Will Second Time Be The Charm As SA Telcos Resurrect Fintech Plans?

In the news this week was the revelation that MTN’s mobile money venture, MoMo, is eating good in South Africa as it was reported to have acquired nearly 2 million users. Great numbers, yes? However, all is not as it seems, it’s been far from a smooth ride.

Across the continent, mobile money services have become a hit, after its first rollout in the Eastern African region where M-Pesa changed things. In reflection, a report by the GSM Association (GSMA) reveals that over half of all mobile money services in the world are in sub-Saharan Africa. 

However, on a broader view, mobile money services (both telco-led and otherwise) haven’t exactly waltzed in and bossed things in every part of the continent. For one, Africa’s most advanced economy, South Africa, has been particularly hard to crack.

To paint the full picture of this, two of South Africa’s biggest telecommunications companies, MTN and its long time rival, Vodacom, both had to shut down and scrap their mobile money offerings in 2016 after failing to cut it despite years of effort.

In 2010, Vodacom, a subsidiary of UK-based Vodafone, brought in the popular mobile money outlet, M-Pesa, to South Africa. However, this endeavour only lasted a few years and was closed down on the premise of inevitability.

Simply put, South Africans just weren’t into mobile money and this may have had something to do with the fact that the banked rate in South Africa is relatively high.

The telco, Vodacom, introduced M-Pesa to South Africa with high hopes to hit a home run, going by the remarkable success of M-Pesa in Kenya, Tanzania, and others.

But it didn’t quite work out as hoped, Vodacom’s managed only 80,000 users in South Africa in six years before the company pulled the plug on the service.

Before the final shut down, it relaunched the brand in 2014, with adjusted functionality and aimed to make things better. Its mobile money service didn’t move the chains still and was again closed down in 2016. 

Vodacom’s sour experience with M-Pesa in South Africa happens to be similar to MTN’s MoMo. MTN launched its mobile money service two years after Vodacom did, in 2012, but ended the service in the same year as Vodacom’s M-Pesa (in 2016) due to the same old reason of lack of viability.

But the year 2020 has ushered in the relaunch of the formerly exited payment-related offerings from MTN and Vodacom to South Africa. And this time, things appear to be different, and perhaps even better.

For Vodacom, its mobile money service broadened in its approach as it maneuvered and launched a full fintech play in July this year, which gives more offerings compared just to mobile money alone. This time, the telco is spoiling for a super app.

Going back to a press release by Vodacom on the 20th of July for its new launch, it disclosed the rollout of a super-app packed with a wide range of offerings, from “paying for your morning coffee, listening to a podcast on business management, sending money to your family, paying your utility bills, shopping online for everything from clothes, to groceries to electronics, checking on your business point of sales transactions and ordering new stock – all through the same, easy-to-use, super-app, from the convenience of your smartphone.”

This super-app looks beyond offering financial services but also is targeted towards lifestyle services for its customers. Vodacom’s ‘super app’ is projected to allow consumers in South Africa to shop online, send money, pay bills among other features. Sounds like a lot, maybe?

Also, a similar tale can be told for Africa’s largest mobile network operator, MTN, which relaunched its mobile money service in South Africa on the 1st of February this year. With its relaunch, MTN MoMo aims to provide financial services to the 11 million South Africans who fall in the unbanked bracket.

The second coming of a fintech play that’s flopped before

The answers that ought to be sought now are: Are there any new strategies for these two different companies that might prevent a second debacle? And if there are, can they stand the test of time and hence cause them to move the needle?

One time-honoured sentiment that is held in many different ways, in the venture space is this: “That a product made a hit in one country, doesn’t make it an absolute reason for it to make a hit in another”.

Hence, the need for a product to be locality-specific, which could likely be a factor in the struggles of both of the telco-led mobile money services in South Africa that manifested at the first time of asking.

For Vodacom, it appeared that it brought in the M-Pesa model, as it was in Kenya, down to South Africa.

Before the arrival of M-Pesa in Kenya, fewer than 10 percent of Kenya’s population had access to at least one financial instrument. This means M-Pesa met a desperate need there. 

To make it work in SA, the product ought to have been functionally different and specifically tailored to meet the needs of South Africa where the banked rate was already considerably higher. But that appears to have not been the case.

On a new look, the revamped mobile money service of MTN boasts an improved technology targeted at the unbanked or underbanked category of South Africans.

And objectively, data have revealed them to have fared well since relaunch as they have recently announced a 2-million people user base. This, frankly, isn’t bad for an entity that hasn’t had up to a full year of operation, and in a country with a population slightly above 50 million.

Before this landmark, MTN MoMo, originally at the point of relaunch, planned a 1 million customer user mark in its first year. It however did this in 6 months.

One thing that can be seen in the relaunch of the payment-related service of both companies, is the stronghold on strategic partnerships.

MTN this time didn’t relaunch alone, rather it got into a partnership with Ubank. Ubank is a financial service provider in South Africa with a strong presence in rural communities.

As individuals in rural communities make up more of the targeted unbanked population, this partnership might help to reach more of the special target audience of MTN MoMo.

This happens to be the same with Vodacom, as the telco also got into a partnership with a world-famous digital payment provider, Ant Financial Services.

Ant Financial Services, a China-based payments company, best known as Alipay, is a sister company of Chinese multinational tech company, Alibaba Group.

Ant is a global fintech giant with claims of 1.3 billion users worldwide and is the most valuable private fintech company in the world. We might as well say that Vodacom is swimming with a big fish, yes?

This deal with Vodacom will see Ant Financial Services license its Alipay technology platform to the SA telco and carry out operations as Vodacom Financial Services.

With this partnership, Vodacom appears to be ready to make a play for not only mobile money but also incorporating an array of financial services on a single platform.

Likewise, the deep mobile phone penetration in South Africa in comparison with the rest of Africa can play a role in shooting up the relaunched financial services of these two companies to previously elusive heights.

According to the 2020 report of the Independent Communications Authority of South Africa, the country’s smartphone penetration was disclosed to have reached 90 percent.

However, viewing this relaunch on a different lens spots a hidden hole. As earlier seen, one major factor that likely impeded the growth of the mobile money venture of both companies can be attributed to the low population of the unbanked population in South Africa, relative to other countries where mobile money has proved a winner.

As a matter of fact, not much has changed with respect to the unbanked population in South Africa over the years. Hence, this could pose as a likely stumbling block, especially for MTN which seems to be focused on catering for those outside the formal financial system.

Mobile money and other new-age fintech services typically thrive in areas where formal financial institutions like commercial banks have failed to capture a huge portion of the population. And in South Africa, that’s not exactly the case.

For instance, about 75 percent of adults in the country have bank accounts, according to a survey done by technology research body, FinMark.

Indeed, there are widely reported but untested claims that there is a bank, branch, or ATM within a 20-kilometre (12-mile) radius in any urban or rural settlement in South Africa. 

As a matter of fact, the country has the most technologically advanced, financially liquid, and accessible banking system on the continent. A 2015 KPMG report revealed that South African banks are growing at an annual rate of 7 percent and the industry has assets worth USD 361 Bn. No other African nation comes close.

So, due to the reach of banks, selling and scaling any form of consumer fintech product in South Africa is no cakewalk.

In any case, time and the resilience of these two telcos would tell if they would eventually get their fintech plans right this time around, at the second time of asking.

Featured Image Courtesy: Business Standard