Mobile Money in South Africa: The nature of the beast by Flo Mosoane

By | September 29, 2016

pexels-photo-3The 2015 State Of The Industry Report (SOTIR) for Mobile Money published by GSMA, reveals a picture of a service that continues to change the landscape of financial inclusion in developing and poor countries across the globe. In December of 2015, the industry processed transactions in excess of a billion, most of which were in Sub Sahara Africa.

It seems however, that the continued success of Mobile Money eludes South Africa. What with the untimely death of Vodacom Mpesa after millions of Rands of reinvestment. Only 4 months after which MTN South Africa also announced that they are ceasing new registrations, marking the end of (Mobile Network Operator) MNO-lead Mobile Money deployments here.

Despite the large bang that MTN Mobile Money launched with, managing to sign over 2 million subscribers; at the end, Vodacom Mpesa only had just over 75 000 users, and MTN Mobile Money only about 140 000 or so users. A performance that neither of these well-established, successful, multinational MNO’s can be proud of.

We lament the apparent failure of Mobile Money in South Africa. It is well established that it has made a significant contribution to financial inclusion for underserved populations, and still presents significant opportunity to serve unbanked and underbanked communities.

This is a very special contribution by Flo Mosoane, writing from first hand experience on the ground on this subject. Do read the whole article.

South Africans are still financially excluded

A challenge that Mobile Money operators in South Africa have been unable to surmount is packaging Mobile Money beyond peer-to-peer microtransfers and airtime top-ups. Moreover, the lack of interoperability has made the task near impossible to achieve for the operators themselves, but more tragically, for aspirant entrepreneurs in FinTech.

Significant Mobile Money opportunities have not yet been realised as a result. Including, Micro-Investments, Group Savings, Micro-Lending, Merchant Payments, Mobile Insurance, Bulk Disbursement, Mobile Donation, International Remittances and Bill Payment.

Opportunities that would not only see millions of South Africans who currently have poor access to these financial services included, but also put them in an excellent position to access further and more sophisticated financial services in the future.

Where did it all go wrong?

Analysts have multiple views on this question. It certainly is not for lack of cutting edge technology. Some of the Mobile Money platforms used in South Africa are award winning. There is also no shortage of highly accomplished, well respected professionals and entrepreneurs on their teams.

An interesting observation is that overall, agent networks account for more than 90% of cash-in and cash-out transactions, thus remain the backbone and face of Mobile Money. It remains a mystery why MNO’s in South Africa, who in-fact stand to benefit the most next to banks, and are best placed to access potential agents, were unable to mobilise this all important stakeholder.

It is certainly not for lack of trying. Some of the most successful roll-outs of Mobile Money in other Sub-Sahara Africa countries are in fact run by these MNO giants. Case in point, Safaricom M-Pesa and MTN Uganda and Ivory Coast.

I suspect that the regulatory environment may have something to do with it. South Africa has the added difficulty of a regulatory framework that is extremely hostile towards new entrants in FinTech. For Mobile Money, the requirement to have access to a Banking License makes entry for new player excessively pricey, and the statutory requirements attached to that license prohibitively cumbersome.

Financial Inclusion, particularly the kind that can be achieved with Mobile Financial Services is a strategic priority for developing governments in their quest for the economic development of poor people in rural and underdeveloped areas, with a special focus on women.
If this is the case for South Africa, the regulatory framework for Mobile Money needs a complete overhaul, urgently.

So what about Bank-Led “Mobile Money” Services in South Africa?

