Mobile money transfer service M-Pesa has been hailed as a game changer in fintech — a disruptive service with 11 million users in Kenya that gave millions of people access to the formal financial system, but it never took off in South Africa.
Now mobile network Vodacom South Africa is considering shutting down M-Pesa in the country, Fin24 reported.
M-Pesa has struggled in South Africa — a stark contrast to other African countries such as Kenya where network Safaricom has over 11 million M-Pesa mobile money users. U.K.-based Vodafone has stakes in both Safaricom and Vodacom.
Vodacom’s M-Pesa business in the rest of Africa has performed better than in South Africa. In 2015, Vodacom reported that it had over 8 millio M-Pesa users across its African operations.
In 2010, Vodacom launched M-Pesa in South Africa with the goal of reaching 10 million local users.
Vodacom relaunched the service in August 2014, hoping to raise interest in the product. The M-Pesa relaunch in 2014 involved a simplified registration process.
By 2015, Vodacom said 1 million people had registered for M-Pesa in South Africa, but just 76,000 people were actively using the service. “Progress has been slower than we’d like,” Vodacom said in its 2015 integrated report.
Vodacom is exploring options for its M-Pesa business that range from shutting it down to enabling employees to generate new ideas for the service, according to Fin24.
“Vodacom conducts regular reviews of its investments and products, including M-Pesa South Africa,” Vodacom spokesman Byron Kennedy told Fin24 via email. “We can confirm that we are currently considering a range of options but that no final decisions have been made.”
Spend time in Kenya, Zimbabwe or Tanzania and you’ll notice the pervasive influence of mobile money on everyday life, according to a 2015 report by TechCentral. People use it to make loan repayments, pay taxi drivers and buy airtime.
Mobile money has revolutionized financial services in several African countries, lowering transaction costs, driving financial inclusion and providing consumers and small businesses with easy, cheap and safe ways to transact.
More than that, the experience in Kenya has shown that mobile money can be instrumental in bringing people into the formal economy, generating information on individuals’ transacting behaviour and thus creating better risk profiles — and a credit record — which can be used to offer them financial services that would otherwise be inaccessible.
Payments providers in South Africa are treated as banks and subject to the full regulatory compliance requirements and costs associated with them.
This forces providers to partner with banks, necessitating complicated joint ventures where banks naturally would like to see the mobile money product do well, but not too well.
This approach is unnecessarily stringent and stifles innovation and disruption which would benefit consumers, especially the poor. In fact, mobile payments introduce very little risk into the payment system as the funds sent by customers are typically held in a trust account and not invested as would be done by a bank.
This is why, in most jurisdictions, mobile money providers have not been regulated as fully fledged banks, but regulators with an eye on financial inclusion have come up with a more proportionate regulatory response. Unfortunately, this does not appear to be high on the regulatory agenda in South Africa.
