A $5BN WINDFALL: MTN’S BIG BET ON FINTECH
Despite an ultimately unsuccessful foray into mobile money in SA in 2012, MTN is venturing back into fintech, with expectations it will account for about 20% of the group’s revenue mix in the next few years
SA’s telecoms giants are eyeing mobile payments and digital financial services in Africa — collectively known as fintech — as an immense untapped market.
Analysts expect that MTN, in particular, could list its fintech business in the next year, leading to a windfall for the company.
In a research report released in May, JPMorgan analysts argue that MTN’s fintech arm could be worth more than $4bn (R33 a share); other analysts put the value north of $5bn.
It’s a surprisingly large number, suggesting that up to a third of MTN’s current value may reside in a part of the business many people have simply ignored.
Yet, the business has slowly been building. In 2020, MTN — which has mobile money operations in 16 countries — grew its financial services revenues 23.9% to R13.5bn, with pretax earnings of about R6.3bn.
If all goes well, a listing of this unit could help to boost its share price to the heights it saw five years ago, before disasters in Nigeria and a slowdown in SA hobbled the group.
Asked about listing that business separately, MTN CEO Ralph Mupita tells the FM: “We’re considering all our options to unlock value when it comes to this business.”
Whichever way the company does that, he says, MTN would keep majority ownership.
David Lerche, head of equities at Sanlam Private Wealth, says this business — along with MTN’s fibre arm — “should help the group to raise cash, which will allow it to pay down the debt at holding company level, which has been a major investor concern for some time”.
So would such a valuation be reasonable? Can fintech really be this big?
Yes, if global comparisons are anything to go by.
Last year, China’s largest fintech operator, the Ant Group, founded by billionaire Jack Ma, was set to raise $34bn by listing in Shanghai — until the Chinese government torpedoed the plan.
And last week, Dubai-based fintech company Zeta secured $250m in funding from SoftBank, which valued it at $1.45bn.
In Africa, the best known mobile money platform is M-Pesa, operated by Vodacom and Kenya’s Safaricom. It has about 40-million customers in East Africa, Ghana, Egypt and other markets.
The continent is pivotal for the sector. Industry body GSMA reckons that of 1.2-billion mobile money accounts around the world, 549-million are in Sub-Saharan Africa.
Yet in SA, mobile money has floundered until now. MTN hasn’t really been able to make it work, and Vodacom shut down its local M-Pesa business in 2016.
After that, Vodacom shifted its fintech focus to offering insurance, payments, lend
What it means:
Changes wrought by the pandemic are breathing new life into the mobile money market
ing and trade finance.
Maybe it was an idea whose time had yet to come — and now, due to Covid, that time might be here.
Vodacom CEO Shameel Joosub tells the FM that his company plans to launch a new e-commerce marketplace — known as VodaPay — this year. To do this, the company has teamed up with Ma’s Alipay, and the idea is for the platform to be similar to China’s WeChat.
Joosub has persuaded Massmart — owner of Makro, Game and Builders — as well as pharmacy group Clicks and “other big brands” to sign up.
“We expect a soft launch in the second quarter, with the hard launch in the third,” he says.
Telkom’s fintech strategy is also interesting.
Last year, it repurposed the almost 70-year-old Yellow Pages into an online marketplace called Yep!, allowing businesses that have listed their services to sell directly to the public.
The group is now adding insurance and online payments to the platform.
It may sound like a bargain-basement version of OLX, but Yep! already has 500,000 users.
Clearly, telecoms firms see financial services as the next frontier for revenue growth.
With this in mind, it makes sense that Mupita, a financial services veteran from Old Mutual, would take the reins at MTN to boost its financial services.
It’s the same tactic Vodacom employed in hiring CFO Raisibe Morathi from Nedbank, where she had held the same position since 2009.
MTN’s mobile payments platform is called MoMo. Mupita, ambitiously, believes MoMo could make up a fifth of the entire group’s earnings in the next three to five years (it already has more than 46-million customers).
“Right now we have a revenue mix that is essentially 90% core connectivity, 8% fintech and 2% digital. We anticipate that the revenue mix will be, in the medium term, more [like] 20% fintech,” he says.
It would be commendable if he could hit that target, but it implies that revenue would have to more than double, helping offset a slowdown in voice and data.
Mupita says MTN plans to double its fintech customer base to 100-million users in the next five years.
It won’t be easy. In 2016, the company, like Vodacom, pulled the plug on its SA mobile money platforms, which it had launched in 2012, citing a “lack of commercial viability”.
The issue was that, unlike in many other African countries, more than three-quarters of South Africans have bank accounts.
But last January, MTN relaunched its mobile payment business locally. Its second swing at the market seems to be going far better, given the millions of users it has already signed.
Felix Kamenga, chief officer for mobile financial services at MTN SA, says Covid has definitely given the service a leg-up.
“We’ve not only weathered the storm but thrived. We managed to take advantage of the challenges that Covid had and present the market with something novel, that helped to get over the hurdle
We’re considering all our options to unlock value when it comes to this business
of physical transactions and money handling,” he says.
But Kamenga admits mobile money still has a long way to go before it takes out its main competition — cash.
In other parts of Africa, the growth in mobile money is undeniable. The difference, partly, is that there is often a low level of banking penetration.
Southern Africa’s first success story was EcoCash, a service that grew out of Strive Masiyiwa’s Econet as a route for payment and savings in Zimbabwe’s broken economy.
Nigeria, however, would be the main catch. MTN knows this, so it has applied for a mobile money licence.
But Airtel is already ahead: not only does it have 21-million mobile money customers, it recently scored a $200m investment for its mobile money unit from The Rise Fund, the global impact investing arm of alternative investment firm TPG. This values Airtel Africa’s mobile money business at $2.65bn.
By separately listing its fintech business,
MTN would be acknowledging that governments want a degree of regulation over banking activities, says Sanlam’s Lerche.
“Better to separate yourself than wait for government pressure,” he says. And running a fintech business “requires banking skills rather than network management skills, and potentially a different capital structure”.
The good news for MTN’s investors is that such a listing may be a lot closer than they think.
Peter Takaendesa, head of equities at Mergence Investment Managers, says if market conditions remain conducive, “it can have a listing in the next 12 months”.
It’s the right time to strike too, with fintech companies attracting good valuations.
Takaendesa points out that MTN’s fintech unit is growing faster than its other businesses, and he expects it to account for 10% of the group’s revenue in the next 18 months. For a company looking to unlock value, a separate listing is an obvious strategic move.
Ralph Mupita