MTN must adapt mobile-money model to crack South African market
MTN will have to offer South Africa’s urban population a greater sophistication of financial services if its mobile-money offering is to succeed in the country at the second time of asking.
The company’s South Africa CEO, Godfrey Motsa, said in October that it will launch a new mobile-money service before the end of the quarter. MTN first launched a mobile-money platform in South Africa in 2012, but closed it down in 2016 citing prohibitive operating costs.
In South Africa, more people have a bank account than are in formal employment.
- MTN’s initial experience in the country was a reminder of the basic aim of mobile money, which is enabling access to financial services for rural populations where traditional financial service providers cannot justify a physical presence, says John BaRoss, founder and president of Fincclude, a non-profit knowledge community on financial inclusion based in New York.
- “Access to traditional financial service providers is not a problem for South Africa’s mainly urban population,” he says. BaRoss sees parallels with the US market, which is a challenge for any form of alternative payment solution.
MTN says it has 30 million active mobile-money subscribers in 14 African countries. The key in South Africa is whether its mobile-money service identifies unmet marketplace needs that are unique to South Africa’s population, which is more urban than other countries where MTN operates, BaRoss says.
- South Africa’s more urban population has greater access to traditional financial services than rural populations, he points out. “MTN now understands this distinction.”
- So there is “a high probability that the relaunch will be significantly more successful than the previous attempt,” BaRoss says.
- Services that South Africa’s urban population needs may include micro-loans, various forms of insurance, wage and benefit distribution, and possibly access to a broader range of investment and savings options, BaRoss says.
- This could allow the unbanked and under-banked to increase their financial sophistication and improve their lives, he argues.
Deloitte, in a September report, highlighted that efforts to improve the South African informal sector’s trust in digital financial services has not led to a reduction in cash use. According to The Future of Payments in South Africa, the use of cash in the South African economy continues to increase at a rate of 6%-10%, outstripping inflation.
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A giant with feet of clay
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This suggests that “that there is still a long way to go in educating people about the risks of cash and the benefits of electronic payments,” Deloitte says. But BaRoss argues that advocates of digital financial services are quick to assert benefits while glossing over significant weaknesses.
- Cybercrime’s growing sophistication continues to outpace cybersecurity measures, he says.
- Universal digital finances would also be vulnerable to power outages, he argues.
- “It remains premature to institute completely digitised financial systems in any country. Pushing ahead with deployment without informing all stakeholders and solving these fundamental weaknesses will set the stage for a higher probability of economic chaos or worse,” BaRoss says.
- Cash can co-exist with digital financial services in South Africa for the foreseeable future, he says.
MTN’s new offer will have to position mobile money as complementing rather than replacing cash in order to succeed.