kenya: Safaricom pays firm Sh1.4bn for M-Pesa technical support

Safaricom paid Sh1.4 billion worth of M-Pesa technical support fees to M-Pesa Africa, a company it owns on a 50/50 basis with its South African parent firm Vodacom Group.

The fee was paid in the year ended March at a rate of two percent of the telco’s M-Pesa revenue of Sh82.6 billion in the review period, according to disclosures in the firm’s latest annual report.

Safaricom owed M-Pesa Africa a balance of Sh185.5 million by the end of the financial year, bringing the total fees in the period to Sh1.6 billion.

The Nairobi Securities Exchange-listed firm previously paid undisclosed M-Pesa licence fees to UK-based Vodafone Plc which sold the mobile money brand to M-Pesa Africa in March last year for Sh2.1 billion.

The new arrangement will see Safaricom recoup part of the M-Pesa fees through its share of profits in the joint venture now offering technical support to the platform.

“M-Pesa Africa Limited is a joint venture between Safaricom Plc and Vodacom Group (SA). The company has entered into a managed services agreement with the Safaricom Plc to provide technical and product-based M-Pesa solutions against which a fee is charged monthly,” the telco says in the report.

“The fee is based on two percent of the M-Pesa transaction revenue effective April 1, 2020.”

Vodafone also used to charge Safaricom a licence fee at a rate of two percent of M-Pesa transaction revenue and which was paid quarterly. The exact M-Pesa fees paid were, however, not disclosed since they were lumped with charges for other services the multinational offers the telco.

Vodafone is the majority shareholder of Vodacom with a 60.5 percent stake and also holds a five percent indirect equity in Safaricom. M-Pesa Africa, registered in Kenya, made a Sh314.1 million net loss in the year ended March on depreciation charges which have the effect of lowering taxable income.

The joint venture’s sales stood at Sh3.1 billion while incurring total expenses of Sh2.5 billion, leaving it with an operating profit of Sh595.2 million. A depreciation charge of Sh1.1 billion contributed to the loss in the review period.

“There are no significant restrictions on the ability of the joint venture to transfer funds to Safaricom Plc in the form of cash dividend or repayment of loans,” Safaricom says in the report.

“Decisions by the joint venture to declare and/or pay any dividend or make any capital distribution to shareholders must have prior written consent of the existing shareholders.”