M-Pesa Revenue Dip In Kenya Is Beyond Mobile Money Fee Waivers

Earlier this year in March, the Central Bank of Kenya (CBK) imposed a fee waiver on transfers for transactions of no more than KES 1 K (USD 9.15 at current rates).

This was part of efforts aimed at containing the spread of the virus as banknotes were identified as a risk factor for the contagion. The intention was that this action would trigger the increased use of mobile money services and limit cash-handling. 

While it’s logically a good move putting the health and the wellbeing of people first, this single directive is found to have also caused a significant dip in revenue for Kenya’s dominant mobile money service, M-Pesa, and by extension, the country’s leading telco, Safaricom, took a hit.

Safaricom’s 2021 half-year (HY FY21) results recorded a net profit of USD 303 Mn, which shows a decline of about 6 percent from the same period in the previous year when net profit hit USD 322 Mn.

It doesn’t stop there, the telco also recorded a significant drop in its revenue. The HY result stated revenue of USD 1.09 Bn which represents a 4.4 percent decrease from the USD 1.14 Bn generated in the same period in the previous year. 

This fall in Safaricom’s profit and revenue was largely attributed to a 14.5 percent reduction in the revenue generated from its mobile money service, M-Pesa.

A funny and maybe not so funny thing about the Safaricom M-Pesa revenue decline tale is that in 2019, Safaricom predicted that within three years, i.e by 2022, its mobile money business, M-Pesa, would generate more revenue than all other parts of the business combined. Just a little over one year down the line and that event is already here.

And so, this brings up the crux of the issue: Is the M-Pesa revenue dip totally tied to the fee waivers on small transactions or is there more to it than meets the eye?

What really happened with M-Pesa’s revenue?

M-Pesa, since inception 13 years ago, has experienced exponential growth and amazingly has a worldwide acclaim of being one of the largest and most successful mobile money services the world over.

A thing to boast about for M-Pesa is that as of 2018, it accounted for nearly 99 percent of the 29.1 million registered mobile money subscriptions in Kenya and has over 120,000 registered agents.

The mobile money giant has been observed to be doing amazingly well since its inception, and much more in the past few years.  Between 2017 to 2020, its transaction volume steadily increased and ultimately hit 12.2 billion as of March 2020.

Now, in the present outlook, the pandemic is often touted as a godsend for mobile money providers but this hasn’t been the case in Africa’s mobile money capital, Kenya.

One peculiar fact about Kenya’s mobile money market is that mobile money in Kenya is at the top of the list of major banking channels and can thereby serve as an economic indicator.

Therefore, the state of its mobile money operation can be used as a scale to determine how the country has performed, just in the same way the performance of commercial banks in countries like Nigeria and South Africa can serve as indicators.

While the waiver imposed by the CBK can be named as a factor responsible for M-Pesa’s revenue dip, could that be the only reason for such a significant drop in revenue knowing that the fee waivers stop at KES 1 K (USD 9.15)?

Well, since it has been highlighted that M-Pesa can be used as an indicator to look into the performance of Kenya’s economy, a quick dive might provide some answers.

Firstly, when it comes to discourse revolving around money, it is first important to note that monetary transactions are made only as much as the money itself is available.

As would have been predicted, Kenya’s economy was hit hard by the impact of COVID as it experienced a GDP shrinkage of 5.7 percent in the second quarter of 2020. This contraction happened for the first time in almost 12 years.

Ideally, lesser GDP means lesser economic activities and ultimately a lesser circulation of money. And M-Pesa transactions couldn’t have been immune to the macroeconomics for long.

In the same vein, the pandemic saw the unemployment rate in Kenya take a high jump with a reported increase of 50 percent from a 5.2 percent rate in Q1 to a 10.4 percent unemployment rate in Q2 2020.

Lastly and more importantly, the inability of M-Pesa to facilitate millions of betting transactions throughout the HY 2021, expectedly cut down its revenue from gaming, which thereby gives further perspective into the M-Pesa revenue decline beyond everyone’s favourite obsession with the fee waivers.

According to reports, it was stated that, towards the end of 2019, Kenya Betting Control and Licensing Board (KBCLB) revoked the licenses for two prominent betting companies in Kenya; SportPesa and Betin, which jointly controlled up to 70 percent of the sports betting market in the country.

This would explain the significant drop in the value of transactions from betting, which was previously stated to have crashed from around KES 83 Bn (USD 759.16 Mn) to KES 49.2 Bn (USD 450 Mn). It’s hard to ignore the impact of such a nosedive on M-Pesa which is the mobile money wallet of choice for betting transactions.

To get M-Pesa back on its feet or to at the very least keep it on a good track, merely scrapping the fee waiver might not be enough. Wider economic recovery and other financial flows also need consideration.

Featured Image Courtesy: Vox