Mobile phone giant MTN, which recently re-launched a mobile money service with Ubank, is unfazed by increasing competition in the banking sector and hopes to replicate the success enjoyed by the product in other parts of the continent where it operates.
The company - which operates in 22 markets in Africa and the Middle East - cancelled its previous mobile money service in 2016, after it failed to gain traction in a market dominated by major banks. In the same year, MTN's competitor, Vodacom, also shut down its mobile money service, M-Pesa, due to poor local demand.
Vodacom had launched M-Pesa in 2010, targeting to reach 10 million local users. But only 76 000 users had signed up in 2015, as Fin24 reported.
But with the roll-out of the new platform, MoMo, MTN says the time is ripe for the service, which is targeted at the unbanked or under-served segment of the market. Apart form sending and receiving money, MoMo offers users a range of financial transactions from their smartphones, such as purchasing airtime, data bundles and prepaid electricity.
In an interview with Fin24, Felix Kamenga, MTN Chief Officer Mobile Financial Services, said he believed that the South African market had grown over the past five years and become more receptive to online services.
In a market dominated by well-established banking systems, it is estimated that there are still around 11 million South Africa without access to financial services, and MTN is gunning for a slice of that population, as well as those who seek alternative cash service solutions.
Players like Capitec have made great inroads in the lower end of the market, while the industry has seen a major shake-up from digital innovators such as TymeBank, who are jostling for the under-served groups. It's a development likely to present a tough competition for MoMo.
However, Kamenga is adamant that the new banks complement, rather than compete with MoMo. MTN has set itself a target of reaching at least a million customers within the first two years.
"Getting the numbers is important, probably the biggest measures of success, and breaking even is on the roadmap," said Kamenga.
Challenging road ahead
MTN will earn commission from service providers, allowing customers to pay no fees but cash transactions carry an additional cost.
Although Kamenga is confident that the service, which is not exclusive to MTN subscribers, will be draw sufficient interest in the market, due what he describes as a seamless user experience and accessibility, he is aware of potential challenges in the initial phases.
"It’s going to make a loss for some time because of the amount of money we are pouring into it.... building the distribution, building the product."
He says MTN's initial shot at mobile money failed, in part, because low user numbers meant the project did not make commercial sense, and there were frustrations from a regulatory perspective.
Mobile money is operational in 16 countries where MTN has a presence, including Afghanistan, and the service is popular in east Africa. The company hopes to replicate the success in the local market.
"Today our biggest marker is Ghana, and Swaziland is a resounding success," he said.
Users can download the MoMo app on their smartphones, through the USSD functionality, or register at an MTN store as well as agents across the country.
According to Imtiaz Suliman, analyst at Sentio Capital, MTN would have a "quite a difficult time" cracking the challenging market, which has significantly evolved over the past five years.
"The market structure is more competitive than before, the big four banks are well entrenched, and the market they are targeting has low disposable income," said Suliman.
He acknowledged that the company would offer a niche service in a small area.