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M-Pesa licence fee to Vodafone drops 40pc on reduced royalties

Safaricom
Safaricom paid a five per cent revenue fee between August 2015 and March 2017, which itself was a cut from the previous 10 per cent it had paid since February 2007. FILE PHOTO | NMG 

Licence fee that Safaricom #ticker:SCOM pays British telecoms giant Vodafone Plc for the mobile money platform M-Pesa fell 40 per cent in the year ending March 2018, offering big relief to the Kenyan operator.

Safaricom says in its just-released annual report that it paid Vodafone Sh2.25 billion in the 12 month period compared to Sh3.73 billion the previous year, following negotiations with the licence owners that saw the chargeable rate drop to two per cent from five per cent of M-Pesa revenue.

“The licence fee is based on two per cent of M-Pesa transaction revenues effective April 1 2017,” Safaricom says in the annual report.

Vodafone, through its arm Vodafone Sales and Services Limited (VSSL), holds proprietary rights for M-Pesa for which it charges a quarterly fee.

Safaricom paid a five per cent revenue fee between August 2015 and March 2017, which itself was a cut from the previous 10 per cent it had paid since February 2007.

The renegotiation of royalties payable to the British firm came after Vodafone relocated M-Pesa servers to Kenya from Germany in April 2015, resulting in lower operational costs.

The quest to lower the fee was hinged on the fact that Vodafone had recovered the bulk of costs incurred in securing the intellectual property, developing and setting up the platform.

Safaricom has, therefore, been able to make savings on the royalties, even as M-Pesa revenue grew at a double-digit pace in the year to March.

M-Pesa revenue rose 14.2 per cent to Sh62.91 billion in the financial year ended March 2018 having effectively doubled in the past three years in tandem with the growth of mobile payments.

Only data at 24 per cent grew faster than M-Pesa among Safaricom’s main revenue lines outrunning growth in voice revenue which stood at just 2.3 per cent and SMS’ at 6.2 per cent.

M-Pesa has 20.5 million active monthly users and a network of 156,000 agents, according to Safaricom’s 2018 annual report.

The telecoms operator also has 101,000 Lipa na Mpesa merchants.

For Vodafone, the M-Pesa fee has been a lucrative source of revenue that earned it an estimated Sh23.33 billion (£180 million) in royalties since its launch in March 2007.

Besides, Vodafone — alongside the National Treasury — has been earning billions in dividends from Safaricom, arising from its large stake in the firm that is held directly (five per cent) and at arm’s length through its South African subsidiary Vodacom, which has a 35 per cent stake in Safaricom.

In the year ended March 2018, Vodafone and Vodacom jointly took out Sh17.62 billion in dividends at Sh1.10 per share.

That was a more than Sh2 billion rise from the Sh15.52 billion that Vodafone earned the previous year before it sold the 35 per cent stake to Vodacom at Sh0.97 a share.

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