Why Wechat is a threat to Safaricom’s mpesa.

Safaricom’s banner next to tencent’s on the Chinese internet finance musuem’s hall of fame.

A few days ago I visited Chinese internet finance museum for a blockchain event organized by okcoin, one of Bitcoin’s large players. The 3 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 ,lending club’s Renaud Laplanche. Ensconced between them was Michael Joseph , the former CEO of Safaricom who oversaw the launch and runaway success of Safaricom’s money transfer service, Mpesa.

Baidu, Alibaba and Tencent (BAT) web of companies.

Mpesa 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 a few inches thick glass making the experience even more depressing. They charged exorbitant interest rates, had very few ATMs mostly in high end areas in the capital city, offered terrible services and being extremely choosy on who to bank. They kept finding better ways of extorting the consumers such as paying to get a statement among other illogical charges.

After Mpesa, your lovely neighbor become your bank teller. You no longer needed a long line to deposit money or withdraw money, as you could just go to your neighbor’s house or call them. There had been various bank collapses and massive corruption scandals involving banks which led to any contact with a bank being only when needed. Kenyans had developed a deep mistrust in the banking system which resulted in created their own mini banks called Saccos or merry go rounds. Mpesa transformed this terrible experience and also affected other parts of the economy such increasing employment opportunists and creating a finance institution that has had a very significant effect in economic growth and the GDP. The Mpesa 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.

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 into the mobile era just as majority 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 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 $12 billion is by some standards Africa’s biggest company. South Africa is therefore Wechat 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 due to South Africa, Kenya and Nigeria, being the regional economic heavyweights. Wechat threat to Mpesa dominance is imminent.

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

Safaricom has therefore become lazy , dormant and un-innovative, concentrating more on milking its cash cow. Mpesa will be 10 years this year. Despite a yearly revenue of $320 million(2015) and 13 million users,it still lacks a mobile app and no dedicated user facing website. Safaricom licences the mpesa technology from its major shareholder, Vodaphone and pays 12% of the mpesa revenues as licence fees . This lack of control of the mpesa platform is a major reason safaricom cannot easily innovate, creating an app would require its boards approval , which is unlikely as vodafone will try to protects its revenue. Safaricom has tried to add piecemeal features into the mpesa technology such as mkesho, 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.

Mpesa has not being as successful in some other more advanced markets as it was launched without major revisions. Vodacom (which vodaphone has 65% ownership) ,the leading telco in South Africa tried and failed numerous times to launch the Mpesa service in South Africa until it finally gave up and will reportedly no longer try to launch Mpesa in South Africa.

Mpesa is just a footnote in Safaricom’s official Android app.

Wechat has been locked in an unrestrained battle of 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 compared to Wechat wallet which was 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 super app is soon expanding worldwide, since it has already conquered its home market. The reigning mantra in Chinese economy is execution over first to market or other perceived advantages. It recently debuted it mini-programs , a direct assault of the google and apple appstores. 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(small shop)a shopify clone ,Weipiao (small ticket)movie tickets ,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 which took advantage of thousand year old tradition was a brilliant stroke of innovative execution that grew the subscriber base of its wallet feature exponentially (200 million new users). It began its international expansion by accepting non Chinese cards such Mastercard and Visa to be linked with the wallet one year ago.

Wechat Wallet in South Africa

Wechat wallet has already been launched in South Africa. Expansion into East Africa poses a threat not only to Mpesa, but to Safaricom due Wechat’s other innovative features which have even been copied by facebook . Wechat wallet has been free since it’s 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 Mpesa is 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 ten banks by assets. Stanbic bank is present in 11 other African countries which too offer other opportunities for Wechat. 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.

Wechat wallet launch in Kenya will likely be followed by attempts by banks and Safaricom ganging up . This will be repeat of a similar situation when banks ganged up against Safaricom after the launch of Mpesa and used various tactics such as court cases and lobbying to stop the spread on Mpesa. Safaricom too is prone to this tactics as evidenced when its cut bitpesa, a blockchain startup, from its Mpesa platform . Tencent , and it’s app Wechat have perfected this tactics 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 dache. This and other tactics ultimately led Uber 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.

Mpesa India

Vodaphone, Safaricom’s majority shareholder and also Mpesa patent holder has launched a Mpesa mobile app in other regions in which it operates such as India, Romania, but the app appears to be mediocre compared to Wechat. It require manual filling of data 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 Mpesa technology as 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 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 $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 anyprofit.(its also assumed its $930 million debt). Alibaba invested $200 in Snapchat in 2015, and paid a staggering $4.2 billion to acquire China’s youtube Youku tudou among many other investment . 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 relationship with Majority 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 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.

Alipay’s app

A competition between Wechat and Mpesa will also spark historical rivalries between English and Afrikaan companies (Vodaphone and Naspers), and Western and Chinese companies . In Kenya this is reminiscent of the stiff competition faced by Sabmiller entry 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 Mpesa and Safaricom which is similar to the split of PayPal and eBay. This might be the only hope for Mpesa to chart it own path and face the vicious battle that will be coming very soon.

Edit , Added new info on Alipay imminent acquisition of Moneygram.