MTN is pushing hard into mobile money services. Few can dispute the commercial logic behind CEO Rob Shuter’s determination to transform the mobile phone company founded with the help of the government in 1994 into an interconnected, mutually dependent, multipurpose digital platform offering everything from money transfer to insurance, music streaming, mobile gaming and chat messaging.

The biggest immediate opportunity lies in mobile money, a service that allows users to transfer and receive money using their phones. In its latest financial results, issued on Thursday, MTN said revenue from fintech services jumped 31% thanks to a nearly 9% growth in mobile money users. The service now counts 30-million users and processes transactions worth $44bn (about R670bn) annually.

Transaction fees paid by these users lifted fintech’s revenue to nearly R5bn, or roughly 7% of the group’s R68bn topline in the six months to the end of June.

MTN is late to the party. More than a decade ago Kenya’s Safaricom, partly owned by Vodacom, launched M-Pesa, a mobile money service whose success convinced investors and executives across emerging markets that the industry’s next growth path was in financial services.

Safaricom’s M-Pesa revenue grew 20% on average over the five years, far outpacing the company’s traditional mobile phone businesses and accounting for nearly a third of the Kenyan company.

In 2018 M-Pesa’s 26-million users delivered 75bn shillings (R10bn) in revenue for Safaricom, which has just over 30-million mobile phone subscribers.

MTN has a much larger pool of potential new customers. It has 240-million subscribers, most of them in more than a dozen countries in sub-Saharan Africa, a region where over three quarters of the population do not have bank accounts.

Should MTN be able to convince just half of its customer base across its markets to use its service – including Africa’s most populous country, Nigeria – it could tap into more than 100-million users.

MTN is in fact about to start rolling out the service in Nigeria, where 115-million people, or 60% of the population, do not have bank accounts, after securing a licence that allows it to add money transfer services to its existing network of airtime agents. The outcome of the application for a payment service bank licence, which will enable it to offer a broader and deeper range of financial services, is pending.

Shuter’s strategy, aimed at shaking off the shackles that have resulted in MTN being regarded as a stock with limited growth prospects, is starting to pay off. Shares in the company have gained nearly 30% in the past six months, outpacing closest rival Vodacom, which has gained little more than 3%.

The outperformance comes despite the company remaining in dispute with Nigerian authorities over $2bn in back taxes. It also comes a year after MTN slashed its once hefty dividend payments, adopting a so-called progressive dividend payment policy that reset its annual payout at 500c per share, nearly 30% below what it splashed out in 2017.

That said, the logic behind MTN launching a similar mobile money service at home remains unclear. The service was canned about two years ago when the SA market proved difficult to crack because about 90% of the population already has access to traditional bank accounts.

The banking industry is also getting increasingly competitive, with the entry of app-only newcomers such as TymeBank and Discovery Bank in recent months potentially limiting the amount of room available for a profitable venture.

The old-guard banks – Standard Bank, Nedbank, Capitec, FirstRand and Absa – already have extensive branch networks and banking apps that make it easy for customers to send and receive money from one user to another. Vodacom tried and failed to import the M-Pesa model to SA and pulled the plug in 2016.

Shuter, who has a background in banking, can probably squeeze something out, but the venture looks more like a distraction for the newly appointed head of fintech, Yolanda Cuba, who should be putting all her energies into scaling up the mobile money service in high-potential markets in West Africa. (Business Day SA)

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