The news that MTN South Africa had shut down Mobile Money services in Mzanzi shouldn’t have come as a surprise. Not for those who understood a thing or two about the Rainbow Nation. On the contrary, the real surprise should have been how the MTN mobile money survived this long in South Africa.
Not that I am saying that South Africans have no need for mobile money services. They actually do and with enough elbow grease, MTN should have made it work. But no, they just had to copy and paste the square Kenyan model on the roundabout South African regulatory system. Inevitably, it was bound to fail.
Mobile money has had a far-reaching impact on the people in Africa straight from the grassroots to the cities. The archaic system of queuing up in banks to bank a little bit of money for utilities like water, electricity, and tuition fees, e.t.c. is fast catching up with traditional African banks. Their dogged resistance to changing with the times has lost them valuable clients. Ask any villager whether they have a bank account and their response would be, what for? They do not have the money to bank there anyway.
Nevertheless, most Africans across the spectrum do have mobile phones. That telcos wisely provide free mobile money accounts to all their subscribers was a genius move. In one fell swoop, they managed to penetrate a market banks have struggled for decades to break into. Now people don’t have to trek from God-knows-where to waste the day in queues to be met with denatured humans stamping this and that day in and day out. This brings us to the question – Why did the convenient and oh-so-good mobile money platform fail in South Africa?
In the countries where mobile money has failed -and yes, those do exist- the biggest impediment was the regulatory framework: in most cases, championed by the Central Banks. It is money after all. In Nigeria roughly 170 million mobile phone devices are in use (the 7th biggest volume on the globe) compared to Kenya’s 25 million mobile devices. Nevertheless, according to the East Africans, 58% of Kenyans used mobile money to pay for services where the same cannot be said for Nigeria. The platform has also torpedoed Kenya’s banked population to 75% [The East African] compared to Nigeria’s 44% and South Africa at 70% (other reports say 75%)
South Africa is home some of the biggest names in banking on the continent: Standard Bank (Stanbic for the rest of us), Standard Chartered, NedBank (Ecobank shareholder) , First Rand Bank and Barclays Africa. On top of enjoying economies of scale accruing from a large banked population, the scales are also tipped in the banks favour. The South African Reserve Bank took a more close-minded approach to the advent of mobile money compared to countries like Kenya and Uganda. The Reserve Bank’s position on electronic (mobile) money [pdf] states that:
Quotable: Due to the nature of e-money, as described in this Position Paper, only South African registered banks may issue e-money. As per the requirements of the Banks Act, deposits of e-money would have to be held in a separately identifiable e-money account for each holder of e-money and comply with the relevant sections of the Banks Act and its Regulations.
Section 52 of the Banks Act allows for non-banks to enter into arrangements with banks that may allow them to offer payment-related services in conjunction with the bank. Application for such arrangements would be required to be made by the bank concerned to the Registrar of Banks.
If more than one settlement system participant issues e-money, an e-money Payment Clearing House (PCH) may be established by the Payment System Management Body (PASA) to ensure interoperability and appropriate rules for clearing and settlement of similar e-money transactions between these banks. ~ National Payment System Department: Position Paper on Electronic Money
Naturally, these banking regulations worked to handicap MTN South Africa. They had to partner with an actual bank in order to set the ball rolling. But remember, South African banks enjoy near monopoly in the financial services arena. Who would blame them for dragging their feet? I know I wouldn’t. The remaining South African unbanked are without a doubt the poor who wouldn’t add much value to these monolithic banks. The same regulatory challenges have been met by mobile money operators in Nigeria and India that at the end of the day, the platform shrivels away in obscurity.
With the banks given undue importance, two things can and often do happen. 1: They smother the mobile money platform until it crumples and dies. Much as they are in control, it does seem like a direct threat to their operations. And banks are often old-school and wouldn’t think of playing nice when they are busy raking profits. 2. Telecom companies would feel uncomfortable providing the infrastructure needed to operate the mobile money platform when ultimately, it’s the banks, not them, riding shotgun. As South African banks control 70% of the financial services industry, they call the shots and the telcos can only play second fiddle. To imagine the mighty MTN and Vodacom (Vodafone) bowing to the whims of banks unimaginable. The partnership between banks and telcos could only work on an equal footing, but infortunately, the South African Reserve Bank made sure that never happens.
South Africa’s financial conundrum
South Africa is unique among sub Saharan African countries, in that it exhibits developed world tendencies mashed together with the challenges the rest face. Accrording to FinScope, a whopping 80% of South Africans (16 years and above) have some kind of financial service cover. Of the 27.4 million who are banked, 30% of adults receive a form of government grant – 93% of them are banked because of the SASSA MasterCard. And much as 13% of adults say they borrow from banks, 36% have formal credit facilities at their local stores e.g store accounts and store cards. Along with those statistics, let us assume that most of those who have formal paying jobs get paid in the bank.
To cut a long story short, what this means is that is a little crowded in there. The system in existence in South Africa is both convoluted and too hybrid for MTN’s mobile money to have survived. Being their home turf, we would have imagined MTN would understand these dynamics and do more research before they took the plunge. East Africa where mobile money has largely been successful did not have a similar system in place which worked for the likes of Mpesa, MTN Money, Airtel Money. South Africa on the other hand has many forces at play already.
MTN South Africa’s mobile money had to die and a proper autopsy carried out. What worked in Kenya could not work in South Africa and MTN knows that now. The best we can hope for is a second attempt