Tough times ahead for mobile money firms

ZIMBABWE’S tough regulations for mobile money platforms (MMPs) have placed them in peril, amid indications that some could be forced to restructure their business models or shed staff to survive the turmoil.

The largest of the MMPs, EcoCash Holdings appears to be feeling the most impact after it complained of being “severely constrained due to regulated transaction limits, regulated tariffs and the continued suspension” of some of its revenue-generating services in a statement accompanying its results for the financial year ended February 28, 2022, released two weeks ago.

In the results, EcoCash said heavy regulation had restricted its growth, amid a worsening macro-economic environment, while suppression of some of its key services, including cash-in and cash-out services was constraining income generation.

“The growth of our mobile money business has been severely constrained due to regulated transaction limits, regulated tariffs and the continued suspension of some of our revenue-generating services,” chairperson Sheree Shereni said.

With a market share of over 90% of all MMPs, EcoCash’s challenges mirror those facing the entire industry.

EcoCash’s challenges can be traced back to May 2020 when the Reserve Bank of Zimbabwe (RBZ) suspended over 50 000 EcoCash mobile money agents, ordered thousands of merchants to discontinue cash-in and cash-out services, and put a cap on daily transactions, among a host of restrictions imposed in what the central bank said were measures to “stabilise the local currency”.

While EcoCash denied the charges, it was forced to comply with the measures. But since then, hundreds of thousands of families that relied on commission from the agent business for their livelihoods lost a vital source of income while EcoCash itself had its revenues affected.

At the same time for millions of Zimbabweans who rely on mobile money operators, primarily EcoCash, for payment for basic goods and services, life has increasingly become difficult, given the prevailing local cash shortages.

EcoCash has argued that the measures have also contributed to the Zimdollar’s continued loss in value, citing that from the time they were imposed, the local currency has plummeted against the United States dollar, from $57,35:US$1 in June 2020, to over $405:US$1 in July 2022 officially.

Reports suggest that the local currency is trading at upwards of $800 to the greenback on the streets.

EcoCash Holdings full-year financial results were fairly modest, with revenue up 26% to $30 billion from $23,7 billion in the prior year.

But the company warned that it was facing difficulties due to “macroeconomic uncertainties characterised by hyperinflation, rapid changes in policies and challenges in accessing foreign currency as well as global and local uncertainties created by the rollover impact of COVID-19”.

To put the mobile money business challenges into context, a mobile money subscriber is currently restricted to $680 000 per month peer-to-peer transactions, compared to a bank customer who can transfer up to $1,5 million per day, or $45 million per month, industry officials said.

The regulations on transaction limit, that are way lower than the inflation rate, therefore, constrain mobile money usage and inhibit the growth of the country’s mobile money businesses.

Analysts recently warned that heavy regulation of the mobile money industry was putting serious pressure on the bottom line of the company and severely limiting its management’s options. They predicted that barring a sudden turnaround in the country’s difficult economic operating environment, it was highly likely the company would consider either restructuring its business or shedding some jobs.

Last week, several experts told our sister weekly publication The Standard that it was only a matter of time before companies started to restructure in order to stay afloat amid the country’s worsening economic conditions.

For EcoCash in particular, the twin challenges of heavy industry regulation and a low demand due to worsening economic conditions, will test management to the limit. Since the banning of its agent business, a channel which would have been supported in the back office by hundreds of employees, EcoCash has maintained its pre-2020 staffing levels.

Although EcoCash Holdings said, in its financial results, that it was optimistic about the future, it warned that it would “adopt mitigatory measures, within the bounds of the country’s laws, to minimise the adverse impacts of the challenging operating environment” on its business.-newsday