The 2020 Mid-Term Monetary Policy Statement presented last week by the Reserve Bank of Zimbabwe dedicated a whole subsection to mobile money platforms as part of new monetary policy measures.
That the central bank took time to address issues to do with “mobile banking”, was no surprise. For the better part of this year and probably the last quarter of 2019, mobile money platforms were blamed for the country’s currency woes.
Section 3, subsection D of the 2020 Mid-Term Monetary Policy Statement was dedicated to “Measures to address deficiencies in mobile banking” probably interchanged with mobile money platforms.
Under the subsection, the RBZ stated that it had carried a forensic audit to assess the integrity, compliance, and efficacy of mobile money platforms and transactions in Zimbabwe.
The forensic audit, according to the central bank, “revealed significant weaknesses in the systems of the mobile payment operators, namely EcoCash, OneMoney, Telecash, and Mycash”.
While several weaknesses were pointed out, this article focuses on the measures that were then taken following the forensic audit and the impact they are likely to have on the financial services sector in general and specifically EcoCash.
As part of the measures, mobile money platforms were directed to place a transaction limit of $5 000 per day, close all multiple wallets, and allow just one wallet per individual.
There is a problem with this limit. In a highly informal economy such as Zimbabwe, which is characterised by serious cash shortages, as well as limited traditional banking infrastructure, small to medium enterprises will struggle to make sales, unless if they only charge in US dollars.
In addition to the transaction limit, merchants are no longer allowed to make payments from their wallets while agents’ mobile money wallets were abolished. Bulk payment transactions, such as payment of salaries and wages are no longer allowed to be performed on the mobile money platforms.
Firms that had invested in putting up infrastructure to allow the use of Ecocash will feel hard done by this directive. Imagine retailers like Edgars and TV Sales and Home. How much had been invested to make payments with EcoCash possible? Is this infrastructure still worth it let alone service it if the transaction limit is just $5 000 per day?
The transaction limit needs an urgent review if the economy is to tick.
While four mobile payment operators, namely EcoCash, OneMoney, Telecash and Mycash, were mentioned, the measures should come as a major blow to EcoCash, which is the more developed and widely used platform among the four.
According to regulator the Postal and Telecommunications Regulatory Authority of Zimbabwe in its report for the first quarter of 2020, EcoCash had a 95,92 percent mobile money transaction market share by value, OneMoney 4 percent, while Telecash has less than 1 percent.
Since its launch in 2011, up to the financial year ending February 2019, EcoCash had facilitated US$78,4 billion worth of transactions.
In terms of reach, 90 percent of the adult population in the country are on EcoCash while 80 percent of national transaction volumes go through the platform.
This means EcoCash is the one likely to feel the impact of the latest measures.
But how much of an impact will these measures have on the business?
According to parent company Cassava Smartech’s results presentation for the period to February 28, 2019, EcoCash, which had 9,8 million subscribers and 135 000 channel partners (Agent, Merchants, Billers), contributed 76 percent to the Group’s revenue.
It is this business that has, however, received a major blow after the Reserve Bank of Zimbabwe (RBZ) introduced several measures that will see some of the services that EcoCash used to offer being abolished.
Of the 76 percent revenue contribution from EcoCash, send money or Person to Person (P2P) transactions contributed 52 percent, payments 18 percent, cash-out 14 percent, airtime sales 9 percent, and other 7 percent.
In a notice, EcoCash said the RBZ’s directive means subscribers can only conduct transactions up to a maximum of $5,000 per day. The cash out platform has been completely abolished, with the RBZ saying “agent wallets are no longer serving any legitimate purpose.” The abolishment means EcoCash will lose 14 percent of its revenue according to the results for the period to 28 February 2019.
Payments that contributed 18 percent for the financial year to February 28, 2019 will also take a hit from the directive given the $5 000 limits as well as the abolishment of bulk payments including wages and salaries. The limits might also affect airtime sales which contributed 9 percent in the financial year to February 28, 2019.
Roughly EcoCash could lose as much as 70 percent of its revenue per financial year. The new RBZ measures are thus a big blow. Interestingly the new directive comes at a time EcoCash went through a major upgrade in November last year. Of the upgrade, the parent company Cassava Smartech said it was the largest platform investment the company has made since the EcoCash platform was deployed in 2011. With the new directive, the investment might never be fully utilised let alone getting a return on investment, at the forecast payback period.
Shareholders in sell-off
While there has been a marked sell-off from the Zimbabwe Stock Exchange since the resumption of trading on the 3rd of August 2020, it seems Cassava has been severely punished and this could be related to the EcoCash woes.
On the last day of trading, just before the Zimbabwe Stock Exchange was suspended from trading Cassava Smartech was the fourth most valued company on the bourse with a market capitalisation of $21,8 billion. As of Wednesday, it was now ranked sixth, with a market capitalisation of $11,5 billion. It won’t be a surprise if Cassava is now on most fund managers’ sale orders.
What could be the way forward?
The easy one is for the central bank to review the daily transaction limits. A lot of transactions will be difficult to make with such a low limit of $5 000.
Most importantly the central bank must invest in the infrastructure that is needed to monitor transactions that take place on mobile money platforms.
If Zipit transactions can be monitored and supervised, it should be possible to do the same with mobile money transactions. The world is going digital and innovative products are set to increase, the central bank should keep up and not resort to measures that stifle innovation. – Herald