> Posted by Hannah Sherman, Project Associate, CFI

South Africa’s largest mobile phone operator, Vodacom, announced last month that it will stop offering its mobile-banking product M-Pesa in the country at the end of June. M-Pesa is sustained by large numbers of users but, given the widespread presence of banking services throughout South Africa, fewer customers are taking up the service than in other African markets.

“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 SA there is little prospect of the M-Pesa product achieving this in its current format in the mid-term,” CEO Shameel Joosub said in Vodacom’s statement.

M-Pesa, which is a runaway success in Kenya, its flagship country, had more than 25 million customers across 11 countries at the end of March, a 27 percent increase over the previous year.

Vodafone launched M-Pesa in Kenya in 2007 as a way for customers to send money electronically in parts of the continent where banks are scarce. M-Pesa quickly became the new standard for mobile money services around the world. In 2010, M-Pesa launched in South Africa as an additional revenue stream for the Johannesburg-based Vodacom. However, M-Pesa has struggled to grow its customer base in the country.

Shameel Joosub reported that Vodacom will continue to operate M-Pesa in the service’s other African countries — Tanzania, Mozambique, the Democratic Republic of Congo, and Lesotho — where demand for the product continues to grow.

Why has M-Pesa not been as successful in South Africa? According to the Global Findex, only 34 percent of adults in sub-Saharan Africa have banks accounts, and of those with bank accounts only 12 percent use mobile money services. The picture is different in South Africa. Mobile phone usage is much higher in South Africa than in the rest of the region – nine in ten South Africans own a mobile phone – and a third of these are smartphones, according to figures from the Pew Research Center. At the same time, 70 percent of adults in the country have a bank account, and overall South Africa has the most technologically advanced, financially included, and accessible banking system on the continent. In short, many people in South Africa can already do what M-Pesa enables – sending money to people in another location quickly, safely, and economically.

When M-Pesa was launched in South Africa in 2010 Vodacom hoped it could build a customer base of 10 million in three years. However, six years on the service only has 76,000 active users (although many more have been registered).

The financial viability of M-Pesa is dependent on gaining a critical mass of users. Some point to Vodacom’s banking partner, Nedbank, as a detriment. Although Nedbank is one of South Africa’s largest banks, it caters mostly to middle and high-income customers, who often already have banking solutions. Beyond missed opportunities surrounding leveraging bank partners, it seems the big takeaway is Vodacom has struggled to find customers in South Africa where levels of financial inclusion are much higher than in the rest of the region.

In its Financial Inclusion Progress Report, the Center for Financial Inclusion stated that “without new developments in technology, there would be no financial inclusion movement today.” It is abundantly clear that financial technology, especially mobile technology, results in cost-efficient, easily accessible products for traditionally excluded populations, and has helped advance financial inclusion around the world.

However, the example of M-Pesa in South Africa has also shown that as global financial inclusion increases, and more adults open traditional bank accounts, it is not yet time to dismiss traditional banking products. It also demonstrates the simple truth that some services might flourish in one location and flounder in another.

In South Africa, as the days of M-Pesa come to a close, we need to make sure that we do not forget the 30 percent of adults in the country that do not have a bank account. We need to make sure that bypassing the opportunities provided by fintech products like M-Pesa does not result in the continued exclusion of the most vulnerable populations.

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