🦄 vol. 47
karl chats about mobile money in africa 📳
mo(bile) money 📳
R24 billion - the proposed price tag on Telkom, following an acquisition bid from MTN, one of Africa’s telecom giants. After the announcement, Telkom shares soared, increasing 33% on the day, which marked their highest ever daily increase.
Telkom comes with a solid customer base and could solidify MTN’s entrance into the fibre business - a must for expanding its 4G and 5G mobile services. Of course, it would also provide a boost in MTN’s user base, with 15.3 million additional customers… all potential clients of MTN’s revamped mobile money offering, Momo. 🤔
Mobile Money 🤔
…is a closed loop system, effectively a wallet that you pre-load with money to make digital financial transactions by leveraging a telecom provider's network.
It’s been accredited with transforming the financial inclusion landscape across emerging markets.
It provides access to a plethora of financial services for the unbanked and un(der)served.
Starting with the ability to send, remit, receive, save and borrow money.
The proliferation of mobile phones has aided the adoption of mobile money, as shown above. Last year, over $1 trillion flowed through mobile money networks across the globe - 70% of that was in Africa!
While this has been painted as a tool for financial inclusion, which it is, make no mistake - the convenience of mobile money puts Apple Pay into question 🤷🏽♂️. We’ve covered the basics, now imagine being able to pay any municipal bill or even a parking ticket (without touching a machine 😏) in your country. No more feeling guilty because you have no cash for your loyal car guard considering the seamless peer-to-peer (P2P) payments. All of this through a USSD (basically anything from the Nokia 3310) enabled phone. If we move to smartphones, capabilities increase drastically. Mobile money players now have super apps, connecting their users to a host of third party players from National Health Insurances to public transport.
The Players ⛹🏽
Pesa is money 💰 in Swahili, the ‘M’ is for mobile. 📱
Owned by Safricom and generates more than half of their yearly revenues.
Operational in 7 countries with more than 51 million users and 600 000 agents throughout Africa.
Kenya being the first and the leader of the pack with over 30 million users.
More than 50% of Kenya’s GDP flows through M-Pesa. 🤯
MTN’s Momo 🟡
Operational in 12 different countries with over 57 million users and 974 000 agents throughout Africa.
602 000 users in South Africa, and is powered by their banking partner, Ubank.
Airtel Money 💨
The African subsidiary of India's Bharti Airtel. 🇮🇳
Operational in 10 African countries with around 21.5 million mobile money users.
277 000 users from Kenya.
Recently (last week Thursday) split from its parent company, Airtel Kenya, after Airtel Money raised $550 million from different investors including Mastercard. 👀
Earlier this month, the biggest downside within the mobile money space was changed. The Kenyan Central Bank ruled to make mobile money fully interoperable, opening up that closed loop we spoke about. This means that mobile money payments can cross any mobile carrier boundary, reducing the stronghold Safaricom and M-Pesa have had in space.
And in SA? 📱 💸 🇿🇦
Despite SA having one of the most sophisticated digital banking sectors in the world and one of the continent's highest mobile penetration rates - mobile money has not been able to survive in the country.
South African regulations require merchants to have a specific financial service provider licence. As you can see above, all telecom attempts at bringing mobile money offerings into the country were ‘powered’ by a bank.
This very problem holds true as the requirements to be a mobile money ‘agent’ are also stringent. This drastically reduced the number of ‘branches’ that one could convert cash to mobile money and vice versa.
Countries like Kenya and Tanzania do not have these kinds of regulatory hurdles and therefore, the growth of their mobile money usage has been exponential and more seamless.
High bank account penetration 🏦
The percentage of people over the age of 15 with bank accounts in SA currently sits at 84% in 2021. This begs the question of the need for mobile money, when people have access to a bank account.
While this puts into question the use case for mobile money today, in 2011 it sat at 54% - and so then it was less of a deterrent.
Market share 🥇
Given the fact that mobile money has historically operated on a closed loop system, one would require a significant user base in order for the use case to make sense. It’s the common atomic network problem. Greater network = easier distribution.
Although Vodacom (±42%) and MTN (±30%) had and still have a significant market share of all mobile network operators in South Africa, Safaricom almost owned the Kenyan market with their collective shareholding in 2007 (±70%, but closer to ±63% today). This kind of single player market dominance enables easier distribution.
M-Pesa currently boasts 98.5% of the mobile money market share, with people often opting to own more than one mobile money offering because of the distribution problem that often arises. Whether this will persist given the move to interoperability is another question.🧐
SA Banking Mafia 👯♂️
Incumbents have been relentlessly holding onto their power and market share. It would be amiss to not factor in their power and influence when looking at SA’s mobile money failures.
The sector operates with 5 major oligopolies, for a refresher on this give Sash’s vol.26 a read.
Where to now? 🔮
Given Airtel’s recent move to split its telecoms and mobile money business coupled with the looming pressure from the Kenyan Central Bank for Safaricom and M-Pesa to do the same, I think the telecom-only mobile money reign is coming to an end. Airtel’s new ‘relationship’ with Mastercard and M-Pesa’s with Visa is signalling a new future, one deep within the realm of financial services and one reliant on strategic partners. Perhaps a read on Claude’s vol.10 piece on neobanks would set the scene more appropriately.
karl was saddened (but not surprised) to see the competition commission’s warning on the low level of racial inclusion in the sa startup funding space