The wide adoption of M-Pesa was largely driven by the ubiquitous mobile telephony technology, with the country now having more handheld handsets than the population.
The future of financial technology (fintech) is now seen to lie in developing internet-driven apps that are not necessarily tied to a particular telecoms operator.
When Safaricom #ticker:SCOM became the first company in the world to launch a mobile money transfer platform in March 2007, the service was only accessible to the telco’s customers through a SIM card.
The service, M-Pesa, grew rapidly as it made it relatively cheaper, faster, and convenient for individuals to send money and later pay for goods and services.
The wide adoption of M-Pesa was largely driven by the ubiquitous mobile telephony technology, with the country now having more handheld handsets than the population.
But the future of financial technology (fintech) is now seen to lie in developing internet-driven apps that are not necessarily tied to a particular telecoms operator.
The experience of South Africa’s Vodacom Group, previously a sister company of Safaricom and now the parent firm of the Kenyan telco with a 35 percent stake acquired in August 2017, signals the shifts in the digital financial services space.
Vodacom launched M-Pesa in South Africa in 2010, hoping to mirror the success Safaricom was witnessing with the service in the Kenyan market.
By this time, Safaricom’s M-Pesa users had grown to 10 million, marking the fastest customer acquisition seen in Kenya’s private sector.
For Vodacom, however, the mobile money service was a nonstarter. In June 2016, the multinational pulled the plug on M-Pesa, which had garnered a cumulative 76,000 active customers against its goal of signing up 10 million users in five years.
“Based on our revised projections and high levels of financial inclusion in South Africa, there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” said Vodacom’s chief executive Shameel Joosub at the time.
But Vodacom would make a second stab at fintech last year, this time partnering with China’s technology behemoth Ant Group to develop a “super-app” that puts a virtual marketplace in the hands of users.
The multinational says the adoption of its VodaPay service has exceeded its expectations, adding that the platform offers an insight into how M-Pesa could evolve in the future. One does not have to be a Vodacom subscriber to use the app.
“In South Africa, the launch of our VodaPay super-app in October last year has exceeded our expectations by attracting 1.4 million downloads and 1.0 million registered users in its first three months,” the Johannesburg Stock Exchange-listed firm said in its third-quarter trading update.
In its first three months, Safaricom’s M-Pesa customers had grown to only 169,114.
“We see VodaPay as a precursor to M-Pesa’s evolution and further strengthening our fintech position across our footprint,” Vodacom said.
The contrast in the performance of VodaPay compared to M-Pesa in South Africa appears to reflect the impact of changes in technology and value-addition.
In Kenya, the basic M-Pesa service became popular as it could be used on feature phones without an internet connection and gave millions of unbanked people access to formal financial services.
The use of traditional bank accounts in the country dropped to 23.8 percent last year from 29.6 percent in 2019, according to the 2021 FinAccess Household Survey.
The fact that one has to be a Safaricom subscriber to use M-Pesa has not deterred its growth since the telco has the largest market share in the telecoms sector.
In South Africa, the uptake of banking services was higher and a new way of sending money was not as compelling, with the use of transactional bank accounts estimated at above 80 percent.
But VodaPay, coming at a time when smartphones and the Internet are more widespread, has added value to the base mobile money platform and made it available to those not subscribing to its traditional telecom services.
Smartphone penetration had already 91.2 percent in 2019, according to the Independent Communications Authority of South Africa.
A smartphone is a mobile phone with advanced features including Wi-Fi connectivity, web browsing capabilities, a high-resolution touchscreen display, and the ability to use apps. Most of the devices run on Android and iOS mobile operating systems.
“Through innovative digital technologies, VodaPay provides you with inclusive mobile and financial solutions to make your life a little easier, and a little cheaper,” Vodacom says of the service.
“As a super app, VodaPay offers a whole suite of some of the products and services that you use, order, and buy every day, all in one app.”
