MTN, Sanlam insurtech partnership may face stumbling blocks
MTN and Sanlam will have to work extra hard to overcome setbacks, such as financial constraints and the lack of an insurance culture, which contribute to the low insurance penetration level across the African continent.
This was the word from analysts commenting on the newly formed partnership between MTN SA, which has almost 30 million local subscribers, and financial services group Sanlam, the largest insurer on the African continent.
The partnership, launched yesterday, will see Sanlam offer its insurance products on MTN’s mobile app, Web site and USSD platforms. The collaboration hopes to tap into Africa’s millions of uninsured and underinsured, initially starting in SA and at later stage expanding into the rest of Africa.
According to insurance comparison site Hippo.co.za, more than 40% of South Africans do not have a formal life insurance policy. Statistics SA found 82 out of every 100 South Africans do not have any form of medical insurance.
As MTN transforms from being a telecoms provider into a digital services provider, the operator has been on a strong push to diversify its fintech business by exploring new revenue streams, through an array of products including mobile wallets, payments, microloans and other services that are universally accessible through its app or USSD.
The telco also offers mobile commerce services through its MTN marketplace and has invested in lifestyle media services, including music, video, gaming and digital marketing services.
MTN group CFO Ralph Mupita told delegates yesterday that MTN’s fintech business has shown massive growth of up to 46.8% in the past year, contributing 6% of the telco’s current revenue across its 21 markets.
The Sanlam partnership, along with other fintech services, is expected to help push this revenue up to 15%, bringing in potential revenue of around the R90 billion per annum, he noted.
Arthur Goldstuck, founder of World Wide Worx and ICT analyst, points out that with mobile money having failed repeatedly in SA, mobile insurance offers no guarantee of success, in a country with a large number of uninsured populations.
“In order for the MTN-Sanlam partnership to be successful, the question one would have to ask is: ‘Why are there so many uninsured Africans?’ This is a threefold issue: lack of easy access to insurance products, lack of disposable income, and thirdly, a lack of insurance culture both in SA and across the entire continent.
“This means they would have to spend a lot of energy and effort in marketing and educational drives, as a huge part of their implementation plan. Life insurance is a hard sell on the continent and MTN wants to win business away from existing providers, and secondly, create new markets. In both cases it will take massive marketing. While this venture may have potential, at this stage, based on their current strategy, I can't see a R90 billion-a-year revenue business emerging,” according to Goldstuck.
MTN has to be realistic about the scale and scope of what it can offer; just because it owns the customer, it doesn’t necessarily mean “they own the customer’s financial affairs”, asserts Goldstuck.
Vodacom has been offering its funeral policy, Vodacom Funeral Cover For You, to its contract subscribers for a while, while Cell C partnered with AVBOB to offer its customers AVBOB Funeral Cover.
Addressing delegates at the partnership launch yesterday, Sanlam group CEO Ian Kirk noted this move is expected to completely turn insurance purchasing on its head.
“For us to partner with an organisation such as MTN is a wonderful opportunity that will enable us to tap into its more than 30 million customers in SA. Digital innovation is about doing things differently and this partnership means clients will have the opportunity to purchase bundled products from both MTN and Sanlam, with the added benefit of having flexible payment options, as opposed to making regular monthly payments,” he explained.
Peter Takaendesa, portfolio manager at financial services company Mergence Investment Managers, believes mobile distribution and more flexible payment options may be the answer to unlock the take-up of insurance in many African markets.
“We believe there is big potential for the mobile insurance market in many African countries; however, distribution and affordability may be the key constraints and not necessarily the lack of insurance culture.
“I’m not sure how MTN arrived at the R90 billion per annumrevenue targets; they may be referring to the entire MTN group revenues, including other services. It is a fact that mobile money penetration has surprised many industry experts over the past two decades and it is possible that insurance adoption could surprise many, if the distribution model and affordability are optimised.”
While voice is dying a slow revenue death and data usage grows through the increase in mobile Internet penetration, 3G-4G mobile data networks increase in population coverage and smartphone adoption grows in Africa, telco operators are coming up with new potential revenue streams and they are in a strong position to capitalise on those data usage opportunities, notes Takaendesa.
“MTN is pursuing new revenue streams in mobile data, enterprise ICT services, wholesale network services, and fintech and digital services. The operator’s non-voice revenue currently contributes over 40% to group revenue and we expect that number to cross 50% over the next few years. The big opportunity is mobile data and mobile money in Africa, given relatively low fixed-line in most markets as well as leveraging MTN’s over 230 million existing customers with potential for strong customer growth as population and economies continue to grow,” explains Takaendesa.
According to Byron Lotter, portfolio manager at Vestact Asset Management, MTN’s insurtech venture is an exciting one, which is expected to unlock untapped potential in the market.
“The announcement on Tuesday that MTN will be partnering with Sanlam sounds encouraging. Many African countries are underinsured and MTN has exposure to these countries and Sanlam has the appetite to expand. Sanlam also has loads of experience at offering such services. It sounds like a very good fit.”
Jacqui O’Sullivan, executive for corporate affairs at MTN SA, notes that in 2018, MTN Group had R8 billion fintech revenue from its 21 markets. The new partnership is expected to help increase this milestone.
“Mobile money forms part of MTN SA’s fintech positioning, which is delivered through our mobile financial services division. In Africa, fintech has shown massive growth of up to 46.8% in the past year and the introduction of MoMo in the South African market will further contribute to the overall growth of our fintech business.”