Who is doing what in the fintech space in Africa?
Digital banking is driving Africa’s recovery
When Vodacom, Africa’s biggest mobile telephony operator (Telco) by revenue, announced late last year that it intended expanding its insurance business beyond South Africa and into the rest of the continent, the company was implementing the new business model emerging in the sector. With revenue of ZAR1.1bn in 2020, financial services are only a small component of Vodacom’s overall revenue stream (ZAR47.8bn) but this is the space where it, like all African Telcos, expects the biggest growth to happen in the immediate future.
Africa’s biggest mobile telephony operators all have ambitions to transition from being Telcos (mobile telephony companies) to Techcos (technology companies). The emerging model, a global trend, is of companies which are ‘digital service providers’ and offer a range of businesses (finance, health, entertainment) on their platforms rather than only traditional mobile telephony.
The emerging model is a response to a flattening of revenues, especially in the voice space as over-the-top (OTT) communication services like WhatsApp displace traditional dial-up telephony and narrowband services like SMS. Some indication of the scale of the shift is captured by the fact that, in 2020, WhatsApp carried an extraordinary 65 billion messages per day, up from one billion in 2011. Another major driver is the vulnerability of data revenues to regulatory action as demonstrated by the South African Competition Commission’s decree of December 2019, ordering a substantial (30-50 percent) reduction in data tariffs.
Figures released by some of the continent’s biggest Telco’s during the Covid-19 lock-down illustrate the trend. In its mid-2020 results, Airtel, the second biggest Telco in Nigeria (after MTN) revealed that voice revenue dipped 11 percent, while data revenues were up 5.5 percent. The Nigerian market’s biggest operator, MTN, showed a similar pattern with data revenue up 59.2 percent while voice revenue increased only 7.2 percent.
The pattern can be seen across the continent. The dominant player in Kenya, Safaricom, partly owned (35 percent) by South Africa’s Vodacom, experienced a decline in voice revenues of 6.5 percent in 2020. Francophone Africa’s main Telco, Orange, reported a 3.4 percent drop in voice revenues for the year, although the company’s reporting format makes it difficult to distinguish between its markets in Africa, Europe and the Middle East. The immediacy of this decline should however not be overstated. Voice remains a cash cow for African Telcos, accounting for nearly 70 percent of MTN’s Nigerian revenue in 2020.
The next step towards the emerging model is for Africa’s Telcos to build on their presence in Fintech, the space where mobile payments, loans and other products like insurance meet. The outstanding question here is who will be the ‘central ecosystem leader’. The contenders are banks and Telcos – with original equipment manufacturers (through apps like ApplePay and SangsumPay) – also part of the picture, although the circumstances differ across the continent’s biggest markets.
In French-speaking Africa, the biggest mobile operator, Orange, launched a mobile bank in 2020. Starting in Cote d’Ivoire, where Orange has its African head office, the company hopes to expand its payment, savings and microloan app to Senegal, Mali and Burkina Faso as soon as it can get regulatory approval. Orange’s original payment app (Orange Money) was introduced in 2008. The company hopes to attract a clientele of 10 million within five years and increase fintech to 20 percent of its turnover.
In Kenya (Safaricom) and Ghana (MTN), payment apps are well established. In both countries, the mobile device has become the payment vehicle of first choice. In Kenya, the mobile payment rate represents 87 percent of the country’s GDP; in Ghana the figure is 82 percent. These are the highest ratios in the world after China where mobile transfers represent 125 percent of GDP (it includes person-to-person transactions not included in GDP calculations).
Deepening their mobile money offerings beyond payments is now the next objective for companies in these two markets. In 2020, Safaricom launched a more sophisticated app for businesses in Kenya, essentially offering the sorts of services which are standard for mobile banking in developed countries (real time statements and transactions).
Nigeria however offers a cautionary note. Despite promises to grant banking licences to allow non-bank intermediaries (like Telcos), made in 2018, there has been little progress other than the announcement of more onerous regulatory conditions. Some observers blame lobbying by banks. The result is that the loan finance offerings of the Telcos are still extremely limited in the Nigerian market.
South Africa, home to the continent’s two biggest Telcos by revenue (Vodacom and MTN) has a deep and entrenched banking system. South Africa is the most banked population on the continent, with 70 percent of adults having a transaction account. Early attempts to introduce mobile payments systems failed badly. Vodacom attempted to introduce the M-Pesa mobile wallet, pioneered by Kenya’s Safaricom, to the South African market in 2010. By the time it closed in 2016, it had only 75 000 users. The other big South African telco, MTN, attempted to introduce Mobile Money (MoMo) – a success in Ghana, Cote d’Ivoire, Guinea, Guinea-Bissau, Liberia, Swaziland, Uganda and Zambia – in 2012 but with a very similar result. It closed the operation in 2016, only two months after Vodacom had shut down M-Pesa.
While regulation is cited as reasons for this failure, the bottom line is that neither Telco managed to present South African consumers with an offering more compelling than the existing banking system. At the end of 2019, only two percent of sub-Saharan Africa’s mobile money accounts were registered in Southern Africa compared to 53 percent in East Africa). However, in 2020, mobile wallets were back on the agenda in South Africa, but with a different market segmentation underpinning the process.
MTN relaunched its MoMo platform last February. But the financial partner this time around was not a big high street bank (it had partnered with Nedbank for its previous attempt) but Ubank, an institution with its roots in miners’ remittances to rural areas. With an extensive rural presence, Ubank facilitates the transfer of urban wages to family members located in the countryside. Although this is a long way from being the top end of the market, it does offer future prospects for a future expanded offering into products such as funeral insurance. In December 2020, MTN claimed 2 million customers for MoMo.
But this represents a relatively low-value segment of the market, comparable, perhaps, to most of the African markets in which MTN operates. The high-end market in South Africa is far more competitive and it is far from clear that the Telcos have a competitive advantage in this space. The five major banks all offer multifunctional mobile banking services apps and, during the Covid-19 lockdown tried to persuade their customers to use these rather than ATMs, on-line banking, call centres and visits to brick and mortar outlets.
MTN’s MoMo does not compete with the banks’ apps but is best seen as complimenting them. However, Vodacom’s new Alipay app is an attempt to carve out a presence in this space. Developed in partnership with Ant Financial, part of China’s Alibaba Group, it is described by the company as a ‘super app’ which combines mobile banking, lifestyle and entertainment features.
But there is considerable competition in the fintech space in South Africa. In addition to the offering of the five major banks and the Telcos, two new banking ventures – Discovery Bank and TymeBank are exclusively digital offerings. Vodacom believes its South African developments are establishing a pattern for the rest of the continent especially where it has a presence through Safaricom.
It is not clear how developments will play out in South Africa’s intensely competitive fintech space. But on a continental scale, fintech is the sector to watch. This is where we can expect to see the leading impact of the Fourth Industrial Revolution across the continent.
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