M-Pesa changed the lives of underbanked Africans decades ago; Will Wechat Wallet drastically change the fintech landscape anew?

A few days ago, I visited a Chinese internet finance museum for a blockchain event organized by okcoin, one of Bitcoin’s large players. The three giants in Chinese internet — Baidu, Alibaba, and Tencent — occupied the most entries with their products and their subsidiaries numbering around 20 companies for each (photo below).

The event area was in a large dimly lit conference room with large Hogwarts like posters hanging from the wall of the well known internet finance visionaries such PayPal founder Peter Thiel, Tranferswise’s Taavet Hinrikus, and LendingClub’s Renaud Laplanche. Ensconced between them was Michael Joseph, the former CEO of Safaricom, who oversaw the launch and runaway success of the company’s money transfer service, M-Pesa.

M-Pesa: A breath of fresh air (in its heyday)

M-Pesa completely altered everyday lives of most Kenyans — it was breath of fresh air. Before Safaricom, Banks ruled the Kenya finance market with an iron hand. Applying for a bank account was tedious, with stiff-faced and sullen bank tellers behind inches-thick glass making the experience even more depressing.

Banks charged exorbitant interest rates, had very few ATMs mostly in high end areas in the capital city, offered terrible services, and were extremely choosy on who to bank with. They kept finding better ways of extorting the consumers, such as asking everyone to pay just to get a statement, among other illogical charges.

After M-Pesa, your lovely neighbour became your bank teller. You no longer needed a long line to deposit money or withdraw money, as you could just go to your neighbour’s house or call them.

There had also been various bank collapses and massive corruption scandals involving banks, which led to any contact with a bank being done only when needed. Kenyans had developed a deep mistrust in the banking system, which resulted in people creating their own mini-banks called Saccos or merry go rounds.

M-Pesa transformed this terrible experience and also affected other parts of the economy, such increasing employment opportunities and creating a finance institution that has had a very significant effect in economic growth and the GDP. The M-Pesa technology is now being licensed in other countries, and recently it was introduced into Albania.

This might all change once again, if Wechat realises its ambitions of going international.

Gateway to Africa

Africa plays an important role in its expansion due to similar characteristics with its home market, such as a relatively new finance system (Compared to the Western ones). New users are skipping the PC era altogether and jumping into the mobile era, just like majority of African countries. The African banking system is also not as regulated as the Western banking systems and few, if any, alternatives exist.

Wechat is owned by Tencent, which is, in turn, partly owned the uncelebrated South Africa’s tech giant, Naspers. Naspers partly owns shares of other national champions around the world (dstv in in many African countries, Allegro (sold) and Gadugadu in Poland, Flipkart in India ,Avito in Russia, Mail.ru and VK (Russia’s gmail and facebook respectively). And with a yearly profit of US$12 billion, it is by some standards Africa’s biggest company.

South Africa is therefore Wechat’s first port of call and after it’s launch in South Africa, Kenya will be its next market, as is usually the case of most companies which come to Africa — this is due to South Africa, Kenya and Nigeria being the regional economic heavyweights.

Wechat’s threat to M-Pesa dominance is imminent

Safaricom has never had to worry about M-Pesa’s dominance. Numerous attempts by other telcos (Orange, a French multinational and Airtel, an Indian multinational), banks (Equity’s equitel), multinational (Google’s bebapay and wallet), startups with better technology, and cheaper fees — all have tried and failed terribly. Safaricom enjoys a first-to-market advantage, a large network of M-Pesa shops, and a majority of the subscribers for its carrier business.

Safaricom has therefore become lazy and un-innovative, concentrating more on milking its cash cow. M-Pesa will be 10 years this year. Despite a yearly revenue of US$320 million (2015) and 13 million users, it still lacks a mobile app and no dedicated user-facing website.

Safaricom licences the M-Pesa technology from its major shareholder, Vodafone and pays 12 per cent of the M-Pesa revenues as licence fees. This lack of control of the M-Pesa platform is a major reason Safaricom cannot easily innovate. Creating an app would require its board’s approval, which is unlikely as Vodafone will try to protects its revenue.

Safaricom has tried to add piecemeal features into the M-Pesa technology, such as mkesho and mshwari, but it cannot go adding such complex features into the USSD technology much longer as incomes are rising and majority of its users will soon have smartphones and will prefer using apps.

M-Pesa has not become as successful in some other more advanced markets as it was launched without major revisions. Vodacom (which Vodafone has 65 per cent ownership of), the leading telco in South Africa, tried and failed numerous times to launch the M-Pesa service in South Africa until it finally gave up and will reportedly no longer try to launch M-Pesa in South Africa.

A battle for ‘super app’ supremacy

Wechat has been locked in an unrestrained battle for supremacy with Alibaba-owned Alipay. Both companies have been improving their respective money banking apps by copying each other and other popular apps either in China or outside, such as the read-and-burn feature in Alipay, which is a copy of Snapchat. Wechat appears to be winning from my every day experience, with nearly everyone now using Wechat wallet as compared to Alipay. Wechat wallet is far far much younger as compared to Alipay, which was released nearly 13 years ago. Wechat wallet was only launched in 2014.

Although virtually unknown outside Asia, its features are been copied by western companies such LinkedIn account QR codes and Facebook’s focus on its messenger platform, among many others.

Wechat, which is now being referred to as a super app, is soon expanding worldwide, since it has already conquered its home market. The reigning mantra in the Chinese economy is execution over first-to-market or other perceived advantages. It recently debuted it mini-programmes, a direct assault on the Google and Apple app stores. Its official accounts are similar to Facebook pages, but as powerful a native apps.