Broadly, the definition of Mobile Money is a service in which the Mobile Phone is used to access Financial Services. If we are however to use the GSMA Mobile Money model, these services would need to fit the following criteria. (SOTIR – 2013)

  • The service must offer at least one of the following services: P2P transfer, bill payment, bulk payment, merchant payment, and international remittance.
  • The service must rely heavily on a network of transactional points outside bank branches that make the service accessible to unbanked and underbanked people. Customers must be able to use the service without having been previously banked. Services that offer the mobile phone as just another channel to access a traditional banking product are not included.
  • The service must offer an interface for initiating transactions for agents and/or customers that is available on basic mobile devices

The closest Bank-Lead offering to this definition is FNB’s ewallet. Which in fact is widely credited with introducing Mobile Money to the South African market to begin with. Currently, a customer is able to deposit, receive, withdraw funds from the account as well as transact (buy airtime, pay bills, etc) with the account. A customer can also open and transact with an FNB ewallet account without having to be an FNB banking customer.

However, that customer can only do that at FNB designated ATM’s and at FNB branches. Thus, FNB ewallet misses the criteria of having network transaction points outside of the bank to improve access for previously unbanked and underbanked customers.

Mobile Money Services offered by other banks (Standard Bank Instant Money, ABSA Cash Send, or Nedbank Send Imali) are more akin to a voucher system than a wallet solution. Thus, the basket of products that is on offers does not go beyond P2P transfers. Of course, that is not to say that there cannot be more.

Even with agents being the cornerstone of Mobile Money, banks remain a key enabler for this service. More than half of Mobile Money Operators reported leveraging banks and their infrastructure as part of their network.

Besides, the banking system in South Africa is well developed on par with developed countries and enjoys the trust of millions of people, including unbanked and underbanked people.

Anyone will be forgiven though for wondering if South African banks have any interest in actually having customers use their platforms. Not with the exorbitant, even downright extortionary fees that are charged for the service. With fees anything between R5 and R20 for sending and/or withdrawing money, there cannot possibly be an expectation that anyone would want to transact with any regularity on these platforms. Much less poor, uneducated women in rural areas who suffer the biggest burden of financial exclusion.

Collaboration is critical

The growth, utility and sustainability of Mobile Money is directly dependent on interoperability, which is essentially non-existent among the Mobile Money Operators in South Africa. What is encouraging is that it seems collaboration is the most prominent trend among Mobile Money Operators in the market overall, with 1 in 4 operators reporting to be collaborating is some form or other.

Banks and until now MNO’s, have so far been the key drivers of Mobile Money services in South Africa. Unfortunately, they have also acted as sort of gatekeepers that together with draconian regulation serve to keep new players out of the game.

Another critical spoke in the wheel are the technology companies that enable the banks and MNO’s to deliver their Mobile Money services. Their level of innovation is highly respectable, however, their influence and impact seem to also be stifled by the banking, MNO and regulatory stakeholders.  They are also an important voice when it comes to the big question of interoperability among Mobile Money Providers.

Lastly, most importantly and a largely overlooked part of the equation are the small Start-ups that need to use the Mobile Money platform to deliver their product. Their ability to solve customer problems at a granular level makes them critical in gaining trust among users, and gaining deep traction and usage for Mobile Money that the banks and MNO’s are struggling to get.

Their access to multiple unique ecosystems of customers gives them an edge that enables them to reach corners that are clearly difficult for the traditional operators to reach.

There is still hope

The spiderweb that is Mobile Money, and the behemoth that is the financial system in South Africa, have the markings of an industry ready for disruption.

Going forward, we can expect that financial inclusion will continue to make a significant contribution towards economic development in poor and developing countries across Sub-Sahara Africa. We can also expect that the drivers of this financial inclusion will be start-ups that have a keen sense of what their customers’ real challenges are, and what they truly need in whatever solutions are on offer.

What we cannot overlook is the importance of the mobile phone in delivering these all important solutions to millions of South Africans and Africans, owing to how well penetrated the market is with mobile phones.

What we can only hope for, is that this seemingly fierce resistance to collaboration will come to an end and that banks, MNO’s, and regulators alike will see themselves as enablers in the ecosystem allowing and supporting the real entrepreneurs to crack the nut that is financial exclusion.


This article was written by Flo Mosoane, in response to my request. Thank you so much!

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