Why M-Pesa was a flop for Vodacom - TechCentral

Why M-Pesa was a flop for Vodacom

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South Africa’s advanced banking sector and a lack of demand are key reasons for the local failure of Vodacom’s 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 on 30 June because of a lack of demand.

When M-Pesa was first launched in South Africa in 2010, Vodacom targeted reaching 10m 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 more than 11m M-Pesa users. The UK’s Vodafone has stakes in both Safaricom and Vodacom.

Arthur Goldstuck, the MD of technology research firm World Wide Worx, said 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 said.

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

Arthur Goldstuck

Arthur Goldstuck

Around 75% of South Africa’s adult population — just over 27m 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 said.

“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.

Fin24

9 Comments

  1. Andrew Fraser on

    I’ve always said that M-Pesa was a solution looking for a problem in South Africa. As Arthur says, the failure was fairly easy to predict even with the incredible amount of money that Vodacom invested in marketing it. I’d liken launching M-Pesa in South Africa to launching an Uber for cars in Venice, Italy. It only seems like a good idea until you understand the local conditions.

  2. Andrew Fraser on

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

    Translation: We are desperate for some revenue (any revenue) to counter the reduction in revenue from declining Voice and SMS usage. Rather than focus on our core competency of building and managing networks, we’ll try our hand at content delivery, banking, insurance and pretty much anything else we can in order to convince our shareholders that the profit margins of the 90s and early 2000s are still possible.

  3. Mphuthi Mphuthis on

    Soweto Business Access has always endorsed M-Pesa. But Vodacom just did not listen!! They had a “know-it-all” attitude. I still believe it can be viable, partnering with SMMEs in the township. I am desperate to find partners with whom we can salvage this gem.

  4. While S.A may have higher financial inclusion through formal banking, I think it is not the whole story; here in Kenya, M-PESA is integrated with banks, and it is not really a ‘service for the unbanked’. I deposit and withdraw money from my bank, to other bank accounts and mobile money users, pay electricity, insurance, party tickets, parking tickets, government services, borrow and repay loans…list is endless.

  5. Yes, South Africa has an advanced banking sector and mobile payment demand might not be that high but that was the least of the reasons. USSD is the issue, and most of the mobile world is failing to come to terms with that. In order to introduce a new technology, start with the young and tech savvy people and dont ask us to dial a USSD string. If MPESA had a robust mobile app, that pulled up a list of the bills i can pay with it, such as water and electricity, maybe my DSTV, if mpesa offered value added services such as vouchers or coupons, if MPESA worked similar to snapscan when i need to pay at a supermarket or resturant, then MPESA would have been a hit.. The problem here, is that Vodacom wanted to recreate the MPESA success that was in Kenya here in SA, it was doomed from the beginning. The same reasons why MTN Mobile Money is big in Uganda, is not the same reasons that can be applied in SA. The success of Mobile payments in Africa, is due to the lack of banking infrastructure and trust in the banks. The moment a company says, well mobile payments are popular in Nigeria, so that means we can do the same in SA, clearly shows that that company is ignorant and lazy. Approach the South African market the same way Apple pay would approach the US market, not the way Orange would approach the Cameroon market as opposed to the French market.

  6. everyone saw this coming and they said we have a different approach. What was the different approach?

  7. Ofentse Letsholo on

    At least it’s minus one problem on their side, now back to investments in their network.