Kenya’s banks came together this month to launch PesaLink, a new platform that will be integrated into all banks in the country, allowing users to seamlessly send money from one bank to another.
The move signifies major new competition for Safaricom’s M-Pesa and other mobile money services, which launched initially to streamline the process of sending money.
This is something Safaricom in particular has become used to. Chief executive officer (CEO) Bob Collymore admitted as long ago as December 2015 that competitor and regulatory pressures were forcing the company to redefine and innovate.
Kenya has seen new mobile virtual network operators licensed in recent years to shake up the near-monopoly some critics say M-Pesa has enjoyed, while Safaricom in 2014 was forced to open up its agency network to rivals.
Regulatory pressures aside, M-Pesa in Kenya and elsewhere is feeling the heat more than ever, at least in part because of its own limitations.
No one solution for all
The success of M-Pesa, and mobile money in general, is such that it must be considered Africa’s major technological success story. Mobile money transactions in sub-Saharan Africa totaled US$656 million in 2014, and are projected to more than double over the next four years.
Yet its impact has not been universal. M-Pesa shut down in South Africa last year due to a lack of demand. Different local conditions meant it did not see the same success witnessed in Kenya, with South Africa having a more advanced banking sector.
When it launched in South Africa in 2010, Vodacom was targeting 10 million local users. However, only 76,000 users signed up in 2015, compared to the more than 11 million M-Pesa users in Kenya. The simple fact was that it was not a pressing need in South Africa, where around 75 percent of the adult population is banked. It has also been slower to take off in Tanzania.
Part of this is due to the fact that M-Pesa has not had the head start in other countries it enjoyed in Kenya, according to Vahid Monadjem, co-founder and CEO of South African fintech startup Nomanini.
“Due to Safaricom’s market share, Safaricom in Kenya was able to pre-load the M-Pesa application on SIMs with them and then independently and selectively create a network of agents from its extensive existing base of airtime vendors,” he says.
Lack of interoperability between individual mobile money services also remains a hurdle to be cleared, something that will need to be addressed more quickly given the threat of the recent launch in Kenya. There have been slow signs of progress, such as in 2014 when Airtel, Tigo and Zantel partnered in Tanzania to sign an interoperability agreement.
The value of M-Pesa and other such services has also been questioned for Africans living on just a few dollars per day who wish to make transactions of less than $2. The average M-Pesa transaction value is closer to US$30. It is unsustainable for agents to serve lower income segments.
This is because mobile money agents derive almost 100 percent of their income from transactions, and as a result need a high turnover. It means they cannot afford to get down to the level of very small transactions, limiting the effect of mobile money on the bottom of the pyramid.
“These small transactions become the last mile of financial inclusion and are too small to do through an agent that needs to justify their till time entirely on payment commission,” says Monadjem.
These issues have hindered the growth of mobile money outside of its Kenyan heartland, where it now faces its biggest challenge yet. According to MasterCard, only 2 percent of retail transactions in Africa are electronic. Cash is still king, and mobile money is not proving as useful as many thought it would in banking poorer, rural people.
Monadjem says M-Pesa is primarily a domestic remittance tool for the mass market.
“Africa’s experience with Safaricom’s M-Pesa system is impressive. Its early success was based primarily on solving the domestic remittance problem. However, retail transactions are multiples larger than person-to-person payments and in Kenya, 98 percent of retail transactions are still cash,” he said.
“Its interesting to see how M-Pesa is innovating with solutions like Lipa-na-M-Pesa (a cash collection service that allows organizations to collect money via mobile phones on a regular basis from their customers) to go after retail payments. As opposed to (peer-to-peer) payments, where the primary user is the originator, in retail payments it’s a matter of simultaneously changing behavior of how consumers store their money and how retailers accept payment – a tough nut to crack.”
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