In what is shaping up to be a heated contest between South Africa’s largest bank and largest telecom provider, Standard Bank and Vodacom each are trying to one up the other to provide banking services to an estimated 11 million citizens (a third of the adult population) that do not have bank accounts.
Though Standard Bank currently may have a slight advantage, Vodacom, owns M-Pesa through Safaricom, is planning to make significant changes to M-Pesa in South Africa after failing to gain traction with consumers. While M-Pesa can’t compete with banks in terms of the number of financial product offerings, it can offer lower costs. For example, M-Pesa in South Africa costs 6 rand (US$.60) for a cash withdrawal of less than 1,000 rand ($100.25). Afunds transfer is 2.45 rand ($.25) for amounts under 5,000 rand ($501.25). Standard Bank charges $6 a month for a basic bank account. With improved services and lower costs, Vodacom hopes to overcome past failures.
Vodacom, however, needs to overcome barriers in South Africa’s more development banking infrastructure and financial regulations before it can make changes. From Bloomberg:
“The big issue has been regulation and cracking the distribution,” says Vodacom Chief Executive Officer Shameel Joosub. “In Tanzania, the banks are using M-Pesa as a solution to reach the unbanked, whereas here (South Africa) it was a separate product and you had lots of competing products.”
While the battle between Standard Bank and Vodacom can viewed as a traditional financial player versus a non-conventional financial player, one South African bank (First National Bank) is trying to mold itself into a combination of a bank and mobile payment service. First National acquired a full telecommunications license and now is a leader in the domestic mobile banking space.
Explaining his firm’s decision, CEO Michael Jordaan told Bloomberg:
“We’re always paranoid about every form of competition, and we’re particularly paranoid about the competition that comes from the non-conventional guys. We do see convergence between these two industries. What we’re doing to telcos is going to be far more disruptive than what telcos are going to do in banking.”
With millions of people unbanked in Africa and worldwide, both traditional and non-traditional payment firms need to determine the most effective means of connecting with them and providing them relevant banking services. Though mobile payments appears in many countries to be the optimal solution, for more developed economies such as South Africa, a blend between mainstream banking products and mobile-payment services may be best.
Click here to read more from Bloomberg.