Safaricom yet to agree with Vodafone on M-Pesa royalty charges
A customer prepares to transact on M-Pesa. PHOTO | FILE
What you need to know:
The relocation of M-Pesa servers to Kenya from Germany was expected to result in lower operational costs for Vodafone to justify a cut in royalty fees payable annually.
The delay in concluding talks to lower the royalties means Kenyan consumers will have to wait longer before they can enjoy a cut in M-Pesa transaction fees.
Safaricom is yet to agree with Vodafone on new M-Pesa royalty fees nearly a year since the two telcos opened talks following the migration of M-Pesa servers from Germany.
The negotiation on royalties payable to the British multinational were pegged on the relocation of M-Pesa servers to Kenya from Germany, which was expected to result in lower operational costs for Vodafone to justify a cut in royalty fees payable annually.
Safaricom in April last year completed the transfer and upgrade of M-Pesa servers from Germany to Kenya, but talks on the fees are yet to be concluded.
“Consequent to the movement of M-Pesa servers from Germany to Kenya, there was a requirement to change the terms and conditions of the M-Pesa licence agreement, including the rate of license fee,” said John Tombleson, Safaricom’s chief finance officer.
“Both the boards are in discussion to conclude various terms in the agreement. Since the matter is still in discussion, we will not answer to any specifics at this stage,” Mr Tombleson said in an interview.
The delay in concluding talks to lower the royalties means Kenyan consumers will have to wait longer before they can enjoy a cut in M-Pesa transaction fees.
“In time, we believe this will translate to lower costs which will be passed on to the consumer,” said Safaricom.
Vodafone Sales and Services Ltd (VSSL) owns proprietary rights to the M-Pesa platform.
The UK telco earns royalties accrued from the use of the mobile money transfer solution.
The licence fee is payable quarterly and is pegged on M-Pesa revenue – with a floor of 10 per cent and a cap of 25 per cent.
Safaricom has however been paying the licence fee at the rate of 11 per cent of total M-Pesa revenue, making the mobile money platform a crucial revenue stream for Vodafone plc.
This global telco has earned an estimated total of Sh13.25 billion (£91 million) in royalties since the launch of M-Pesa in March 2007 to last fiscal year ended March 2015.
Safaricom’s push to lower the fees paid to use the M-Pesa platform is also hinged on the fact that Vodafone has recovered the costs incurred in securing the intellectual property, developing and setting up the idea and running expenses when the servers were located in Germany.
M-Pesa transactions are currently processed locally unlike in the past where deals were routed to Germany and bounced back to Kenya — exposing the system to delays and service outages especially when connection is disrupted due to under-sea fibre optic cable cuts.
The new M-Pesa platform can handle up to 900 transactions per second, which is double the initial capacity.
M-Pesa has 15.7 million active monthly users and a network of 91,249 agents, according to Safaricom’s trading update for the half-year period ended September 2015.
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