Vodafone set to lower M-Pesa fees for Safaricom

Posted In Business - By admin on Friday, September 14th, 2012 With No Comments »

Vodafone Group Plc is set to lower the fees it charges Safaricom for the M-Pesa money transfer service by 2014, in what looks set to lift the earnings outlook for the mobile telecoms operator.

Michael Joseph, a director of Safaricom and Vodafone’s Mobile Money, said the UK firm will lower the rates once the M-Pesa IT platform is migrated from Germany to Kenya.

“The rates will come down. The new rates will be known after negotiations between Safaricom and Vodafone,” Mr Joseph said.

“The current charges are partly driven by payments made by Vodafone to the people who manage the M-Pesa platform in Germany. We expect to migrate the platform to Kenya within two years.”

Vodafone has been earning royalties of between 10 per cent and 25 per cent of M-Pesa’s annual earnings since February 23, 2007, under a five-year agreement and has struck a new deal that guarantees it billions of shillings of the mobile money revenues in the next five years.

The UK firm is estimated to have pocketed Sh1.9 billion of the Sh16.87 billion that M-Pesa generated in the year to March — up from the Sh1.4 billion it earned the previous year.

At Sh1.9 billion, Vodafone earned 15 per cent of Safaricom’s net profit in the year ended March, excluding the Sh3.5 billion it earned in dividends for its 40 per cent stake in the Nairobi Securities Exchange-listed telco.

Hosting the M-Pesa platform locally is expected to cut payments made to third parties and also increase the efficiency of the money transfer service.

At the moment, M-Pesa transactions are routed to Germany and bounced back to Kenya, exposing the system to delays and service outages when communication is disrupted due to fibre optic cuts.

Safaricom will also be able to increase its capacity of money transfers at a time when it is registering more users of the service.

Chief executive Bob Collymore said daily M-Pesa transactions stand at two million, representing a value of Sh2 billion.

“We will continue to expand M-Pesa and we are going to recruit more agents from the current 43, 000,” Mr Collymore said at the company’s annual general meeting in Nairobi Thursday.

M-Pesa users now stand at 14.9 million, having grown from about 20,000 when the service was introduced in March 2007, with the telco expanding its use into a bill payment system.

This has seen revenues from the service rise more than from Sh7.5 billion in 2010 to Sh16.8 billion in the year ended March, making it a critical growth area compared to the voice business, which has been hit by vicious price war.

The revenue sharing agreement makes Vodafone the biggest beneficiary of Safaricom’s fastest growing business line. The fee is payable quarterly and is capped at 25 per cent of every quarter’s revenue from a floor of 10 per cent.

Under the agreement, the payout to Vodafone moves closer to the lower threshold with an increase in the number of active M-Pesa subscribers.

The number of active M-Pesa users grew marginally to 14.9 million in the year to March compared to 14.01 million in the previous year. This leaves the commission rate close to the previous year’s level of 11 per cent.

Vodafone, which is the single largest shareholder in Safaricom, holds proprietary rights over M-Pesa through Vodafone Sales and Services Limited, an affiliate of the British firm.


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