growth in its M-Pesa mobile money service, contributing R905 million in the three months ending June.
The mobile operator says this amount represents 17.7% of service revenue from its international portfolio and growth of 42.7%, or 28.4% without taking currency gain into account.
Analysts say the M-Pesa gains are the clearest indication that telcos will need to increase non-voice revenues to grow.
The M-Pesa service allows people without bank accounts to transfer money quickly, easily and safely using their mobile phones.
M-Pesa is a hit in East Africa, and Vodacom holds a 35% stake in Safaricom, which runs the mobile money platform.
This week, the Kenyan Communication Authority announced that transactions worth $20.3 billion were conducted via Kenyan mobile money services in the three months to the end of June.
Of these transactions, 80% were conducted on M-Pesa.
“We do not disclose M-Pesa revenue by country but you will see from our Q1 numbers that M-Pesa’s service revenue contribution to our international portfolio (excluding Safaricom) came in at R905 million in those three months,” says Vodacom spokesperson Byron Kennedy.
Analysts believe M-Pesa’s success shows innovation drives growth.
Mark Walker, IDC associate VP for Sub-Saharan Africa, says: “While this is an important revenue contribution, the significance is more that this enables the Vodacom and Safaricom group to participate very actively in a high growth market segment – digital payments.
“This is key, as future trends indicate the ability to add value to the connectivity layer by providing these types of services will be critical for growth.”
Investment analyst Peter Takaendesa, portfolio manager at Mergence Investment Managers, notes: “M-Pesa now contributes over 7% of the Vodacom group and is continuing to grow at a rate close to 20%.
“This will continue to be a growth driver for the Vodacom Group but unfortunately most of that growth will be diluted by the dominance of declining South Africa voice revenue.”
Not a hit in SA
Despite having been a huge success in African states, where it was launched in 2007, M-Pesa failed to take off in SA.
Both Vodacom and analysts cite SA’s technologically advanced, financially liquid and accessible banking system as the catalyst that fast-tracked the demise of M-Pesa in the country.
“There are many other financial services providers in South Africa fulfilling that service of money transfer, such as retailers and traditional financial services providers. South Africa has a relatively well-developed financial services market and mobile operators have failed many times in their efforts to introduce mobile money at scale in the country,” Takaendesa says.
Similarly, Walker says even though SA stood to gain in terms of the revenue collection from M-Pesa, the country had options of other viable payment platforms.
“There are multiple alternative payment platforms available which also contribute to the tax base; however, M-Pesa, by its focus on mobility and small transaction values coupled to high transaction volumes across multiple industries, means the net it would afford for tax collection would be very wide.”
Notwithstanding the failure of M-Pesa in SA, Kennedy says: “We said at the time (2016) that we remain of the opinion that opportunities exist in the financial services environment in South Africa and that we will continue to explore these.”
Vodacom has since ventured into other financial products that appeal to the local market, including insurance, leveraging its customer base of 43 million people.
The telco’s financial services unit has transformed itself from a loss-making entity into a billion rand profit-generating department.
Mariam Cassim, chief officer of Vodacom Financial Services, recently told ITWeb: “We have grown the business significantly – 400% – in this period. In this past year, we delivered profit of just under a billion. We are really focused on four areas – insurance, payments, lending, and savings and investments, which is our newest product in the portfolio.”
Vodacom has 1.3 million active insurance policy-holders and Cassim says it’s growing.
Kennedy says: “Through our acquisition of a strategic stake in Safaricom, we expect this will further accelerate our mobile money growth plans in Africa and facilitate additional requisite investment into the M-Pesa platform. This will ensure M-Pesa continues to grow, including through the use of certain elements of the platform in South Africa.”
Walker believes there is room for mobile money platforms in SA going forward.
“Definitely. As the young, connected and mobile population increases in market participation, this payment channel will represent a larger portion of overall transaction volumes,” says Walker.
On the contrary, Takaendesa says: “There is a chance that mobile wallets may attract some interest in some sections of society but I doubt they will achieve the scale that mobile money services have achieved in the rest of Africa.”