Traditionally, banks have dominated the financial market, but times are quickly changing. Telecommunication companies in South Africa, such as Vodacom Group Ltd. and Safaricom Ltd., are giving banks a run for their Rand as they aggressively push M-Pesa services to underbanked consumers.
Itumeleng Heymann, a Standard Bank Group associate, told Bloomberg Businessweek, “A lot of people around here don’t have bank accounts.”
To be exact, more than 11 million people in South Africa don’t have a bank account. A third of South African adults still don’t’ have official banking services, and wireless companies like Vodacom and STD bank are neck and neck in trying to recruit new customers. But so far, banks in South Africa are winning with 11 million customers in their retail banking networks—compared to the small 1.2 million using Vodacom’s M-Pesa services.
Heymann stated, “A lot of people don’t want to open accounts because they are scared that maybe there’s lots of fees. We explain to them why it’s better to have an account instead of putting money under your bed.”
Million of Africans have dodged banking institutions, and have become comfortable with using their mobile phone as a banking service. Their Nokia phones have replaced the need for a bank account, and consumers are able to transfer funds with a simple SMS message.
M-Pesa is the most prominent mobile money program in the world, and is widely used across the Sub-Saharan region. Countries with a smaller economy, such as Kenya, embraced M-Pesa. At the time it was introduced, people were desperate for banking alternatives and remittance schemes.
Vodacom aimed to replicate the Mpesa success when they introduced the program to the South African market. Unfortunately, launching such a program into a more mature market—and Africa’s largest economy—proved to be more difficult than Vodacom anticipated.
About 1.2 million people in South Africa have registered for Vodacom’s M-Pesa service since it was introduced over two years ago. The difference is painfully obvious, with 17.1 million Kenyans and almost 5 million Tanzanians using Mpesa services.
The South African economy differentiates from smaller African economies in the fact that its economy has been cashless for quite some time. It even represents the most cashless economy on the continent.
Generally, most of the banks in the country provide at least one type of cashless tool: namely electronic fund transfer services, debit cards and online banking. Most Kenyan banks do not provide such extensive services.
The competition and strict financial regulation in South Africa made it difficult for M-Pesa to blossom in the same way that it did in East Africa.
Vodacom’s CEO, Shameel Joosub, told Bloomberg Businessweek, “The big issue has been regulation and cracking the distribution. In Tanzania, the banks are using M-Pesa as a solution to reach the unbanked, whereas here it was a separate product and you had lots of competing products.”
Recently, South African has eased up on its transaction regulations of less than 1,000 Rand. Vodacom admitted it plans to take advantage of new laws and will be reintroducing M-Pesa to South African consumers in the next few months. They will feature new platforms and new locations that allow customers to deposit and withdraw M-Pesa cash.
Vodacom, which revealed it will be working with Nedbank as the banking-license provider, hopes the relaunch will encourage a wider distribution and popularity amongst South Africans.
Telecommunication companies in South Africa still have quite a bit of catching up to do, but financial institutions have expressed they are worried about competitors, especially the unconventional kind.
To read the full story at Bloomberg Business click here.
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