Second time lucky for M-Pesa in South Africa

Despite runaway success in Kenya, the M-Pesa mobile money service failed to inspire widespread adoption in South Africa when Vodacom attempted to introduce it in 2010. However, the operator is now attempting to re-introduce the service in the hope that customers will now be more open to the idea.

While Vodacom has seen significant success with M-Pesa in other markets – including Tanzania, where it first launched the service – it met with regulatory hurdles in South Africa which made it difficult to transfer money from a bank account to a ‘mobile wallet’. This resulted in a low number of users.

The M-Pesa service is aimed at unbanked customers, allowing them to transfer money between virtual accounts via mobile phone. It has gained over 10 million customers across various markets – most prominently Kenya, Tanzania and Afghanistan.

Vodacom CEO Shameel Joosub accepts that the service’s adoption rate in South Africa fell far short of the anticipated 10 million users within the first three years, but is upbeat about the service’s prospects, claiming that it will generate 15% of the group’s revenue over the next three years.

This optimism is not unfounded: the service has seen massive success in Tanzania, with 4.9 million subscribers at the end of March 2013 (a year-on-year gain of 57.5%). Of Vodacom’s Tanzanian customer base, 51.5% are active M-Pesa users, contributing 14.1% of service revenue.

The new South African launch will use a platform that overcomes regulatory issues by allowing the service to connect directly to banks, which should help with driving adoption. In addition, there will be greater points of sale courtesy of an expanded distribution channel.

A major impediment for the initial launch was the rigidity of the Financial Intelligence Centre Act (FICA), which presented a legal headache for small and informal traders. The significant amount of paperwork required could only be justified if there was great enough demand for the service – and this failed to materialise.

However, the small sums that constitute the bulk of mobile money transactions are now no longer covered by FICA, meaning that there is no need for the administration that previously deterred many agents.

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