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Vodacom coining it with M-Pesa

By Xolisa Phillip, in Johannesburg
Posted on Monday, 24 February 2020 10:00

A branch of South African mobile communications provider Vodacom in Cape Town
A branch of South African mobile communications provider Vodacom in Cape Town REUTERS/Mike Hutchings

Vodacom’s bet on Africa’s burgeoning fintech market through M-Pesa is paying off.

Vodacom is South Africa’s largest mobile network operator. In addition to South Africa, it has a presence in Lesotho, Mozambique, DRC and Tanzania.

  • The company’s primary listing is on the Johannesburg Stock Exchange.
  • It is majority owned and controlled by Vodafone. The Public Investment Corporation is its second-biggest shareholder, with a 13% stake.

READ MORE – ‘We have a keen interest in Ethiopia’ – Vodafone Africa CEO Vivek Badrinath

The Vodacom Group recently published its quarterly update, which showed 40% of its revenue is now derived from its international operations. This trend has been largely driven by demand in data and the M-Pesa service.

M-Pesa is a popular mobile money platform mainly used in Kenya, Tanzania, DRC, Lesotho, Mozambique, Ghana and Egypt. It was established by Kenyan network operator Safaricom. In 2019, 37 million active users conducted 11 billion transactions using the platform.

More customers, more money

During the December 2019 quarter:

  • Vodacom added 1.7 million new customers to its international portfolio;
  • The company attracted 484,000 additional customers in South Africa;
  • The group has a total of 117 million customers

“I am pleased with the consistency in the performance of our international portfolio, which produced solid results on the back of strong demand for data and M-Pesa services, resulting in a 9% growth in service revenue,” said Vodacom Group CEO Shameel Joosub.

Banking on innovation

Through a joint venture, Safaricom and Vodacom will buy the rights to M-Pesa from Vodafone in a transaction valued at $13m.

In May 2019, the former Safaricom CEO Bob Collymore told Reuters acquiring the rights to M-Pesa would enable expansion to other African markets and flexibility in developing partner products on the platform.

  • In the Vodacom 2019 annual report, Joosub said: “The Safaricom acquisition has proven to be a catalyst for extending our mobile money leadership position on the African continent and in ensuring financial services have become a significant contributor to the group’s revenues.”
  • “We are in the process of concluding the acquisition of the M-Pesa brand and platform-related assets from Vodafone through a joint agreement with Safaricom, we expect this will further accelerate our mobile money growth plans in Africa. The commercialisation of our recently launched payment gateway and digital wallet will assist in sustaining financial services growth in South Africa,” Joosub added.

Case for M-Pesa acquisition

Vodacom has every reason to be bullish about M-Pesa and its financial services products.

The 11 billion M-Pesa transactions recorded in 2019 were worth R2trn. In the same year, M-Pesa revenue grew to R3.1bn, which represents a 32.2% increase. The company’s pre-tax profit from financial services in South Africa was R1.bn.

A continent of opportunity and regulatory pain

Although the group has largely reaped the rewards of its investments throughout the continent, it is facing challenges on a number of fronts.

  • In South Africa, its issues include a market inquiry into data prices. One of the recommendations of the inquiry is that network service providers, including Vodacom, reduce prices. The company, much like its peers, is also battling to access spectrum.
  • In Tanzania, Vodacom was forced to disconnect more than one million customers. In April 2019, Vodacom’s MD in Tanzania and other employees were arrested “in relation to a customer’s alleged illegal use of network facilities.” The company also paid a R32m fine to the Tanzanian Communication Regulatory Authority for contravening the country’s Electronic and Postal Communications Act.
  • In DRC, the customs authority has opened a criminal claim against Vodacom for alleged failure to pay customs duties. “The group has objected to the claim, and is co-operating with the relevant authorities,” it said in its 2019 annual report.
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