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By now it is no secret that banks and mobile operators are fast encroaching on each other’s turf, competing for a slice of new revenues brought about by the rise of financial technology services such as e-commerce marketplaces and mobile money. Over time, this trend may change how investors view and value telecom companies. 

SA’s telecom giants have been eyeing mobile payments and digital financial services, collectively known as fintech, in Africa as an immense untapped market. Falling voice revenues and margins shrinking in mobile data services have set them on a mission to grow these new lines of business.

So big is the market globally that in 2020 China’s largest fintech operator, Ant Group, founded by billionaire Jack Ma, was set to raise $34bn by listing in Shanghai, until the Chinese government torpedoed the plan.

In Africa the case for mobile money is helped by comparatively low rates of formal banking and economies that largely run on a cash basis.

Mobile payments have presented emerging market telecom operators — the likes of MTN, Vodacom, Safaricom, Econet, and Airtel — with opportunities for growth that players in developed markets could only dream about.

Roy Mutooni, an analyst at Absa Asset Management, highlights this fact, saying: “Global growth in the telco sector has slowed, on average, to below the rate of inflation in most markets. This is especially so for developed markets.”

But as telecom operators move further up the financial services ladder, how has this affected the investment case of such companies?

For now, analysts say conventional wisdom and models still apply.

“Telcos are generally still valued according to traditional telco models,” said David Lerche, a senior analyst at Sanlam Private Wealth. He says much of this is because mobile financial services still constitute a minority of the profits for mobile operators.

“But as the fintech parts of these businesses grow, the market is paying increased attention,” an indication that valuation models could shift as new areas of business make up a larger portion of revenues.”

While fintech businesses are attracting more international capital, it is those units associated with mobile operators that have taken the lead when it comes to scaling their businesses.

In 2020 Airtel, one of MTN’s competitors in markets such as Nigeria, received a $200m investment for its mobile money unit from The Rise Fund, the global impact investing arm of alternative investment firm TPG, which has more than $91bn in assets under management.

The deal valued Airtel Africa’s mobile money business at $2.65bn, driving speculation about how much competing businesses could fetch.

MTN’s mobile money unit — with about 51-million customers — is estimated to be worth about $5bn. M-Pesa, operated by Vodacom and Kenya’s Safaricom, is the largest fintech player on the continent with 57-million users and thought to be worth $7.5bn.

In all this, banks whose business is most threatened by the proliferation of new fintech platforms have been hard at work to maintain their relevance in the market.

Both FNB and Standard Bank have launched their own mobile networks in recent years as a way to make access to their digital banking platforms easier for customers. FNB has gone a step further, launching an e-commerce platform through its banking platform, allowing people to buy and sell products and services, all with the convenience of making payments through its system.

Nedbank has a similar offering, which it calls a “super app”, akin to WeChat in China. As with Nedbank’s Avo, Vodacom recently launched its VodaPay super app, teaming up with Ma’s AliPayfor its offering.

Operators are also investing in fibre, data centres, cloud computing, cybersecurity and other areas for growth.

Given these trends, telecom operators may start looking more such as holding companies, though analysts say that unlike typical holding companies, telecom units are usually interdependent.

“They are not really similar to Naspers. The different parts of the businesses are interdependent on each other. Mobile financial services helps enable airtime sales, through both airtime advance and purchasing airtime via mobile money apps, while the traditional telco distribution infrastructure facilitates cash into and out of mobile money,” said Lerche.



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