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Fitch Solutions — a unit of Fitch Group — says MTN is well positioned to disrupt SA’s remittance market through its fintech platform MoMo. 

The movement of people and goods on the African continent and a push for greater regional trade, are creating the need for simpler and more affordable forms of payment.

In September, Africa’s largest mobile operator said it allows for the movement of money in 10 countries. 

The opportunity

“Our view is that MTN stands to benefit from the move given SA’s addressable underbanked population, and it may be able to disrupt the country’s remittances market by making digital payments through bank entities outdated,” Fitch said in a note. 

The research firm said the socioeconomic and operational landscape in SA, as of September 2023, offers “significant opportunities to fintech players doubling down on critical financial services.”

It noted that typically across emerging markets, cash remittance services are designed to be used primarily by overseas workers sending money back to their home country. 

This leaves an opportunity for those making it easy to move money between African countries.

“With regards to SA, the remittance market opportunity is firstly embedded in the country’s status of both recipient and sender of remittances, giving mobile money players like MTN considerable room for organic growth,” Fitch said. 

For now the service is only for outgoing payments from SA. Ultimately, MTN is hoping to capture the billions of rand leaving SA’s shores each year, and the cash entering Nigeria’s market.

Capturing flows for these two countries specifically would help MTN gain a strong position in the continent’s remittance market, said Bradwin Roper, CEO of MTN SA’s financial services business

SA has an estimated $1.2bn leaving its shores each year in remittances, while Nigeria is thought to have $18.6bn coming into its economy from the diaspora. 

“Cross-border remittances already play a critical role in many African countries, as they heavily rely on payments made from the diaspora,” said Jabulani Debedu, principal consultant and tourism specialist at BDO SA.

He said fintech can also help facilitate affordable and convenient cross-border money transfers for travel purposes. 

Margins and competition

Fitch says balance sheets for fintech companies typically feature low capital and operational expenditure figures, making it possible to earn good margins.

“Even a 0.2% fee applied on a remittance transfer may yield considerable returns.”

The research unit expects Vodacom may enter the same market and compete on lower fees. 

MTN has 61-million monthly active mobile money users across 16 markets, while Vodacom and Safaricom’s M-Pesa have more than 52-million subscribers in seven countries

MTN's push for fintech

MTN first launched its mobile money platform locally in 2012 before pulling the plug on it in 2016 due to a lack of commercial viability because three-quarters of the population had bank accounts. Vodacom shut its M-Pesa service in SA in the same year, citing similar reasons.

Having taken a second swing from the start of 2020, the operator now has a base of 9-million registered users. The unit’s services include in-store payments, prepaid services, mobile wallets, micro-loans, microinsurance, and a point-of-sale solution.

Vodacom has taken a similar approach, offering financial services such as loans for airtime and an e-commerce offering through its VodaPay app. 

In changing its approach, MTN has taken aim at the traditional financial services sector, looking to entice more users to its mobile-money platform by cutting out fees on the sale of digital goods such as airtime and electricity.

Currently, a person in SA looking to send R10,000 in cash to Malawi might pay a bus driver making the trip R500 to physically transport the money. For many the risk is justified by the fact that formal channels can charge as much as 15% for such a transaction.

MTN is charging a 4% fee for such transactions, while the industry average is about 10%. 

The case for crypto and the blockchain

In addition to mobile payments, cryptocurrencies — another element of the ongoing fintech revolution — have also proven popular for the movement of money between borders at reduced cost. 

According to the African Union Development Agency, remittances remain the primary use case for cryptocurrency in Africa.

With high levels of international migration from the continent, traditional remittance methods can be expensive and time-consuming. The agency says cryptocurrencies offer a fast and cost-effective alternative, allowing individuals to send money across borders quickly and cheaply.

“Blockchain-based solutions, for instance, can reduce costs, improve transparency, and accelerate the speed of transactions, benefiting both travellers and their families,” said Debedu.

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