The company added that it also offers customers exclusive deals and discounts from brands and partners within the app, with Vodacom customers benefitting further from waiver of data charges.
Some of the companies that have partnered with Vodacom to offer discounts in South Africa are fast-food chain KFC and home improvement materials supplier Builders.
Vodacom’s new experience shows that the fight for customers in the fintech space will, going forward, be characterised by enhancing convenience, offering deals, and aggregating a wide range of providers of goods and services.
The VodaPay app is powered by China’s online payment platform Alipay, which has more than one billion users and is owned by Ant Group.
The full Alipay app has a wide range of capabilities ranging from financial services, entertainment, shopping, merchant services, and direct marketing.
Most of these features are best suited for smartphones, with Vodacom saying it will use the learning experience in South Africa, which has greater uptake of the high-end phones to inform the expansion of similar apps in other markets.
Falling Internet charges and smartphone prices are expected to make Kenya and other African countries ripe for widespread uptake of financial services apps that are not bundled with traditional telecom services such as voice.
The number of smartphones in Kenya had grown to 26 million in the quarter ended September 2021, accounting for 44 percent of the total 59 million mobile devices in use in the period.
It remains to be seen whether other telcos will copy Vodacom to offer a network-neutral fintech service. Safaricom has been modifying M-Pesa to cater to the tech-savvy generation but with a preference to limit it to its customers.
The M-Pesa app launched last year, for instance, requires one to have the telco’s SIM card and be a registered user of the service when signing up.
“The myM-Pesa App is available for Safaricom PrePay and Postpay subscribers who utilize android and Apple iOS devices but are registered on Safaricom’s M-Pesa service,” the company says in the service’s terms and conditions document.
“Safaricom reserves the right to offer or decline access to the myM-Pesa App to non-Safaricom customers for technical or operational reasons.”
On subsequent use, one can use mobile data or Wi-Fi to operate the app. Safaricom’s rivals Airtel Kenya and Telkom Kenya have been pressuring government regulators to order the company to open up its mobile money service, saying the status quo is hurting their ability to compete.
Safaricom charges more for cash transfers to customers of rival networks than on-net transactions. The company has defended itself, saying every operator has an opportunity to grow its market share through innovation and the necessary capital investment.
Mobile operators, who are the biggest players in Africa’s fintech sector, are attracting investors and global payment service providers seeking to ride on their large market shares and brand acceptance.
Vodacom has received unsolicited offers to sell a stake in the continental M-Pesa business at a major premium but has rebuffed the proposals, saying it could get even better exit prices in two to three years after growing the platform further.
Airtel Africa, meanwhile, has raised a total of $550 million (Sh62.4 billion) by selling minority stakes in its pan African mobile money business.
Financial services firm Mastercard, for instance, invested $100 million (Sh11.3 billion) to acquire undisclosed minority ownership in Airtel Money last year, with the parties agreeing on a commercial partnership.
It was one of several investments in Airtel Money which also featured financial investors without operations in the global payments sector.
The partnerships being developed by Airtel and Mastercard will be available in 14 African markets where Airtel Money is available including Kenya, Nigeria, and Uganda.
“Alongside the investment, the group [Airtel] and Mastercard have extended commercial agreements and signed a new commercial framework which will deepen their partnerships across numerous geographies and areas including card issuance, payment gateway, payment processing, merchant acceptance, and remittance solutions, amongst others,” the telco said in a statement earlier.
Mastercard will become the latest partner to boost Airtel Money’s array of services including mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit cards, and international money transfers.
The telco has sought to expand the subscriber base and use of its mobile money platform through partnerships with multiple financial services firms.
It has, for instance, signed agreements with cash remittance companies MoneyGram, Mukuru, and WorldRemit.
The telecoms operator also plans to introduce new banking and remittances services in partnership with London-based lender Standard Chartered Plc which has subsidiaries operating in 16 African markets.
