SA banks find mobile money formula

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The advantage the banks have over telcos is that the regulatory environment is in their favour, say analysts.
The advantage the banks have over telcos is that the regulatory environment is in their favour, say analysts.

While South African telcos have found the going tough with their mobile money offerings, local banks are singing a different tune.

Yesterday, big four bank First National Bank (FNB) said South Africans are showing significant appetite for mobile money solutions. This is according to the latest data from FNB eWallet Solutions, which shows 4.2 million new e-wallets were created over the past 12 months, a rate of about 350 000 new e-wallets per month.

However, local telecommunication service providers have tried their luck with mobile money services with little or no luck.

Earlier this month, MTN, SA's second biggest mobile operator, said it was decommissioning its Mobile Money offering - launched in 2012 - due to lack of commercial viability.

In June, SA's number one mobile operator, Vodacom, also pulled the plug on its mobile money offering M-Pesa following a "thorough review".

Banking on mobile

FNB says it is also seeing a steady upsurge in total e-wallet cash withdrawals, an indication that users are increasingly using the service as a means for remittance.

The bank says its observation is consistent with the findings of the 2015 FinScope research which showed more people are choosing to remit via a bank.

"Over the years, we have seen e-wallet become part of the South African vocabulary as many citizens see it as a convenient and cost-effective way to send or receive money. This is one of the reasons we continue to grow the number of withdrawal points to enable broader financial inclusion through easy access," says Sandi Madikiza, CEO of FNB eWallet Solutions.

A recent study by MasterCard also notes wallets may soon be devoid of traditional plastic cards, as more people say they would prefer to use their personal smartphones for payment.

Although South African mobile operators have failed to make a breakthrough in the mobile money space, operators like Kenya's Safaricom are making a fortune with their M-Pesa offering.

Explaining why banks are winning the mobile money war over their telco counterparts, Richard Hurst, research director at Market Monitor, says the advantage that the banks have is that the regulatory environment is in their favour.

"The banks hold the key to these markets as they have the banking licences and are able to leverage this and their large customer bases to increase the penetration of mobile money services," he says.

"Clearly, as we can see from the FNB example, it is easier for a bank to become a virtual mobile network operator than it is for a mobile network operator to become a virtual bank."

Hurst points out that mobile money is certainly making some headway in the local market, but greater traction will come when financial institutions begin to look at issues such as the cost of transactions and the ability to extend their networks to make transactions and the use of mobile money more convenient for a wider portion of the population.

George Kalebaila, IDC senior manager for telecoms, media and Internet of things in Africa, points out that banks in SA have already gained momentum with establishing customer ownership and strong customer relationships for their banking services. Hence, converting these bank customers to use other mobile wallet services is relatively easier than for telcos, whose cost of customer acquisition is much higher.

"Banks already have systems in place to deal with heavy regulation posed by the South African financial sector while this is a new issue to deal with for telcos," says Kalebaila.

He believes telcos will have to find niche sub-segments in mobile money rather than mass market mobile money services. "A good example of this is cross-border remittances. Telcos also need to invest in their mobile money agency networks, either through incentive schemes or partnering with businesses with widespread networks and also focus on marketing and customer education."

Taxi delivery

Tom Newton-King, an independent mobile and strategic payments consultant, says there are four main reasons mobile money services in SA have not gained the same traction as in East Africa, particularly Kenya, Tanzania and Uganda.

He explains that Kenya's population is about 10% banked with relatively few banking points of representation - branches, ATMs and POS devices - especially outside the metros. "This means using banks to send money 'upcountry' is impractical, and so this was traditionally done by giving cash to a taxi driver and hoping he delivers it without running away.

"However, mobile network operators have a massive network of agents reselling their airtime. This means the average Kenyan is much closer to mobile network operator's point of representation than they are to a bank."

By contrast, Newton-King says, in SA there are over 75% banked, and there are far more bank points of representation than mobile network operators.

"In fact, you are probably buying your airtime via bank terminal, even if you don't know it. This means it is very easy to use bank accounts and retail outlets like Shoprite and Pick n Pay to send money to rural areas. In a nutshell, the main use-case for mobile money is person-to-person remittance. This need is already being effectively serviced in SA."

He adds M-Pesa in Kenya launched before the financial regulator understood its impact. By the time the regulator realised its impact, it was too late to apply heavy restrictions as too many people were using it.

In SA, the reserve bank applied its mind and certain regulatory exemptions, such as Guidance Note 6 and Exemption 17, were created to allow for easier use of mobile money.

"In my opinion, these concessions were adequate and cannot be used as an excuse for mobile money not working in SA."

Safaricom in Kenya has a massive market share dominance (around 80%), says Newton-King. "This made it much easier to create the network effect on the user side, since most people were already Safaricom customers.

"M-Pesa in Kenya did not take off immediately, and only became massively popular during the election violence after the 2007 elections. This is because taxis were grounded and could not take money 'upcountry', and so people were 'forced' to use M-Pesa for the first time."

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