M-Pesa IPO?

Mobile transfer solution M-Pesa from Safaricom was on Monday inaugurated as loan repayment tool for microfinance.

SMEP using M-Pesa for loan repayment is now the latest M-Pesa partner joining satellite TV, medical cover, investment funds, spare part utility providers and insurance companies that now enable their customers to remit monthly or periodic solutions via M-Pesa.

This phenomenon is not unseen, it addresses gaps in the banking sector; and now M-Pesa solutions are coming from the customers, not Safaricom – which is the way it should be.

M-Pesa Flaws: M-Pesa with its 5 million customers is not perfect and it may have reached the zenith for now; it is pricey, it requires business owners to put up substantial credit (float) to access the system, its statements are crude etc. Electricity bills can now be paid by M-Pesa, but accounts take 48 hours to be credited, while with rival transfer product Zap (from Zain) they take 24 hours. The fault probably lies with Kenya Power, which has forged closer links with the less established Zap and Standard Chartered Bank.

Loan potential: M-Pesa, a Vodafone solution, now goes into the area, that no one can contain – credit growth. The SMEP (micro-finance loan) repayments are just a start. Banks and savings & credit societies (SACCO’s) can easily utilize M-Pesa for loan repayments under the current 35,000 shilling ($440) daily transfer limit. e.g. a 400,000 shilling ($5,000) SACCO loan at 12%, repaid over one year will have installments of 35,932 per month, or a car loan of 800,000 shillings ($10,000) repaid over 3 years at 21% interest would have repayments of 30,140 per month.

New markets: M-Pesa has been built on the back of Safaricom, operating informal relationships with subscribers who submit a bare minimum of information. That relationship requirement with customers requires a lot less than with a bank and international know your customer guidelines (KYC). Already, all the mobile companies have aspirations of moving on to international transfers and merchant banking which will also bring them more into collision with banks, western union and debit/credit card giants.

New regulations: M-Pesa’s already fractious relationships with banks is likely to get worse; and with (soon) three mobile companies offering money transfers, and all eating into bank ledger and interest income, there will be calls to rein them in. Soon it is likely that the government of Kenya will create an e-commerce regulatory body (another parastatal) since neither the Communications Commission or the Central Bank has absolute authority.

Second Safaricom IPO: Vodafone should spin-off M-Pesa into a separate company. M-Pesa is now able to stand on its own, and handle its own competition, regulatory, and licensing issues. Safaricom should let it go, focus on other voice and data services, while continuing to enjoy the revenue M-Pesa spin, by subscribing for shares in it. By freeing it from Safaricom, M-Pesa will move from being an ‘unregulated’ but licensed solution, owned and managed by Vodafone (UK), to a local-listed company, owned and operated in Kenya.

14 thoughts on “M-Pesa IPO?

  1. gmeltdown

    Spin off idea is great. The question of who regulates who would become more complex as knowledge management systems become more integrated into the informal sector. It all boils down to facilitating the growth of a knowledge economy as a strategic direction towards vision 2030.

  2. Steve Song

    Great article. I think another key reason to spin off MPesa is to encourage the separation of telecom infrastructure from banking infrastructure. Imagine only being able to access your online banking from a single ISP. All attempts at vertical integration of banking and telecoms markets should be resisted. Roll on real competition in both sectors.

  3. Machaboy

    I beg to disagree with the spin-off idea. Given M-Pesa’s fast growth, it actually Increases the value of Safcom. With Safaricom’s ARPU from it’s core business decreasing, M-Pesa provides a great growth story which investors value. It’s also a great way to fend off competition from other telecom companies; the safcom sim card stays in the phone longer and also attracts new customers to Safcom.

    Safcom is appx. $1.5 bn in market cap which is not too big compared to other international companies (smaller than Zain).

  4. MainaT

    Well well. Vodafone owns both-fully owns Mpesa. Mpesa can’t survive without Safcom, but Safcom especially with fibre round the corner still has revenue by the bucketload.
    The only way I can see it working is if the Mpesa standalone business was able to convince other networks to work as its distribution channels on a fee basis as it is now with Safcom.
    Regulatory costs may also play a role.

  5. Louis

    All i can say is that m-pesa is just a business process. And that business process can be easily replicated by the banks themselves matter of i dont think i would be far off the mark if i say the cheapest part of m-pesa was developing the software and banks will figure this out very soon. so i dont think i will or would buy into an m-pesa IPO

  6. Steve Song

    @Machaboy Safaricom is a well-run and comparatively innovative company (for a mobile operator :-). They deserve to grow and prosper…. just not in Kenya. Safaricom holding 80% of the Kenyan market is good news for Safaricom shareholders but not for Kenya in general. Something like MPesa, which increases Safaricom’s lock on the market, is not a good sign that competition is going to improve any time soon. Kenya needs healthy competition in both the telecoms and financial services sector. Vertical markets may be great for corporations but are seldom end up being a bargain for the consumer. Witness how telecom and cable operators in North America have locked up the market with triple and quadruple play. Happily, the inevitable move (sooner or later) to all IP based infrastructure for broadcast, voice, and Internet should shake things up again.

  7. bankelele

    Aly-Khan Satchu: Thanks, it may make sense in a few years though

    Gmeltdown: company has to re-focus, if dealers are more pre-occupied with m-pesa that airtime

    Girl In the Meadow: legal minds should start thinking about it

    Steve Song: there is enough competition in banking and mobiles already here, maybe even too much

    Machaboy: It’s an integral part of Safaricom future revenue, but a spin off won’t cut them off from enjoin revenue as m-pesa will continue to piggy back on Safaricom

    Tamaku: thanks

    MainaT: the possibilities are endless beyond money transfer and encompass many things that banks currently do. Regulation is a step behind innovation

    Louis: banks have tried to replicate M-pesa, but M-Pesa is based on the unbanked population, but with us ‘banked’ people and companies utilizing it as a faster, cheaper, more convenient option to writing cheques (that clear 4 days later) or EFT whose costs are not justified by small amounts

    Steve Song: unbundling M-Pesa will also enable it to go to other countries which perhaps are not issuing any new mobile licenses, but would appreciate cheaper money transfer

  8. charles

    @Bankelele thanks a lot for the wonderful post again. I would wish that you discuss on Safaricom strategies on regulating M pesa against fraud etc. Even through the making headway in their expansion strategies What are security implications of such. Safaricom neither Zain is clear on such matter?

  9. Mbugua Njihia

    Spinning it off would hopefully create an operator and bank agnostic platform that I believe would be best, especially if it gave access to an API where third parties could integrate back office more tightly with their product ala paypal, which is what we are doing for some of our clients but it would be a much cleaner integration if they opened up.

  10. Kasimvs

    so far its one of those ‘monster’ that hasnt reached the point of going mad but the thing is no one knows when it’ll get out of hand but until then, m-pesa is still a personal favourite and will continue giving banks a run for their money in the ‘jua kali’ market.

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