Why mobile money has flopped in SA

In most jurisdictions, mobile money providers have not been regulated as fully fledged banks. Unfortunately, this does not appear to be high on the regulatory agenda in South Africa. By Genna Robb.

genna-robb-180Anyone who has recently spent time in Kenya, Zimbabwe or Tanzania will have noticed the pervasive influence of mobile money on everyday life. People use it for a wide range of purposes from buying airtime to paying taxi drivers to making loan repayments.

Mobile money has revolutionised financial services in several African countries, lowering transaction costs, driving financial inclusion and providing consumers and small businesses with easy, cheap and safe ways to transact.

More than that, the experience in Kenya has shown that mobile money can be instrumental in bringing people into the formal economy, generating information on individuals’ transacting behaviour and thus creating better risk profiles — and a credit record — which can be used to offer them financial services that would otherwise be inaccessible.

The impact on financial inclusion is well documented, but it is not only the poor and unbanked in Kenya who use mobile payments. According to the GSMA, in 2014, 67% of transactions in Kenya’s National Payment System by volume were conducted using mobile money. Small businesses also use mobile payments as a way to pay their workers.

In Tanzania, mobile money was slower to take off, but is now growing fast. Competition is already providing benefits to consumers in terms of low prices and convenience. In 2014, the major mobile money providers in Tanzania reached an agreement to allow their platforms to interoperate so that customers can send money to recipients with mobile wallets on other networks. This development, unprecedented internationally, allows consumers to benefit from a much bigger payment network.

So, with such game-changing developments happening on our doorstep, the question for South Africa is: why are we so far behind? A number of attempts to launch mobile payments solutions have failed (including Vodacom’s M-Pesa), although recently both Vodacom and MTN have re-launched their services.

It is often pointed out that South Africa has a much more sophisticated financial system than other African markets and more people already have access to financial services. In addition, cheap means of transferring money already exist, such as Shoprite’s R9,99 service that allows customers to send money to any Shoprite branch in the country.

However, in 2014, according to the FinScope survey, 25% of adults in South Africa remained unbanked and of the 23% of adults who sent or received remittance transfers from friends or family within South Africa, the largest proportion, 32%, stated that they sent the cash with a relative or friend.

Another area that is often cited as holding back developments in South Africa is its rigid regulatory framework. Mobile money proponents cite the flexible approach of the Central Bank of Kenya as a key success factor for M-Pesa. There is no denying that the South African regime is harder to navigate for new entrants.

M-Pesa has failed to live up to Vodacom's expectations in South Africa

M-Pesa has failed to live up to Vodacom’s expectations in South Africa

First of all, in the absence of a special dispensation for non-banks or e-money providers (which is the approach taken by the Tanzanian authorities, for example), payments providers in South Africa are treated as banks and subject to the full regulatory compliance requirements (and costs) associated with this.

This forces providers to partner with banks, necessitating complicated joint ventures where banks naturally would like to see the mobile money product do well, but not too well.

This approach is unnecessarily stringent and stifles innovation and disruption which would benefit consumers, especially the poor. In fact, mobile payments introduce very little risk into the payment system as the funds sent by customers are typically held in a trust account and not invested or on-lent by the mobile operators as would be done by a bank.

This is why, in most jurisdictions, mobile money providers have not been regulated as fully fledged banks, but regulators with an eye on financial inclusion have come up with a more proportionate regulatory response. Unfortunately, this does not appear to be high on the regulatory agenda in South Africa.

Fica regulations are another hurdle in South Africa, although here at least a more proportionate response to risk has prevailed. Exemption 17 allows clients to be registered for mobile money without proof of address or face-to-face ID verification as long as there is a low daily transaction limit.

The benefits that mobile money can bring through driving competition in the payments space are clear. In Tanzania, to send the equivalent of R500 from one M-Pesa account to another costs only R3,23. Also, mobile money delivers more than just cheap money transfers: the money can remain in the wallet and be used for other transactions such as purchasing electricity. On the back of mobile money platforms, providers can build other solutions and services such as credit and savings products.

If we truly want to create a more inclusive economy then creating the regulatory space, as other countries have done, for mobile money providers to innovate and compete is an important step.

  • Genna Robb is a senior research fellow at the Centre for Competition, Regulation and Economic Development (CCRED) and an economist at DNA Economics
  • CCRED will be hosting a public platform on mobile money on 22 July 2015. More details are available on the CCRED website

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  • Ryan

    I think the problem lies more in the strategic execution of these products in SA. We get the news of a brilliant mobile money product being launched where the benefit is……..(drumroll)……..you can pay someone else digitally! Thats no incentive for consumers to start using it.

    I think the problem is that no-one if focusing on the ecosystem of the market they are trying to target. What core 3 or 4 transactions that a consumer needs are being targeted on a merchant basis? For guys at bottom end of financial spectrum where do they buy their food, pay for transport or spend money? For unbanked children market what fast food chains, clothes shops etc do they spend their money on?

    If you don’t put effort into the payment ecosystem and push a big merchant drive where there is real convenience and it kills the need for cash in the target market’s lifestyle needs, people won’t find this convenient enough to take up

  • Munyaradzi Nyakwawa

    Interesting read, every country has its own peculiar situations that affect success of Mobile money. Some reasons are more political than economic. The companies that are launching mobile money should find ways of reaching out to the 32% that are still using relatives to send money. 32% of South Africa is a population that is greater than Zimbabwe.
    If we are agree that SA has a sophisticated financial services industry then we could also agree that the majority of South Africans are financially included. Exclusion has been the major driver of the uptake of mobile money in most African countries. That therefore means an approach targeted at financial inclusion in SA will not work or will only lead to slower uptake. I’m thinking why not approach the mobile money business in SA from financial literacy and financial independence level, than the traditional financial inclusion perspective, maybe just maybe the population will understand the independence that comes with managing all your finances from you hand held gadgets.

