Increased competition cuts KCB M-Pesa revenue by half

Overdraft facility Fuliza now accounts for the bulk of mobile lending. [File, Standard]

Revenues for KCB M-Pesa, the flagship lending product launched by Safaricom and KCB Group in 2014, have more than halved in the past three years on the back of competition from other mobile lending products.

Data from Safaricom's latest earnings report indicate that KCB M-Pesa reported Sh600 million in revenues from Sh42 billion in total loan disbursements made out in the year ended March 2023.

This was half the Sh1.2 billion in revenues reported in March 2020, with the value of disbursements similarly falling 63 per cent from Sh116 billion lent out in the same year to Sh42.2 billion last year.

The results come on the back of increased pressure from other digital lending products that have eaten into the average loan amounts borrowed through the facility.

Safaricom's financial statements indicate that the average loan amount taken from KCB M-Pesa fell from Sh8,123 in 2020 to Sh4,993, with the number of active customers falling by 1.1 million over the same period of time.

Fuliza, the overdraft facility launched in 2019, now accounts for the bulk of mobile lending on M-Pesa.

In the last financial year, Sh701 billion was disbursed through Fuliza, a 39 per cent increase compared to a similar period in 2022.

Overall, Safaricom made Sh8.6 billion from lending services in the financial year, a marginal 0.7 per cent growth from Sh8.5 recorded last year and the lowest growth recorded in five years.

The competition between lending products is likely to grow with the latest disruption coming from the Hustler's Fund, the State-backed facility.

In just five months beginning November last year, Safaricom disbursed Sh22 billion in Hustler Funds to subscribers, a big portfolio that would previously have gone to Fuliza, KCB- M-Pesa and M-Shwari. KCB Group and NCBA Group are the financial partners behind Fuliza and while the banks earn commissions under a revenue-sharing structure with Safaricom, the growth of the facility is fast cannibalising its predecessors.

Launch of Fuliza

While the value of loans disbursed on M-Shwari last year grew 6.3 per cent to stand at Sh91 billion, this was a drop from the Sh129 billion lent out in 2020, one year after the launch of Fuliza.

At Sh117 billion in the last financial year, M-Pesa revenue currently accounts for 41 per cent of Safaricom's revenue with the traditional voice and SMS registering a 2.6 per cent drop and 4.6 per cent growth respectively.

This makes Safaricom lending products - Fuliza, KCB M-Pesa and M-Shwari, crucial to the company's long-term strategy of becoming a one-stop financial services hub.

In the last financial year, M-Pesa revenue grew by 8.8 per cent to Sh117.19 billion supported by increased usage and growth of chargeable transactions.

"The slowdown in M-Pesa growth was mainly due to macroeconomic effects on the economy which affected the business activity," said Safaricom Chairman Adil Khawaja in a statement accompanying the financial results.

Safaricom Chief Financial Officer Dilip Pai, however, said M-Pesa remains on a strong growth trajectory despite the depressed consumer activity in the past year, and the company continues to innovate more products and revenue lines.

The firm is also banking on its super apps, My Safaricom and M-Pesa Business, to drive new usage and revenue earnings from both mobile data and transaction fees.

The two apps recorded 1.2 million and 251,000 active monthly users respectively, raking in Sh6.7 billion and Sh658 million in revenues respectively for the year ended March 2023. "With 34 transactions per customer per month on the super apps the engagement level is 50 per cent better than the average outside the super app customers who are at 20 per cent overall," explained Mr Dilip.

"Chargable transaction per one-month active customers grew 16 per cent year over year and we are now close to 25 transactions per month. Not too long, pre-Covid, this was hovering at around 10."

Safaricom has also introduced Fuliza for businesses where entrepreneurs on the M-Pesa Business app can borrow up to Sh400,000 in overdraft facility.

The overdraft is automatically repaid from incoming Till payments with amounts outstanding beyond 24 hours and charged at a two per cent daily access fee for up to 29 days.

The company said it had registered 73,000 users under the Fuliza business and loaned out Sh2.7 billion within the first six days after launch. "M-Pesa is now a two-sided digital platform serving both businesses and individual consumers," Mr Khawaja said.

"M-Pesa remains the biggest revenue earner accounting for 39.7 per cent of service revenue."

Safaricom reported Sh52 billion in profit after tax for the full year, marking a 22 per cent drop compared to Sh67 billion last year. The drop in profits was the largest in the telco's history and was attributed to the company's investment costs in setting up operations in Ethiopia and high inflation that impacted key revenue streams.

The company recorded Sh310 billion in total revenue, a 4.3 per cent increase compared to Sh298 billion recorded in the previous year out of which Sh117 billion was generated from M-Pesa.

"We have delivered a solid set of results despite the tough operating environment occasioned by a slowdown in business activity in an election year in Kenya, tough macro environment as well as change in mobile termination rates which impacted our voice revenues significantly," said Safaricom Chief Executive Peter Ndegwa.

The company remains bullish about future prospects, particularly after the Ethiopian government granted it a licence to launch M-Pesa in the country. "We are excited that this is a great milestone following our entry into Ethiopia," Ndegwa said. "This positions us to provide essential financial services to the Ethiopian population. We are looking forward to launching and rolling out the service over the next few months."

He said the company had paid $150 million (Sh20 billion) to acquire the licence, a one-off payment and does not require the firm to pay additional fees going forward.