Vodafone Group Plc is set to lower the fees it charges Safaricom for M-Pesa money transfer service this year, a move set to lift the mobile telecoms operator’s earnings outlook.
The lower fee will be the product of moving the M-Pesa IT platform from Germany to Kenya.
Hosting the M-Pesa platform locally is expected to cut payments made to third parties and increase the efficiency of the money transfer service.
“The software for the platform for Kenya is under development and will be available for testing during the second half of this year. The hardware for the platform will be installed in the Safaricom data centres during 2014,” said Michael Joseph, a director of Safaricom and Vodafone’s Mobile Money, in an e-mail response to the Business Daily.
Vodafone said earlier that it will lower the rates once the M-Pesa IT platform is migrated.
“The rates will come down. The new rates will be known after negotiations between Safaricom and Vodafone,” Mr Joseph said. “The current charges are partly driven by payments made by Vodafone to the people who manage the M-Pesa platform in Germany.”
Vodafone earns royalties that is paid every quarter and is capped at 25 per cent of every quarter’s revenue with a floor of 10 per cent, but the UK firm has been earning about 11 per cent of M-Pesa revenues in recent years.
In the new arrangement, Safaricom will only pay royalty for using Vodafone’s intellectual property under a yet to be negotiated rate.
The British telecoms giant is estimated to have pocketed Sh1.3 billion of the Sh12.5 billion revenue that Safaricom generated from M-Pesa in the six months to September, reflecting a growth of nearly 30 per cent given Vodafone earned Sh1 billion in the same period a year earlier.
The revenue-sharing deal makes Vodafone one the biggest beneficiaries of the telco’s fastest growing business line.
At the moment, M-Pesa transactions are routed to Germany and bounced back to Kenya, exposing the system to delays and service outages when communication is disrupted due to fibre optic cuts.
China’s Huawei has been building the second-generation platform to increase capacity to 600 transactions a second and improve re-routing of traffic when the system fails.
“The new Generation 2 platform will increase the availability of new functionalities for our customers and improve the integration with third parties,” said Mr Joseph.
“The number of transactions per second will also be increased significantly.”
M-Pesa was launched in 2007 and started as a service that allowed users to transfer and deposit cash via their phones. But its offerings have grown and users can borrow small loans, make bulk payments like salaries and dividend as well as settlement of bills like utilities, school fees and matatu fares.
Its popularity has strained the platform on which the Safaricom’s service now runs, causing occasional shutdowns and requiring routine upgrades to its capacity, now at 250 transactions per second.