  • South Africa’s payments landscape in general is far behind that of many countries, where new entry is encouraged. For the same reasons that mobile money is slow to roll out in South Africa, online payments are expensive for merchants and cumbersome for consumers. For example, PayPal, which is directly admitted into the payments system in the UK, must work with a bank in South Africa. As a result merchants face extremely expensive PayPal charges, and PayPal does not offer payments in ZAR. The policy framework for payments in SA is in dire need of reform.

  • Vusumuzi Sibiya

    >>I think the problem lies more in the strategic execution of these products in SA.

    You have hit the nail BANG! on the head –

    >>What core 3 or 4 transactions that a consumer needs are being targeted on a merchant basis? For guys at bottom end of financial spectrum where do they buy their food, pay for transport or spend money?

    With just paying for transport as the main targeted focus for mobile money and the purpose being the facilitation of cashless payment in minibus taxis for example, the momentum that could be built up in that ecosystem will definitely take mobile money to other transactions in SA.

    In developing a content offering on mobile devices for in-transit commuters, I’ve made a point of occasionally travelling by taxi and taking note of the mobile devices to be found on-board a commute. The last trip I made, I counted 8 smartphones and a tablet out of 15 passengers being used with headphones and consuming some form of music offering.

    The devices are already there in the target market and one could even combine the mobile money fare payment with an offering to access a streaming music service during your commute as an incentive; but Vodacom and MTN will always approach some “lilly-white mentality” agency with a huge marketing budget for them to come up with a go-to-market strategy that will have the same FAIL result in SA… and once again we’ll hear the same old tired excuses highlighted in this article.

    The mobile money offering in SA that will make the decision to go to a place like an MLab at the Innovation Hub in PTA or approach emerging entrepreneurs for the best go-to-market strategy for SA to focus on core transactions for mobile money rather than wasting their budgets on the usual culprit agencies, is the one that is going to crack it here in Mzansi.

  • John Doe

    Turkeys in SA (read the major banks) will never vote for Christmas (a mobile payments environment they can’t control).

  • Vusumuzi Sibiya

    >>I’m thinking why not approach the mobile money business in SA from financial literacy and financial independence level, than the traditional financial inclusion perspective,

    Good thinking Munyaradzi…

    >>maybe just maybe the population will understand the independence that comes with managing all your finances from you hand held gadgets.

    Yep! Couldn’t have said it better myself… Nice One!!

  • Munyaradzi Nyakwawa

    I’m thinking NFC for merchant payments in commuter transport, they are fast and convenient.

  • Vusumuzi Sibiya

    Definitely NFC and I believe Muvo in KZN is a tap&go card solution that can be accomodated on the Standard Bank Masterpass digital wallet for mobiles –

    Eliminating the frustration currently being experienced with having to find change when passengers pay with large notes in minibus taxis is something most drivers would welcome… and there are plenty more benefits to add to that.

  • innocent ephraim

    Well Articulated, just note that it wasnt easy in other African Countries. Success of mobile money is all that has been said here plus human resources, this is critical! In both kenya and Tanzania’s success is basically driven by the people who believed nothing less than mobile money success, that drove proper regulatory discussions, push back to banking competitors to show them that there is a value add….. There were loads of mistakes made on the way but thE end result was success.
    South Africa need leadership and consistent push for the right things, mobile money success is a marathon, its not comparable to telco products neither can it be compared to banking products, its a sweet hybrid 🙂

  • Wayne Gemmell

    This article is spot on. Every second person wants to start a mobile wallet app. The first question we ask them is how they plan on getting the money into the system. They need to become a deposit taking institution, which pretty much means getting a banking license. That’s a non starter for all these entrepreneurs.

  • OG

    How do I, as a consumer do cash-in & cash-out using the mobile money?
    How do we change the culture of cash vs mobile money in south africa?
    If I can transfer money using Checkers, and I have cash in hand, why do I need Mobile money?
    If i get paid cash as a Manual Labour employee at a mine, why do I need mobile money?
    If i have 3 sim cards, how do I manage my Mobile Money?
    These are some of the questions any of the MNO, Banks, Entrepreneurs need to answer before launching their products/solution or services in South Africa.Even thou we have a strong banking culture, we have a far stronger Cash culture amongst the unBanked

  • kuli

    vodacom Mpesa users are up 64% between 2013 and 2015…Is that a flop?

  • Bongani

    through my personal observation; people do not make use of these new technologies because they find them complicated and highly sophisticated. And another its that people are not clued up or knowledgeable about these technologies. An increase in their simplicity and awareness will proof beneficial in the log run.

  • Oluseyi Akinkugbe

    As South Africa’s financial sector is more developed, there exists a fuller spectrum of financial service providers, that are heavily diversified but specialized in their offering. For mobile money to really work specialized banks that deal with the informal sector such as micro finance lenders need to drive usage, part of their product offering should automatically include a mobile money account if you take a loan or open an account. Same goes for the top tier banks really, the provisioning of a mobile money account should come just as easily as when a new customer is given a debit/credit card when they open an account.

    This is the first step to improving mobile money usage, address uptake, once you begin to address uptake and grow the numbers, it becomes more valuable to individuals who have a mobile money account (network effect) – usage/ transaction will follow. The second step is ensuring adequate coverage of mobile money agents/outlets infrastructure.

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