Payment from your pocket

Yesterday MTN, Pick 'n Pay and Visa announced that they have joined forces to launch a new mobile money product. The product turns your cell phone into a bank and your cell phone number is your account number. The system will allow you to send money from your cell phone to another cell phone (once they have registered). You will also be able to withdraw or deposit cash at Pick 'n Pay stores, or top up your account with EFT.


An optional extra will be to get a Visa card linked to the account, which comes with unlimited swipes and no card fees. Basically this product is the same as a "normal" bank account, except your bank is your cell phone and your account number is your cell number.


I think that this product is a great way to reach many unbanked people in South Africa. According to Google, 67% of South Africans are unbanked, but the large majority of people in South Africa have cell phones. There are more subscribers on the mobile networks than there are citizens in South Africa. The account can be opened from your cell phone, so no need to go into a branch which in rural parts of South Africa could be a fair distance away. This a great way to remove the risks of keeping all your savings in cash, and it makes it easy to transfer cash from one family member to another.


The model is based on Vodacom's M-Pesa, which is thriving in East Africa. Currently 40% of Kenyan GDP goes through M-Pesa! The start of using your phone as a bank came when air time was being used as a proxy for money in the Kenya by people. This is when Vodacom and Safaricom stepped in to have a more formal structured product.


Vodacom has brought M-Pesa to South Africa, but it hasn't had nearly the same success as in Kenya. I think that the MTN and Pick'n Pay system will be more successful because it is being promoted by two large South African brands. Also the new system can work with any cell number even if it not MTN, it just costs more, where as far as I can see you can only have a M-Pesa account if you are on Vodacom.


The move towards a cashless society is one of the main reasons why we own Visa in the US portfolio. The trend towards not using cash for security and convenience reasons will continue. Mastercard estimate that 85% of all retail payments is still done with cash. This deal is great for everyone involved, but only time will tell if it will be taken up by the target market.