Airtime Advance boost
RECHARGE CREDIT: VODACOM MAKING OVER R1BN IN FEES ANNUALLY
No surprise the operator aggressively pursuing financial services.
It is somewhat remarkable that Vodacom’s core South African unit is advancing nearly half its total prepaid recharges, 45.2%, in the form of “credit” using its Airtime Advance service.
This equates to a total of R13 billion in airtime that was advanced, effectively as a “disguised” nano loan.
This service is used by more than 10 million customers in the country and offers advances for up to R20 of airtime and R18 of data (125MB) based on the subscriber’s recharge history (how often they top up and how much they add).
The advance has to be repaid within 30 days and is deducted from the subscriber’s next recharge.
For every advance, Vodacom charges an “access fee” of R1. This is a high margin business for the operator – at a R20 advance, the fee is 5%, while at a R5 advance, the fee is 20%.
Using the values of the bundles available, the total recharges (R13 billion) and its total financial services revenue in SA, it can be calculated that Vodacom is making over R1 billion in fees annually from providing this service.
While there will be some element of bad debt, this is likely immaterial (far below 1%) as a subscriber who doesn’t settle their advance will see their credit limit decrease once they do recharge.
Total financial services revenue in South Africa was R2.7 billion for the year ended 31 March.
The operator has 13.5 million financial services customers in the country, the majority of whom are those who utilise the Airtime Advance service. It says it generated insurance revenue of $70 million (more than R1 billion). It has 2.4 million insurance policies, 15% higher than in FY2021, and revenue from this product was up 13% year-on-year.
Across the group, it reported a total of R22.2 billion in financial services revenue (due to accounting rules, it recognises R11.2 billion of this).
The bulk of this (R14.5 billion) is from associate Safaricom (Vodacom owns 34.9% of the Kenyan operator), driven by M-Pesa.
In Tanzania, the DRC, Mozambique, and Lesotho, M-Pesa generated R5 billion in revenue from 16.5 million customers. By comparison, in 2021 MTN generated R15.9 billion in fintech revenue across its operations. Of this, 29% (R4.6 billion) was from airtime advance services.
From the R11.2 billion in revenue from Vodacom’s financial services endeavours, it generated R4.4 billion in profit before tax – this is a margin of 40%.
This is higher than the group’s overall margin – its earnings before interest, tax, depreciation and amortisation margin of 38.8% – and definitely far greater than that from relatively low margin data revenue.
Growth opportunities
Vodacom sees three major addressable market opportunities:
Mobile payments (where it has already captured a quarter of the $4.4 billion revenue pool it sees in its markets by 2026);
Lending (it granted $6.1 bil
lion in micro loans last year); and,
Insurance (where last year it captured just 0.1% of the opportunity).
In South Africa, 14.4% of revenues (R8.4 billion) come from what Vodacom terms “new services”. This includes financial services, digital services, Internet of Things and fixed (fibre). In its international businesses (excluding Safaricom), this figure is 27.6% (R6.1 billion). For Safaricom, with the dominance of M-Pesa, 42.5% of revenue comes from these “new services”.
For the group, this total is 18% of revenue. Within three to five years, Vodacom expects this to be between 25% and 30% of total revenue, representing a compound annual growth rate of 20% over the next three years.
This means its core mobile business will reduce to “just” 70% to 75% of total revenue.