Five reasons M-Pesa failed in South Africa

On May 9, 2016 a press statement by Vodacom, the largest mobile service provider in South Africa stated that effective June 30, they will discontinue M-Pesa service in that country.

Vodacom Chief Executive Officer Shameel Joosub is quoted, “Vodacom’s decision is based on the fact that the business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in South Africa there is little prospect of the M-Pesa product achieving this in its current format in the mid-term.”

This announcement was music to my eyes. It was a free experiment. Why would one product work in one market and not in the other? M-Pesa in South Africa had about 76,000 active users since its launch in 2014. Kenya has more than 20 million.

The reasons given by Vodacom are not convincing. One is that high-level of financial inclusion made the uptake of M-Pesa slow. Banks in South Africa have branches in most places. But wait a minute; don’t we have M-Pesa in banks in Kenya? Don’t we have agency banking in Kenya and M-Pesa is still growing?

The main reason why M-Pesa failed in SA might be sociological. M-Pesa success in Kenya rode on high age dependency ratio. World Bank defines Age dependency ratio as the ratio of dependents-people younger than 15 or older than 64 to the working-age population. High ratio for Kenya means more people need help and sending money to them fuelled M-Pesa.

M-Pesa catered for the dependants instead of waiting for a matatu that ends up in villages. It is only after we got a critical mass of dependants and helpers that we started using M-Pesa to pay bills, school fees etc. It is no wonder M-Pesa is doing well in countries with high dependency ratios like TZ, DRC and Lesotho. Based on interviews with South Africans, some who have lived also in Kenya like Vincent Watters, five explanations emerge why M-Pesa failed in SA.

First, the number of people within Kenya that had no access to financial services, especially rural areas was far larger than in South Africa. So M-Pesa found a ‘floating’ group that got the first link to not just technology (mobile phone) but also formal financial transactions. In most Kenyan villages we knew by name those who had bank accounts...

Second, there are several large telecom players in SA from MTN, Vodacom, Cell C and Telkom and definitely no ‘sole’ telecoms player as Safaricom in Kenya.

Would M-Pesa be this successful if we had five mobile firms licenced in 1997 at the same time with Kencell (Airtel and Safaricom)? Safaricom big market share made it easier to get critical mass of users. Once you get used to M-Pesa, getting out is hard. No wonder number portability was a flop. Safaricom positions itself as a ‘caring’ company for the ‘wananchi’. Its adverts are local sceneries. How did Vodacom advertise M-Pesa in SA? 

Third, the banking partner in SA was NEDBANK - it does not have a reputation as a people’s bank and is more of a player in a different market to the wananchi in South Africa.

Fourth, the banking rules and regulations in South Africa are stricter than in Kenya. Remember the debate on regulating M-Pesa through Central Bank of Kenya (CBK)? If CBK had decided to lump M-Pesa with banks, it could probably have gone the South African way. Fifth, clouded judgement at a higher level. While in Kenya, Michael Joseph understood the peculiarity of the Kenyan market, the key leaders of telcos in SA might not. Did they pay a visit Kenya’s rural areas?

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Finally, since the fall of apartheid, SA encountered large migration of people into the cities, increased employment and with an increase in crime and companies started insisting that employees get bank accounts. Wages were no longer paid out in cash at the end of each week/fortnight or monthly.

So, families were then inadvertently and indirectly, as a result of cash in transit heists and similar crimes, absorbed into the banking system. Thus, there were fewer people sitting in rural areas without banks, a necessity for M-Pesa to work. The urban community was already absorbed into the banking system with hordes of ATMs.

The failure of M-Pesa in SA, hailed as one of the greatest innovations from Kenya, is a lesson to big and small firms; what works in one country may not work in another. It is a clear lesson that having technology and making it work are two different things. The soft part of technology; the cultures, the beliefs, the social networks, regulations, and reality are harder to deal with than technology hardware.

It has been joked that South Africans refusal to adopt M-Pesa was a revenge against Kenya’s reluctance to embrace SA firms that find Kenyan market hard to crack. What do you think?