Mobile money, the reboot

Read time 6min 30sec
Felix Kamenga, MTN
Felix Kamenga, MTN

The GSMA estimates there are over 5.18 billion unique mobile subscribers across the globe. At the same time, the World Bank estimates that at least 1.7 billion people remain unbanked. Among myriad other functionalities and benefits arising from the global spread of mobile phone penetration is the growth of mobile money systems that let users store money, get loans and make payments securely.

Mobile money increases access to traditional finance for tens of millions of previously underserved people. Kenya’s M-Pesa, for example, pioneered by, has been a massive success in improving the country’s financial ecosystem and providing a new platform to serve its unbanked population. Today, M-Pesa is said to have the biggest reach of any financial services provider on the African continent, with 38 million active customers, processing over 11 billion transactions annually.

However, mobile money services have continually failed to gain traction in South Africa.

In 2010, Vodacom launched M-Pesa South Africa, with the intention of bringing financial inclusion to the nation’s rural communities. By 2015, only 75 000 users had signed up. The following year, Vodacom closed the service in South Africa, but that hasn’t halted the network operator’s local mobile money ambitions.

“Identifying and solving relevant consumer and enterprise use cases is key to ensuring mass adoption of mobile money in South Africa.”

Mariam Cassim, Vodacom

Says Vodacom Financial Services’ chief officer Mariam Cassim: “The traditional mobile money proposition faces intense competition from an increasingly competitive market for digital financial services. Identifying and solving relevant consumer and enterprise use cases is key to ensuring mass adoption of mobile money in South Africa.”

Tough laws

The early failures of mobile money transfers in South Africa have also demonstrated the power that traditional banks have when it comes to retaining their customers, which shouldn’t be underestimated. While mobile payment services seem like the perfect tool to bring financial services to South Africa’s estimated 11 million unbanked, local customers didn’t automatically embrace the concept of mobile money. It’s also worth noting that fintech disruptions and new entrants into the realm of finance aren’t lost on traditional banks. They are, to their credit, introducing new products to improve reach through technology, for example Absa Bank was among the first banks in the world to enable chat banking services using social media platforms like Facebook Messenger, Twitter and WhatsApp.

But there’s another reason mobile money hasn’t been able to take off on these shores. Business to business mobile services operator Clickatell says South Africa has some of the toughest financial legislation in the world, which makes it harder for smaller and new players to survive.

Says Clickatell CEO Pieter de Villiers: “The FICA requirements, proof of address or having to prove your identity face-to-face don’t work in bringing financial services to informal markets, so South African regulators’ inability to make mobile money more accessible to newcomers and entrepreneurs is a big part of why mobile money failed here and will continue to fail.

“If you want to issue mobile money services in South Africa, the requirements to do that – FICA and regulation, sureties and all of that – you basically have to be a bank. And, of course, the licences, infrastructure, and other banking costs make it expensive for entrepreneurs and newcomers to roll that out.”

Vodacom’s Cassim notes: “Although there are differences in the regulatory regime from country to country, the key success criteria are that non-banks can operate as e-money providers (this is not yet fully the case in South Africa), and that Know Your Customer, agent and capital requirements are proportionate to the level of risk – so we can give accounts with low transaction limits to the financially excluded who may have only a single basic form of ID.”

Apart from stringent regulations and pre-existing advanced banking solutions, another reason mobile money failed in South Africa lies in the current financial ecosystem. Says De Villiers: “Before offering a product or service, any business will ask if there is enough value for the consumer to use these services. “Can they pay for rent, electricity, food, transport, airtime and data on this system?” He also cites ‘cartel-like’ behaviour within the existing ecosystem that is complicating the expansion of mobile financial services, especially with newer operators joining the fray. “If you take pre-paid electricity, a handful of companies have exclusive rights to offer electricity payments to the consumer.”

Despite these challenges, MTN is looking to re-enter the mobile money market, following the decommissioning of its previous service in 2016, following a four-year period.

Leveraging lessons

According to recent research conducted by the company, 50% of the country’s unbanked remain ‘thinly served.’ MTN’s chief officer of Mobile Financial Services Felix Kamenga says it has been carefully studying market developments.

“Since its introduction in 2007, mobile money has faced regulatory, technical and commercial challenges. Especially in the early days, mobile money struggled with the necessary regulation to facilitate its growth. At inception, the technology wasn’t scalable and took time to mature and stabilise. Finally, the commercial aspects such as costs and profitability have been difficult to manage, especially where critical mass wasn’t quickly achieved.”

MTN has also been able to leverage some lessons from its work elsewhere on the continent, especially in the areas of distribution and growing an ecosystem to drive transactions.

“These may have been areas where the previous deployment was lacking. The new MTN Mobile Money service comes with features that cater for the current economic landscape and consumer behaviour,” says Kamenga.

MTN’s research shows that most South Africans withdraw their whole salaries and welfare grants. This limited usage of the existing financial model implies that the current services are barely meeting consumers’ needs, either in their utility, features or costs. “It’s a prime objective of ours to offer innovation and disruption in product design, distribution networks and customer engagement,” says Kamenga.

Launched at the end of January in South Africa, ‘MoMo’ is still in its infancy, but, as at September 2019, MTN has 30.7 million MoMo customers in 14 markets across Africa.

Among some of the features offered by the MoMo service:

  • Send money to any working cellphone number in SA
  • Buy prepaid services like electricity, data and SMS bundles
  • Pay for purchases at selected till points
  • Perform ‘cash in’ and ‘cash out’ transactions at any MTN store or mobile money agent.

Additionally, says Kamenga, there’s no minimum balance required to access the services. Neither are there any monthly charges or automated debits.

Vodacom also hasn’t completely removed itself from revisiting mobile money solutions for South Africa.

“We believe there are opportunities to innovate and improve access to the payments and banking systems that will ultimately increase access to financial services for millions of South Africans,” says Cassim.

But she also admits this would involve addressing the limiting regulatory environment. “We will continue to engage the relevant regulatory authorities around those areas we believe will benefit from disruptive digital technologies and alternative business models, ultimately transforming the landscape of financial inclusion in South Africa.”

This article was originally published in the March 2020 issue of ITWeb Brainstorm magazine.

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