South African telco MTN looks to fintech to diversify
MTN has announced a partnership with South Africa-based financial services group Sanlam to sell high-end insurance products like life cover and funeral policies into South Africa through digital-only channels.
What do big telecoms companies do when their traditional cash cow – selling voice minutes – runs dry? Find a new one, of course.
Aiming to bring non-voice revenue above 50% in the next few years, MTN CEO Rob Shuter says Africa’s largest mobile operator will increase its focus on fintech and digital services sold over its network, which boasts more than 200 million subscribers across the continent and in the Middle East.
- The offering will go live from September to December this year and MTN is targeting fintech-related revenue of R90bn ($6.5bn) per year for the next three years.
Not their first rodeo
In 2016, MTN announced a partnership called aYo with MMI Holdings to sell micro-insurance products across Africa. Andrew Culbert, group executive for insurance at MTN, says that venture has been extremely successful and continues to expand.
- “We’re live in Ghana and Uganda, with further expansion taking place in Côte d’Ivoire, Zambia, South Africa and in Nigeria next year. This is a very specific, niche micro-insurance capability aimed at high-volume and low-value transactions, with four million registered policyholders in two countries so far,” says Culbert.
The Sanlam partnership will be focused on the highly competitive and saturated insurance market, targeting only LSMs 6 upwards.
- By utilising only digital channels, Culbert says MTN will be targeting tech-savvy younger customers who have a high level of financial literacy, understand the need for insurance and are comfortable dealing with digital channels.
- “aYo remains our primary growth strategy into Africa. By providing additional services to customers we get a natural loyalty uplift, greater consumer spend and less churn. The key is catering for cultural differences, differences in regulation and collecting premiums, which we can do via our e-money services. It comes down to product design and managing customer engagement post-purchase,” says Culbert.
- The reduction in acquisition and administration costs from going digital-only will be passed on to the customer.
To meet an age of instant gratification Culbert says Sanlam has delivered an insurtech platform which delivers customer support in real time, which he says will build trust to develop MTN’s brand equity beyond being a mobile network operator.
- MTN is banking on its investment into customer engagement and broad reach of its network to bring economies of scale.
Jean Pierre Verster, CEO of Protea Capital Management, says insurance is traditionally expensive to sell because it’s a grudge purchase.
- “It will be interesting to see whether MTN can use a passive channel and make it work. South Africa’s insurance market, especially in funeral cover, is saturated, and financial services providers are mature competitors who are already disrupting themselves. MTN is also not the only mobile network to be trying this model in Africa, with players like Airtel already active”, says Verster.
Verster says he does not see MTN’s moves into the financial services space materially boosting group revenue in the near term. “MTN needs to educate the market and build trust in the financial services space, and much depends on execution, but it is already a competitive space and hard going.”
- “Going back 20 years, mobile telecommunications has been an enormously profitable sector, as consumers gained access to mobile phones and spent an increasing proportion of their disposable income on mobile telecoms services. But more recently we’ve seen most markets approach saturation. The portion of wallet spend on mobile telecoms is not growing, so mobile operators are in a difficult strategic space in finding new sources of revenue,” says Verster.
Most mobile operators in developed markets have gone for the “triple play” model of not only acting as the digital distribution platform for voice and streaming services but also owning the content.
Bottom line: “There is no clear answer to replacing the cash cow which was voice services. If there was, all mobile operators would be adapting in the same way,” says Verster.