Safaricom customers are gaming free Mpesa transfer system to cheat the company out of billions of shillings in revenue. The central bank refused to address Safaricom’s concerns. Safaricom is increasingly relying on businesses like Mpesa as growth in core voice business slows.
Safaricom PLC (SCOM) shares fell 3.44% on Tuesday (July 7) to close at Ksh28.10. The shares dropped after the Business Daily newspaper reportedthat Safaricom had tried but failed to persuade the government to allow it seal a loophole in the free Mpesa transfer service rolled out in March in response to the coronavirus disease outbreak in the country. The newspaper cited Safaricom’s investor conference call transcript available here.
When Covid-19 struck Kenya, hitting businesses and household incomes, the government asked Safaricom to waive Mpesa transfer fees for amounts up to Ksh1,000. Normally, sending Ksh1,000 through Mpesa costs Ksh15.
The government requested Safaricom to waive Mpesa transfer fees for amounts up to Ksh1,000 for three months through June. Safaricom estimated it would lose Ksh5.5 billion in Mpesa revenue because of the Mpesa transfer fee waiver for the three months, working out to a revenue loss of about Ksh1.83 billion a month.
But people started gaming the system to derive more benefits than Safaricom intended. The company noted that people who wanted to send Ksh60,000 would split it into 60 transactions of Ksh1,000 each to enjoy the free Mpesa transfer. Sending Ksh60,000 through Mpesa in a single transaction normally cost Ksh105. Therefore, Safaricom loses revenue when people abuse the free Mpesa transfers to send large amounts of money outside the cap.
The company discussed the loophole in the zero-rated Mpesa transfer with the Central Bank of Kenya, the regulator of the Mpesa service and financial sector in general. It asked the central bank to allow it limit free Mpesa transfers to a single number to five transactions. It also wanted to revise down the free transfer amount to Ksh500 from Ksh1,000 to enable it stem revenue lose. But the central bank not only ignored its request for the revisions but also extended the free Mpesa transfers period by six months through December 2020.
Now Safaricom faces the prospect of losing about Ksh16.5 billion in Mpesa revenue over the nine months of free transfers going by its estimated loss of Ksh1.83 billion monthly.
Mpesa has emerged as an important growth engine for Safaricom. Mpesa revenue rose 12.6% to Ksh84.4 billion in the financial year through March 2020 and contributed 32% of Safaricom’s total revenue. Notably, the likely Ksh16.5 billion financial hit from free Mpesa transfers equates to roughly 20% of total Mpesa revenue in Safaricom’s previous financial year.
Safaricom is increasingly relying on Mpesa and its mobile internet business to drive growth as its core voice calls business slows down.