Zimbabwe:Will banks benefit from TeleCash platform?

Feb 28,2014.

The Independent.

In September 2011, Econet launched its EcoCash mobile money transfer service literally transforming the telecoms and banking sectors.

Econet was not the first operator to launch this service but due to its financial muscle and a large subscriber base it managed to steal the limelight from other operators.

NetOne had in March of the same year launched its One Wallet service.

The major objective of this new technology was to enable the unbanked to access banking services.

In addition, mobile operators roped in this service as a way of diversifying revenues away from voice transmission which was gradually declining. Undoubtedly, the EcoCash product was a success story from its launch and in the process widened Econet’s revenue and earnings base.

The company capitalised on the strong infrastructure that it has built up over a number of years. Econet’s success also hinged on the fact that their model mirrored Safaricom’s M-Pesa model of Kenya in capturing the unbanked through the use of mobile phones.

In January 2014, more than two years later, Zimbabwe’s second largest operator, Telecel, launched its mobile money service called TeleCash. The service allows subscribers to send money to any other network as well as banks.

It also has a bulk payment facility which makes it possible for bulk payments, such as salary payments, to be made from the comfort of one’s office. It would, however, appear that Telecel focused on some of the weaknesses of EcoCash as a way of competing and making their product more appealing and relevant to the market.

Telecel managed to do this through its major feature which is ‘interoperability.” Telecel achieved this by being the first mobile network operator to connect with Zimswitch and thus automatically with all banks on the platform, unlike Econet.

By connecting with other banks, Telecel managed to meet the pleas by the Reserve Bank and Potraz for interoperability between mobile operators and banks.

TeleCash subscribers will also be issued with debit cards which they can use across the 4,500 Zimswitch point of sale devices throughout the country to purchase goods and services.

Furthermore, another strong feature of TeleCash relates to the service being cheaper compared with EcoCash. As shown in the table below, Telecel’s charges are cheaper compared with Econet’s for both registered and unregistered subscribers.

It appears Telecel is fighting competition from the market leader through offering its product to a wider audience and at relatively lower charges/tariffs. For instance, Telecel was the first to sell SIM cards at highly competitive prices of less than a dollar.

It also introduced discounts for both voice and data services through various promotions and this also appears to be the same style that has been adopted in introducing this service. This explains the reason for the emergence of multi-simming which was non-existent in prior years’.

The company announced that they were 1 600 registered agents across the country to cater for their estimated 2,5 million subscribers. The spending limit for TeleCash transactions is US$500 per transaction which is similar to EcoCash’s limit. However, the transaction limit per month is US$5 000, 66% higher than EcoCash’s US$3 000 limit.

Whilst acknowledging the appeal of the new service from Telecel, a number of questions require urgent answers.

Will consumers benefit from this move. What is the impact on the sectors’ profitability and what is in it for bankers considering that some institutions are already offering this service whilst others are mulling over the introduction of their own mobile banking services.

Consumers will definitely benefit from these innovative products in two ways.

The first is the improvement in financial inclusion whilst the second is affordability. Competition for subscribers is resulting in consumers accessing quality service at cheaper rates. Most consumers have lamented the pricing structure applied by Econet to its EcoCash service.

With this new rival product, consumers may shift to another service provider or alternatively Econet may be forced to reduce its rates. The new Facebook and Whatsapp bundles now being offered by Econet are a result of competition.

Even the other promotions such as Buddie Circle arise from the pressure Econet is getting from its rivals, mainly Telecel. It is against this background that consumers are benefitting and will continue to do so from increased competition.

Sector profitability for mobile network operators will also be affected adversely by the growth of competition. Margins will gradually take a knock as competition intensifies.

This is because operators are slowly losing their pricing power which is shifting slowly to consumers in search of quality but cheaper services.

In the event of price wars arising such as those of 2013 between the two major players. Econet and Telecel, margins will definitely decline and ultimately the growth in profitability will slow down.

However, on firm specific terms, mobile operators will only remain profitable by moving with trends in technology as a way of reducing their costs. Diversification will also play a critical role in boosting profitability as is happening with Econet which is always finding ways to remain relevant.

Telecel is also doing the same although Net One appears to be a laggard due to lack of funding.

Whilst the joining of hands between Telecel and banks through the provision of a USSD platform may go a long way to cementing relations between these parties, in the long run banking institutions are likely to lose out.

This is because Telecel and other mobile operators are competitors with banking institutions who wish to offer mobile banking services. The problem comes from the fact that banks have to use mobile service providers to deliver their services.

In the end, people basically use
mobile operators instead of the banks mobile banking systems.

The employment of mobile banking products by banking institutions will likely benefit them less as consumers will prefer using their mobile phones and service providers. Research in Kenya has shown that banking institutions have lost out on mobile banking to mobile operators as they must come up with their own platform.

Can this be the reason why the mobile banking products that have already been launched such as; Kingdom Bank’s Cellcard, Tetrad’s eMali, Cabs’ textacash, Interfin Bank’s Cybercash , among others, failed to be more popular and successful than Econet’s EcoCash service? Only time will tell if banking institutions will benefit from this TeleCash alliance.