Is it complacency, entrenched practices or apathy that has South Africa lagging behind its counterparts in adopting mobile payment systems?
South Africa has no shortage of capital — intellectual or monetary — yet some smaller economies on the continent are way ahead of it in the adoption of mobile payment systems.
Research conducted by Accenture Consulting reveals that while the South African economy contributes 42% to Africa’s nominal GDP, a mere 6% of its mobile subscribers make use of stored value accounts.
By comparison, Kenya leads the pack with 60% of its subscribers using mobile payments systems, although its contribution to continental GDP is one-tenth of that of South Africa.
This anomaly is easily explained by M-Pesa’s runaway success in Kenya that has just about stitched up the mobile payments ecosystem there. What then of Tanzania, where more than a third of subscribers use mobile payment systems in an economy even smaller than Kenya’s?
Roan Murray, chief executive of mobile payment systems provider Switching House, believes that at least part of the blame lies with the absence of a regulatory framework in South Africa to delineate mobile money practices and processes.
This has the effect of forcing industry players to operate within the constraints and flaws of the traditional banking system that has not yet cracked the financial inclusion nut, he suggests.
Big logical problem
The country’s financial services industry may be considered sophisticated, but with this comes comparatively higher banking fees and a reliance on physical infrastructure.
“There is a big logical problem, as there is no framework that allows mobile money operators to open accounts with the national treasury. There are also no regulations on interoperability or a generic methodology for payment at the point of sale,” says Murray.
Mobile payment systems have therefore suffered failures in the absence of regulatory clarity, with industry participants’ efforts to “jump the gun” delaying rather than promoting mobile money rollout.
He adds that the situation is further complicated by the fact that the banks operate a virtual monopoly over the payments switching environment through their shareholding in BankServ Africa, the country’s dominant automated clearinghouse.
“If Bankserv starts regulating mobile payments, it means the banks will control their competition,” says Murray.
Despite these constraints and challenges, the market is full of opportunity, which is slowly being realised as banks and mobile operators roll out services.
Vodacom, MTN headway
The mobile networks, specifically Vodacom and MTN, have made the greatest headway, while the banks offer a variety of services that aim to provide simplicity and ease of use.
Yaron Assabi, founder of the Digital Solutions Group that provides consulting and technology solutions to the industry, says that MTN Mobile Money has reached a million customers and processed more than R1-billion in its first nine months, “which shows that there is demand for mobile financial services”.
“There are many banking initiatives in the mobile point-of-sale space and many initiatives in mobile payments, but it is clear that mass adoption of services on a Kenyan scale will only be a reality when interoperability is a reality and the services are as ubiquitous as cash,” he says.
“The success in Kenya is largely attributed to a more relaxed regulatory environment than South Africa, but the primary success factor was the agent network and distribution, which seems to be lacking in South Africa.”
This is a lesson that was learnt with painful consequences by Vodacom South Africa after it introduced M-Pesa in 2010 in partnership with Nedbank, one of the country’s “big four” banks. Although the operator had signed up an estimated five million users, uptake and use suffered from the lack of a broad enough agent and merchant network.
Vodacom’s managing executive for m-commerce, Hemmanth Singh, acknowledges this failing as well as challenges with the signing up process.
The company relaunched M-Pesa in August this year on a redeveloped software platform, with a new banking partner in Bidvest Bank and with an initial network of 8?000 M-Pesa outlets.
“We recognised that customers want to bank wherever they are,” he says.
Vodacom has lined up partnerships with the country’s large clothing, home goods and grocery retailers while building its network of spaza shops — informal convenience stores dotted around the townships and rural areas.
“We have also integrated with all banks in the country, which has overcome the previous constraint of only being able to effect transfers between Nedbank account holders,” says Singh.
This functionality extends to being able to draw cash at any of the country’s 27?000?ATMs and retail counters. This ability, however, is based on the requirement to procure an M-Pesa prepaid debit card.
Learning the game
John Campbell, Standard Bank’s head of its Beyond Payments division, says banks are learning to adapt to the new mobile world. Standard Bank’s approach has been to build its solutions around the concept of “lifestyle payments”.
“We’re focused on integrating and powering apps to allow people to live a certain lifestyle,” he explains. “We have studied examples globally such as taxi service Uber and accommodation service Airbnb, and ultimately the one common denominator is that people don’t want to bank. They’re interested in the lifestyle elements.”
Campbell concedes that replicating M-Pesa’s success will be difficult in a mature market like South Africa. Safaricom launched the product at the right time and had met a definite market need, while using the payment system as a means to retain customers.
He says the lack of such a dominant network in South Africa means that interoperability between networks and banks is a non-negotiable requirement.
As the mobile money market shakes itself out, Campbell believes that banks may in fact find themselves losing their traditional spot as the go-to provider of transactional services.
“We might lose some of that front-end play with personal transactional banking going to global players that could come with up low-cost solutions,” he says.
With this level of flux and jostling for position by incumbents and newcomers alike, there is no frontrunner and no clear victor in a market that can only expect greater competition and innovation.