Some companies have built billion-dollar businesses inside Wechat official accounts such as Weidian (literally “small shop”), a shopify clone; Weipiao (“small ticket”) for movie tickets; and ele.me (meal ordering), among many others. It managed to educate a billion people on how to use QR codes, a technology that was rarely used before its launch.

Wechat’s hongbao (“red pocket”) feature was a brilliant stroke of innovative execution that grew the subscriber base of its wallet feature exponentially. It began its international expansion by accepting non Chinese cards such MasterCard and Visa to be linked with the wallet one year ago.

Should established African enterprises be worried?

Wechat Wallet has already been launched in South Africa. Expansion into East Africa poses a threat not only to M-Pesa, but to Safaricom, due to Wechat’s other innovative features, which have even been copied by Facebook.

Wechat Wallet has been free since its launch as Tencent used its vast sums of cash to run it, making only marginal revenue mostly from selling message stickers until it grew to nearly a billion users. It is free to transfer money between accounts and pay for items, while Safaricom charges an exorbitant fee. Paying for items in M-Pesa is now a very frustrating experience and usually done due to lack of options.

Wechat Wallet relies on connecting a user’s bank account to his Wechat account, which is a huge opportunity for some Kenyan banks if they partner with Wechat. Visa adopted this approach when it launched its mVisa app in September 2016 with four local Kenyan banks (KCB, Family Bank, Co-op Bank, and NIC bank).

Due to the fact that Wechat launched in South Africa with its second biggest bank, Standard Bank, Wechat will probably launch in Kenya with Standard’s Kenyan subsidiary Stanbic bank, which is one of the top 10 banks by assets. Stanbic bank is present in 11 other African countries, which, too, offers other opportunities for Wechat.

In fact, when it was launched in China, it covered only a few banks which later expanded to most banks as it grew in popularity. Tencent has previously co-operated with Naspers in India until they split their jointly owned operations in 2013, so Wechat might piggyback on OLX Kenya — another Naspers’ owned tech company — as it did with Snapscan, Standard’s mobile money app when it launched in South Africa.

What will be the impact of Wechat Wallet’s launch in Kenya?

Wechat Wallet’s launch in Kenya will likely be followed by attempts by banks and Safaricom to gang up against it. This will be repeat of a similar situation, when banks ganged up against Safaricom after the launch of M-Pesa and used various tactics such as court cases and lobbying to stop the spread of M-Pesa.

Safaricom, too, is prone to this tactic, as evidenced when it cut bitpesa, a blockchain startup, from its M-Pesa platform. Tencent, and it’s app Wechat, have perfected this tactic, too, as anticompetitive laws rarely exist or are not enforced in China. Wechat blocked Uber’s official account as it had invested in Uber’s rival Didi Fache. This, and other tactics, ultimately led Uber to pull out of China, the only market it has given up on. Tencent is also an investor in Xiaomi, another scrappy startup that managed to become the World top five smartphone seller in than 5 years.

Vodaphone, Safaricom’s majority shareholder and also an M-Pesa patent holder, has launched an M-Pesa mobile app in other regions in which it operates such as India and Romania, but the app appears to be mediocre compared to Wechat. It require manual filling of datam which the user has to remember such as the till number, bank account number, and numerous other steps to complete a simple transaction. Wechat Wallet requires you only have to enter the amount and password to complete the transaction.

The success of Wechat will also affect Vodaphone, as it gets a significant revenue from licensing the M-Pesa technology. Companies will now prefer building their own mobile apps. Wechat, too, has made some missteps such hiring footballer Lionel Messi in 2014 to for its worldwide expansion. This did not have any effect on its adoption and was considered a failure. It tried launching in India, too, but Whataspp had already become far too commonly used. Similar attempts in Thailand, Indonesia, and Malaysia, were met with strong competition from other mobile messaging apps such as Kik and Line. (Tencent is an investor in Kik messenger.)

Alibaba’s Alipay, too, has global ambitions and deep pockets to support this. It recently moved to acquire Nasdaq-listed Moneygram for US$880 million, which I think is pocket change, as it has paid much more for younger startups — some of which are only based in China and others which are still not making profit. Alibaba invested US$200 in Snapchat in 2015, and it paid a staggering US$4.2 billion to acquire China’s youtube Youku tudou, among many other investments.

Moneygram is nearly 30 years old and present in over 200 countries, including Kenya. It has a network of agents spread across the country and has built relationships with a majority of Kenyan banks, as it too requires a bank to withdraw money. It is not yet clear what Alibaba intends to do with Moneygram, as the transaction has not yet been approved by shareholders. If Wechat Wallet doesn’t launch in Kenya, Alipay will by renaming Moneygram. Alipay, too, is also a superapp with even more features than Amazon, Skype, Udemy, Uber, Paypal and many other apps. It initially tried launching its own OS in 2013 — Aliyun OS in collaboration with Acer — but was blocked by Google.

 

The takeaway

A competition between Wechat and M-Pesa will also spark historical rivalries between English and Afrikaan companies (Vodaphone and Naspers), and between Western and Chinese companies. In Kenya, this is reminiscent of the stiff competition faced by Sabmiller when it entered into East Africa, which was the home market of another English multinational Diageo (EABL).

There have been reports of Safaricom’s intention to split the business into M-Pesa and Safaricom, which is similar to the split of PayPal and eBay. This might be the only hope for M-Pesa to chart it own path and face the vicious battle that will be coming very soon.

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This article first appeared on my Medium Blog, @CACTUS.

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