Why South Africa’s largest mobile network, Vodacom, failed to grow M-Pesa

In South Africa, the popular mobile-money platform, Mpesa, is struggling to grow.
In South Africa, the popular mobile-money platform, Mpesa, is struggling to grow.
Image: Reuters/Bogdan Cristel
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With just one million subscribers at the end of March 2015—the uptake of the mobile money platform M-Pesa has been labelled a failure in South Africa.

M-Pesa had already enjoyed unprecedented success in in its home country Kenya where it was launched by mobile network Safaricom with more than 20 million subscribers.  In Tanzania, its second biggest market, M-Pesa boasts some 7 million subscribers.

But its been a very different and sobering story in South Africa, the continent’s most advanced economy.  Vodacom—Safaricom’s sister network in South Africa—acknowledged as much in its 2014-2015 annual report.

No “one-size-fits all” model

South Africa, when compared to Kenya and Tanzania, has a more developed banking market. Local banks have succeeded in providing reliable and easily accessible banking services to low-income customers.

A report  by Genesis Analytics, a South African research consultancy, shows how South Africa’s three major retail banks–Absa, First National Bank and Standard Bank–have individually increased their share of low-income customers by opening up entry-level bank branches and banking kiosks in remote areas, bringing banking services closer to where people live.

Added to this, South Africa’s financial system provides a number options other than M-Pesa, for its unbanked population. First National Bank’s e-Wallet allows anyone with a valid South African cellphone to send and receive money, even if they don’t have a bank account–and major retailer, Shoprite, has a countrywide money transfer  service priced at just $1 per transaction.

So unlike in Kenya–where during its launch stages, M-Pesa virtually dominated the unbanked market before other competitors like Mobikash, Orange Money and Airtel Money popped up–the platform is up against a well-established competitors for South Africa’s unbanked market.

A rigid regulatory environment has also contributed to M-Pesa’s slow growth. Financial regulations–like FICA, have set onerous administrative requirements for foreign nationals and South Africans wishing to do cross-border mobile money transfers.

There are other factors, like poor distribution and marketing, that have contributed to M-Pesa’s failure to launch in the South African market. At the time of M-Pesa’s relaunch in South Africa last year, it had 8000 agents, in contrast to Kenya which had over 60 000 agents–making the platform ubiquitous in the country.

What are you?

In an op-ed published last week, South African technology analyst, Hilton Tarrant, argues that after three unsuccessful launch attempts, it is unclear why Vodacom–a subsidiary of the UK-based company, Vodafone–continues to insist on making the platform work in South Africa.

Tarrant adds that Vodacom has also failed to define what it wants M-Pesa to be in South Africa.

Throughout its relaunch attempts, the company has marketed the platform differently: first as a mobile money solution, then as a mobile money wallet, which allows customers to store their money safely, and finally at last year’s relaunch, as a platform that allows you to swipe and buy with a Visa card linked to your mobile phone. This, according to Tarrant, has sent mixed signals to Vodacom’s M-Pesa customers.

“It’s trying to be everything to everyone. There’s no clear “job to be done” and that’s evident in the marketing,” writes Tarrant.

South Africa’s largest mobile operator, Vodacom, may also be under pressure from its parent company, Vodafone, to replicate M-Pesa’s east African success story in the country, despite the clear differences in these markets.