Vodacom signs up to Vodafone’s Money Transfer offering…
19 March 2010
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Extract from Vodafonewatch, issue 2010.02. Click through for: the Executive Brief from this month’s report; the Issue Snapshot; or to contact us for more information about the full 96-page issue, this industry standard monthly report service, and ongoing subscription access.
Vodacom signs up to Vodafone’s Money Transfer offering…
Vodacom Group agreed to adopt Vodafone’s Money Transfer (VMT) platform to provide transactional services in its home market of South Africa (SA), almost two years after the operator’s first deployment of the system in Tanzania during April 2008.
The operator is to roll out the platform with an unnamed “South African banking partner”, targeting “approximately 26 million people” in the country without official bank accounts, according to a Vodafone announcement at February 2010′s Mobile World Congress.
” There are many benefits of using mobile phones for micro-transactions in a country like South Africa, where only 60% of people have a bank account in the formal sector, and yet the mobile penetration rate amongst the total adult population is more than 94%. ”
– Cenk Serdar, Director of Mobile Payments, Vodafone Group.
…but launch date unknown
Although Vodacom did not say when the service will go live in SA, or provide further detail, the move suggests gears could finally be starting to turn in Vodafone’s wider effort to expand VMT to new markets — and build on what has been by far its most visible breakthrough in emerging market-oriented value-added services so far: Safaricom’s VMT-based M-PESA offering in Kenya. In recent months, this has seen Vodafone: poach Cenk Serdar from Turkcell to champion VMT’s expansion; re-jig its joint-venture arrangement with Safaricom on M-PESA to a licensing deal; and shift management of VMT’s platform to IBM Global Services (Vodafonewatch, 2009.08-09 and 2009.11).
Progress with the push appears to have been sluggish so far, with wariness of financial regulators, including in Vodafone’s key target market of India, proving a stumbling block for both VMT and rival, similar ventures, such as MTN Group’s Mobile Money and Zain Group’s Zap.
However, there may also be an element of caution on the part of OpCos and Partner Markets associates that Vodafone is talking to, given the scale of the undertaking required to operate mobile money-transfer businesses (Vodacom Tanzania claims to have in excess of one million money-transfer customers and more than 1,000 third-party agents), as well as the tight margins involved (see below). This caution may account for the lack of detail on Vodacom’s launch timeframe, and the time the operator has taken to extend VMT beyond Tanzania — especially as MTN’s Mobile Money has now been up and running in South Africa for some time. Following the announcement, a Vodacom spokesperson dampened expectations somewhat by saying that, “although Vodacom intends to launch M-PESA in the local market, we cannot currently release any concrete information relating to a possible timeline for the availability of M-PESA, nor provide details of how it would be implemented”. Vodafonewatch suspects that a less consensual approach to VMT rollout within Vodafone, and perhaps more high-level backing, would see accelerated adoption.
Beyond Kenya, South Africa, Tanzania, and Afghanistan — where Vodafone Partner Markets member Roshan launched VMT in 2008 (see separate report) — deployments of the platform have been mooted in:
- Chile, where Partner Markets member Entel PCS has agreed to offer a mobile banking and transfer offering using VMT, in partnership with the country’s number-two bank Banco de Chile (Vodafonewatch, 2010.01).
- Egypt, where it has been suggested that VMT could be deployed once new mobile banking regulations are published (Vodafonewatch, 2009.08-09 and 2009.10), possibly as part of a revamp of Vodafone Egypt’s existing, interactive voice response-based Vodafone Cash service.
- Ghana, where Vodafonewatch understands discussions have recently taken place on VMT with local OpCo Vodafone Ghana.
- India, where Vittorio Colao, Chief Executive of Vodafone Group, has said it is particularly keen to launch mobile transfers, but has criticised the country’s stance on mobile financial services, including regulations that prohibit mobile operators from offering such services without bank involvement (Vodafonewatch, 2009.11 and 2009.12). Nevertheless, several of Vodafone’s rivals have pushed services forward with banking partners (including, most recently, Nokia), suggesting Vodafone may need to drop its desire for ‘ownership’ of the service if it is to keep up.
- Qatar, where Vodafone Qatar has pencilled in the launch of a VMT-based domestic and international remittance service for July 2010, but has yet to gain regulatory clearance (Vodafonewatch, 2009.11 and 2010.01).
- The USA, which is perhaps more of a wildcard, but where Verizon Wireless has hinted at cooperation with Vodafone on mobile payments, possibly for expatriate-oriented international remittances, or a service geared towards higher end users (Vodafonewatch, 2009.05).
Profitability of mobile money-transfer questioned
Separately, an article in Mobile Money Africa by Richard Ketley, Director of financial consultancy Genesis Analytics, questioned the profitability of mobile money services for African operators — including M-PESA, which, despite its popularity, and a lack of available data, is reported by Ketley to be “not making much money”.
The report points to the predominance of “cash-in, cash-out” transfers over other types of transactions as a key part of the problem for operators, as these basic remittances are offered to customers at an attractive price point to maximise service use. Further, commission payments need to be made to agents at either end of the chain, leaving “precious little” for the network operators due to the tight margins involved, Ketley added.
The article also highlights the need to pay agents when new customers are signed up as a drag on profitability, as well as customer service expenses. Providing ongoing customer service was cited as a “huge expense” for operators across the board — echoing previous reports of high costs associated with agent training and customer support. Moreover, in markets where regulations require operators to roll out remittance services in conjunction with banks, Ketley says potential revenue has to be ceded from interest on their float.
In response, Safaricom and rival operators would presumably point to wider perceived benefits of mobile remittance services to their overall businesses, such as customer acquisition and retention, and efforts over the last several months to both bring higher economies-of-scale into their agent networks, and diversify usage beyond low-margin domestic person-to-person (P2P) transfers.
In Safaricom’s case, recent new services have included: business-to-consumer transfers such as salary disbursements (see separate report); consumer-to-business remittances, such as bill payments (Vodafonewatch, passim); cross-border money transfers (Vodafonewatch, 2009.10); and payments for online purchases (Vodafonewatch, 2009.11). Nevertheless, the operator has yet to provide detailed, standalone figures on M-PESA‘s performance, including a breakdown of P2P usage against other services (see below).
Going forward, Ketley suggests operators would do well to provide greater interoperability between services — which, despite their apparent reluctance, could help increase profitability by generating more frequent use, and therefore greater transaction revenue.
” At present, most operators are building so-called ‘walled gardens’, which severely limit their revenue as well as the overall utility of their products. Thus, it should come as no surprise that the most successful product (M-PESA) exists in a country in which one operator has an over 70% market share. “
– Ketley.
Table: M-PESA usage data
- Tabular data omitted. Please contact us if you would like to see the full report.
[Further reference: African mobile banking operators face barriers to success despite large customer bases -- Mobile Money Africa, 18 January 2010; Vodafone empowers unbanked in South Africa -- Vodafone, 16 February 2010; Vodacom to launch Kenya's M-PESA in SA -- TechCentral, 17 February 2010.]
About Vodafonewatch
Issue: 2010.02
Covering: February 2010
Published: March 2010
Next issue: March/April 2010
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