The Nigerian government’s approval of banking licences for mobile money accounts this week is likely to allow MTN to leap ahead of Vodacom in the battle for mobile financial services across Africa — but Vodacom has not been resting on its laurels.
The two network operators are both leaders in mobile accounts across Africa and in mobile money services.
While MTN has by far the largest mobile user base, Vodacom M-Pesa has become the byword for mobile money.
However, last week MTN said it had signed up 51-million mobile money customers, just two months after Vodacom announced that M-Pesa had reached the 50-million mark.
The significance of a mobile money licence in Nigeria is that it gives MTN access to the largest unbanked population in Africa, suggesting it will shoot past M-Pesa once it launches there.
The licence is conditional, meaning MTN must first meet certain conditions. These include a minimum capital requirement of $12.2m (about R186m); must operate in rural areas and unbanked locations, having at least 25% touch points in such areas; must enter direct partnerships with card scheme operators (that is, it must be compatible with the credit card system) and deploy ATMs and PoS (point of sale) devices.
For MTN Nigeria, with a huge subscriber reach, it makes total sense to go for a banking licence to open up a new revenue stream, also considering the fact that many of such subscribers do not have the proper banking facility
— Sashi Mundhra
The move is not only about corporate ego, however. At a time when revenue from mobile voice is dwindling and margins on data are coming down due to falling prices, mobile money represents the next big growth category.
“For MTN Nigeria, with a huge subscriber reach, it makes total sense to go for a banking licence to open up a new revenue stream, also considering the fact that many of such subscribers do not have the proper banking facility,” said Sashi Mundhra, head of financial insights for the Middle East, Turkey and Africa at the International Data Corporation.
“Apart from the new growth platform and revenue stream, the banking licence will also help them increase customer loyalty by offering basic banking needs even in the remotest corner of the country. Customer loyalty in the telecom industry is incredibly competitive, and this helps MTN deepen its customer footing and brand stickiness.
“This also enables them to bundle their telecom products with banking services, thereby creating a win-win proposition for both business segments as well as providing the ability to leverage its existing telecom infrastructure, thereby spreading the cost.”
In its quarterly update for the end of September 2021, MTN Group said its service revenue had ramped up 19.1% to R125bn in the first nine months of the year, driven by continued strong growth momentum in Nigeria, Ghana and SA.
Its data and fintech service revenue increased by 34.5% and 35% respectively, while its Mobile Money offering was now available in 16 markets, with the value of transactions up 67.2% year-on-year to $175.5bn.
This underlines the potential of expanding its service into the continent’s largest market, with a population of 206-million. More significantly, allowing financial products from the likes of MTN and its rival Airtel, which has its own Airtel Money service, to service Nigeria’s large unbanked population will benefit Nigeria as much as it does MTN.
“In Nigeria, around two-thirds of the population is either unbanked or underbanked,” said Mundhra.
“Granting a banking licence to telecom operators such as MTN helps the government with their financial inclusion objective and also helps in bringing a larger share of the population under the digital banking ambit. It also helps the government with its objective of moving towards a cashless economy and social upliftment of the weaker section of the society.
“For the merchant, and small businesses as well, this will dynamically change the payment behaviour of their customers and reduce their credit cycles.”
According to MTN Group president and CEO Ralph Mupita, speaking after the quarterly update in September, a further opportunity had been provided by the pandemic: “It highlights the vital importance of telecommunications as people rely on these services for information and to work, learn and entertain from home ... MTN [is] well positioned to deliver and will invest in line with our capital allocation framework to capture these opportunities.”
The number of mobile money customers.
— IN NUMBERS: 51m
Its potential leadership over M-Pesa is not guaranteed, however.
According to Vodacom, M-Pesa increased in importance during the pandemic, with transaction volumes jumping 44% year-on-year in the first quarter of the current financial year. The number of transactions grew to 4.5-billion in the quarter, with a total transaction value of €63bn (about R1.1-trillion).
Launched more than 14 years ago in Kenya and now available in,Tanzania, Mozambique, the DRC, Lesotho, Ghana and Egypt, M-Pesa has seen its subscriber base double in the past five years.
This week Vodacom announced it had agreed to acquired a controlling stake in Vodafone Egypt in a transaction valued at $2.738bn .
Aside from being the dominant operator in the continent’s second biggest market, the deal will allow for further expansion of M-Pesa in that country.
“As Africa’s biggest mobile money platform, M-Pesa has been one of the continent’s most astonishing financial services success stories, helping millions of people improve their lives and start businesses through financial inclusion,” said Vodacom Group CEO Shameel Joosub.
“That said, we are still in the early stages of M-Pesa’s evolution and remain firmly committed to investing significantly into expanding the M-Pesa ecosystem, particularly through our [Vodapay] Super App platform, so that we continue to democratise financial services.”
Mundhra, too, does not see MTN automatically claiming pole position in mobile money across the continent.
“Though MTN has a large subscriber advantage, it entirely depends on how each one of them innovates with their product, pricing and service delivery model. Success depends on how one uses a subscriber base, customer sentiment and innovation to bridge the financial services gap and deliver the customer ‘wow’ factor,” he said.
