Everybody uses MPESA in Kenya, but that doesn’t mean that the service is welcomed in every other country. Currently, MPESA boasts of being present in 10 other countries outside of Kenya and these include South Africa. South Africa is particularly interesting given that by yesterday Vodafone, the owner of MPESA product, announced that it will be pulling the plug on MPESA in South Africa – meaning MPESA is not making business sense for Vodafone in that most developed African country. Given that MPESA is very successful in Kenya and to some extent in Tanzania and Afghanistan, one would wonder why MPESA failed in South Africa.
Part of the reason given by Vodafone for the decision to pull the plug on MPESA in South Africa is that there is little prospect of MPESA achieving a critical mass of users in its current format in SA in the mid-term and as a result MPESA in South Africa will die off by June 30, 2016.
Different financial analysts across Africa gave their opinion why the service provider failed in South Africa. “Trying to launch the same product in a completely different market was a terrible idea,” according to IDC research manager for IT services Africa, Jon Tullett. “They miscalculated and got everything wrong. We don’t have the same economic drivers here as in Kenya. The demographics just aren’t the same and SA does not have the same challenges getting banking to the people here,” he added.
According to the Managing Director of World Wide Worx, Mr. Arthur Goldstuck, “The success factors for MPESA in Kenya were never present in SA. Over the first two years, we identified no less than 12 such factors that were key to the overwhelming success in Kenya, and that were absent in the South African market,” he argued.
In Kenya, financial inclusion is still hanging on a needle as many people in the country have little or no credit information know how. Recently, CIS Kenya held a conference dubbed 3rd Regional CIS Conference whose main aim was to talk about innovation and financial inclusion in the financial sector across the world. From the conference, it was clear Kenya is still lagging behind when it comes to financial inclusion compared with other third world countries like South Africa and Brazil. On the other hand and as was explained by Vodacom CEO Shameel Joosub, one of the factors that hindered the growth of MPESA in South Africa is the high level of financial inclusion the country has.
“I think Vodacom was dazzled by the success in other markets but the reality is that in SA, we may have a lot of people that are economically stressed, but they don’t lack access to banking services,” said Tullett.
Goldstuck agreed there is not enough of a market for the unbanked in South Africa. Many people in the country have bank accounts because people recognized the need of banking. In the contrary, Kenyans in the rural areas live from hand to mouth hence the need to store money in the house.
“Almost all people in full-time employ have bank accounts, and 75% of the total adult population has a financial instrument of some kind. Those that are unbanked have found many workarounds, such as retail money transfer and airtime as currency,” said Goldstuck.
“The banking system in SA already has so much on offer that there is an insufficiently large gap to exploit – unlike the other countries where MPESA has taken off,” agreed BMI-TechKnowledge director Brian Neilson.
“We have a population that might not be particularly wealthy but they are savvy when it comes to banking, so to attract them to a mobile money platform you need to offer them a value-added service,” said Tullett.
“SA banks have all made it a priority to offer banking services to the economically disadvantaged. There is no shortage of ways for an SA consumer to interact with banks and M-Pesa in SA didn’t offer much on top of that to make it attractive.”
“In Kenya in particular, the service was launched at the time of the election violence in 2007 which resulted in massive displacement of people, and a desperate need for individuals to get money to and from each other. The lack of financial inclusion and the high perceived need, along with the ease of opening an account, resulted in the perfect storm for MPESA,” Goldstuck added.
However, other analysts in SA believe MPESA could have helped many people because a good number of South Africans don’t use the bank to store cash. According to Ovum senior analyst, Richard Hurst; MPESA’s success in Kenya was partly down to the fact it launched when there was still a loophole in the existing banking regulations, which has since been closed.
“Essentially these services were launched without the use of banking license. This enabled the operator to offer lower costs of transactions and compete head-to-head with the existing retail banks and gain a massive market share by virtue of its mobile subscriber base. In SA, the market environment is slightly different,” Hurst added.
Speaking at the Safaricom FY Results presentation, Safaricom CEO provided that Kenyans have owned M-Pesa services and it’s because of that ownership that has led to its growth.