MTN South Africa, the country's second largest mobile network operator, has launched a fresh high-profile attempt to break into the fast-growing mobile financial services market.
The network has partnered with the South African Bank of Athens as well as retailers Pick n Pay and Boxer Stores to introduce Mobile Money, it announced last week.
Mobile Money is operated by TYME, a distribution channel of the South African Bank of Athens. The service allows customers to make payments from their mobile phones, including person-to-person money transfers as well as purchase prepaid electricity and airtime vouchers.
Customers can also pay for groceries and withdraw cash at Pick n Pay and Boxer stores using their phones. The service is free to MTN customers with what the network describes as "minimal" transaction fees applicable to certain services for non-MTN customers. By lowering the transaction limits, MTN is aiming the service at poorer, unbanked South Africans.
MTN has partnered with Pick n Pay and Boxer stores because they have a mass reach throughout the country to ensure that the service is as accessible as possible, Brian Gouldie, chief consumer sales officer at MTN South Africa, said.
South African banks have carved out a strong position in mobile money – and the operators are scrambling to catch up. Big four bank First National Bank, for example, announced on Friday that it has seen more than R1.6 billion (about $180m) in transactions this year from 1.7 million customers on its eWallet mobile money transfer and payments service.
This is not the first time MTN South Africa has tried to crack the mobile payments and banking market. The network operator launched a banking joint venture with Standard Bank in 2005 and then quietly sold its stake in the venture to the bank a few years later.
Its rival, Vodafone subsidiary Vodacom, has also struggled to gain traction in the South African financial services market since it launched the M-Pesa mobile money solution in partnership with Nedbank in 2010.
By contrast, network operators in other African countries have built thriving businesses on mobile financial services, especially money transfers. For example Kenya's Safaricom - also a Vodafone company - has emerged as a major force in that country's financial services market using its M-Pesa product.
M-Pesa revenues grew by 32 percent year-on-year to account for 18 percent of Safaricom's total revenue for the first half of fiscal 2013 – more than SMS and data combined. The service also contributed 12.6 percent to Vodacom Tanzania's service revenue for the most recent financial half-year. Vodacom Group intends to rollout similar money transfer services in the Democratic Republic of Congo, Mozambique and Lesotho in the next nine months.
So why have mobile operators battled in South Africa to gain traction with mobile financial services? Arthur Goldstuck, managing director at technology research firm World Wide Worx, says that M-Pesa was "doomed to disappointment" in South Africa because the country has a larger banked population as well as a more competitive mobile market.
By contrast, Safaricom was a dominant player in the Kenyan market at the time it launched its services into a market where few people had formal banking accounts. "It was very easy for them to roll [M-Pesa] out and reach the population," says Goldstuck. Low transaction costs and wide distribution through 'spaza shops' - ad hoc convenience stores - also helped M-Pesa to take off.
Mobile Money, however, might be more successful than M-Pesa or MTN Banking in South Africa, says Goldstuck. This time the drive for the service is not the operators, but the retail chains who aim to compete with rivals who already earn good revenue from mobile money transfers.
Pick n Pay and Boxer are competing head-on with money transfer services from partnerships between Spar and Standard Bank, and mid-tier bank Capitec and Shoprite-Checkers. If the cost structure is compelling enough, the service should appeal to the unbanked and under-banked South Africans it targets, says Goldstuck.
However, there is a danger that the structure of the business could become unwieldy given the number of companies involved – each of them potentially adding to the cost, Goldstuck adds.