Why Vodacom M-Pesa has flopped in SA

2016-05-09 11:51 - Gareth van Zyl, Fin24
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World Wide Worx MD Arthur Goldstuck.

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Johannesburg - South Africa’s advanced banking sector and a lack of demand are key reasons for the local failure of Vodacom’s [JSE:VOD] mobile money product M-Pesa, says an analyst.

On Monday, Vodacom announced that it plans to shut down its M-Pesa product in South Africa from June 30 2016 because of a lack of demand.

READ: Vodacom to shut down M-Pesa business

When M-Pesa first launched in South Africa in 2010, Vodacom targeted reaching 10 million local users.

But only 76 000 users signed up in 2015 according to the company’s integrated report. This contrasts dramatically with Kenya where mobile network Safaricom has over 11 million M-Pesa users. The UK's Vodafone has stakes in both Safaricom and Vodacom.

Arthur Goldstuck, the managing director of local technology research firm World Wide Worx, told Fin24 that Vodacom should never have launched M-Pesa in South Africa in the first place.

"Since the day of the launch in 2010 in South Africa, I've questioned the viability of it in this country because of the fact that the success factors for M-Pesa in Kenya were not present in South Africa,” Goldstuck told Fin24 by phone.

"You could create demand but there wasn't a pressing need, in particular, the fact that we have a such a high banked population,” said Goldstuck.

Around 75% of South Africa’s adult population - just over 27 million people - are banked with traditional financial institutions, according to a recent survey by the FinMark Trust.

Meanwhile, in Kenya, newer mobile money services are that country’s main financial inclusion driver with mobile money account ownership hovering around 60%.

"The reason it took off in Kenya is that there is such little financial inclusion there,” Goldstuck told Fin24.

"It also came at a time of great displacement in that country as a result of election violence (in 2007/2008). So, there was massive perceived need for it at the time for people to get money to each other.

"Vodacom never really listened to outside advice - they assumed that their experience in Kenya qualified them in South Africa and it was quite the opposite,” Goldstuck said.

South Africa also already had a thriving money transfer market for years via retail chains such as Checkers, Goldstuck explained.

While Vodacom is set to shut down M-Pesa in South Africa, the company is still operating the product in African markets such as Tanzania, Lesotho and Mozambique, the company said on Monday.

“Vodacom is fully committed to mitigating any inconvenience to customers impacted by the decision and assures all M-Pesa South Africa customers that their funds remain safe and readily accessible,” said Vodacom CEO Shameel Joosub in a statement.

“We remain of the opinion that opportunities exist in the financial services environment and we will continue to explore these,” he said.

Read more about: vodacom  |  mobile money  |  m-pesa