Operator-led mobile money services in South Africa have failed to gain traction because they have faced competition from mass retail chains and banks, which have been more successful in addressing the needs of both the unbanked and banked populations.

In addition, the restrictive regulatory regime governing mobile money services in the country has imposed high compliance requirements on operators, which has weakened their position in this market segment.

This comment discusses the reasons for the slow take-up of mobile money services in South Africa, highlights the challenges faced by telecoms operators in the market, and provides recommendations for improving adoption.

Operator-led mobile services have had limited appeal in South Africa, despite attempts to rekindle interest by relaunching them:

• Vodacom and Mobile Telephone Networks (MTN) re-launched their mobile money services in 2014 (following initial launches in 2010 and 2012, respectively) in a bid to spur consumer interest and adoption. Vodacom simplified the registration process for its M-Pesa mobile money service in August 2014 and established 8 800 points of presence (agents) to increase the reach of the service.
• MTN partnered with Pick n Pay, a mass retail chain, in 2012 with the aim of extending the distribution channels for its Mobile Money service. In 2014, MTN added a facility to pay bills, withdraw cash and deposit salaries using its mobile money platform.

Despite these initiatives, the level of adoption has been slower than expected.

For instance, in 2015, Vodacom reported 1 million M-Pesa registered users in South Africa, but only 76 000 people were actively using the service (that is, carrying out at least one transaction per month).

According to forecasts, the number of active users of operator-led traditional mobile money services in South Africa was under 200 000 in 2015, whereas financial institution-led mobile money services had close to 1 million active users. We project adoption of operator-led money services to remain low, with the active share of registered users reaching just over 300 000 by 2020.

Intense competition and regulatory constraints have limited operators' share of the mobile money market

Significant reasons for the slow adoption of operator-led mobile money services in South Africa include:

• competition from retail supermarket chains
• competition from financial institutions
• an unfavourable regulatory regime.

Alternative money transfer options such as those from mass market retailers like Shoprite and Pick 'n Pay already meet the needs of the unbanked segment of the population in South Africa. These retailers leverage their extensive distribution outlets to enable convenient and rapid money transfer services between their branches across the country.

South Africa has the highest level of financial inclusion in Africa – 70% of the adult population in South Africa have a bank account and financial institutions are in a better position than mobile operators to offer mobile financial services to their current customer base.

Finally, the restrictive financial regulatory framework within South Africa has meant that mobile operators that offer financial services are treated as financial institutions and are subject to high 'Know Your Customer' (KYC) compliance and agent acquisition requirements. These have posed a challenge for registration and service take-up.

International remittances and innovation in advanced wallet services represent an emerging opportunity for operators to differentiate their mobile money offerings

Challenging regulation and false starts have hindered operator-led mobile money adoption.

However, operators can take advantage of the following opportunities to improve their mobile money service adoption rates, especially with the banked segment, which represents the majority of the population.

• International remittances: The lowering of regulatory barriers for international remittances represents an emerging opportunity for differentiation. In April 2015, a partnership between Vodafone and MTN was signed to enable cross-border P2P transfers between M-Pesa subscribers in the Democratic Republic of the Congo, Kenya, Mozambique and Tanzania, and MTN Mobile Money users in Rwanda, Uganda and Zambia.
• Beyond peer-to-peer (P2P) transfer services: Use cases such as bill payments and other customer not present (CNP) transactions may become adoption drivers.
• Differentiate mobile money propositions: Operators need to reposition their mobile money services in order to appeal to specific use cases that are not being adequately met in the market.

* By Devine Kofiloto, Senior Analyst at Analysys Mason