Don't be Seduced by the Magic of M-Pesa - Mobile World Live

Don’t be Seduced by the Magic of M-Pesa

16 AUG 2010

As mobile operator Vodacom prepares to launch the M-Pesa money transfer service in South Africa at the end of this month, it must be heartened by the latest usage data from its sister company Safaricom. Having launched M-Pesa in Kenya back in 2007, Safaricom said the service now has almost 12 million customers, up 60% year-on-year. These customers transferred 33 billion Kenyan shillings (410 million US dollars) in July alone, compared to 20 billion shillings a year earlier, according to Telecompaper.

But its continued rapid growth in Kenya doesn’t mean M-Pesa is going to be a slam dunk success in South Africa. Far from it. There is no longer anything particularly magical about M-Pesa, which has now been widely copied, and the conditions in the two African markets are very different. Like Kenya, South Africa has been a mobile money pioneer, which means Vodacom is late to the game. Moreover, it doesn’t have the market dominance enjoyed by Safaricom in Kenya and there is already an extensive financial services infrastructure in relatively wealthy South Africa.

Safaricom’s huge lead in the Kenyan mobile services market (it claims a market share of 78%) and its extensive airtime distribution network, helped M-Pesa to become established and gain the network effects that any peer-to-peer service needs to be successful. By contrast, South Africa’s mobile money pioneers, such as Wizzit and MTN, have faced much more robust competition both from existing financial services providers and from other mobile money offerings. As a result, they haven’t been able to generate the same kind of momentum as M-Pesa.

“A few challenges”

MTN, the second largest mobile operator behind Vodacom, has acknowledged that its mobile money service has run into a “few challenges” in South Africa. During an MTN results presentation in March, Tim Lowry, vice president for the South and East Africa region, said: “In countries like South Africa there is a high prevalence of ATMs which we’ve discovered does not make mobile payments or mobile transfers so attractive.”

To be sure, MTN’s mobile money service is faring much better in some other African countries, such as Ghana and Uganda, where the financial services sector is less developed, and MTN is hopeful that mobile money could account for more than 5% of revenue in a few years time, while also reducing churn. (M-Pesa already accounts for 9% of Safaricom’s revenue).

Mounting competition

When Vodacom launched M-Pesa in Tanzania in April 2008, it struggled initially, despite the apparent market similarities with neighbouring Kenya. After several key pricing and distribution changes, documented in a GSMA study, it now appears to be gaining traction. But rival Zain, which is now owned by the shrewd Indian operator Bharti Airtel, is unlikely to let M-Pesa repeat its Kenyan success in Tanzania.

Meanwhile, across the border in Kenya, Zain is stepping up its efforts to compete with M-Pesa, although it probably faces a long hard slog to make a dent in Safaricom’s dominance.

In any case, from a global perspective, the runaway success of M-Pesa is likely to remain the exception, rather than the rule, for mobile money deployments. In most markets, one provider won’t be able to get a big enough head-start to generate the powerful network effects enjoyed by Safaricom and the net result will be several modestly-successful mobile money services in each country.

When the initial land grab phase draws to a close, the next step for mobile operators will be to make their services interoperable, so people can exchange money with contacts on other networks. Until they do that, few mobile money services will get close to matching M-Pesa’s highly-seductive success in Kenya.

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