The partnership involving Uchumi Supermarkets, which is Kenya’s second largest retail chain by annual turnover, and fourth placed Naivas deepens the mobile money transfer platform’s transformation into a key electronic commerce tool with the potential of upsetting the cash-based transaction system that currently dominates the country’s commerce.
“Our aim is to bring about a situation where M-Pesa subscribers will leave home with money in their M-Pesa accounts and not need any other form of cash to transact during the day,” said Michael Joseph, the outgoing Safaricom chief executive.
“This is only the beginning of a new revolution because we also plan to sign up petrol stations, restaurants, hotels, and chemists as M-Pesa Buy Goods partners,” he said.
The move comes at a time when Safaricom’s main income earner – sale of airtime – is under severe pressure from a fierce price war that has seen calling tariffs drop to rock bottom levels in the past two months.
Safaricom’s signing up of more retailers is hinged on the expectation that use of the service by the estimated 12.5 million M-Pesa customers will boost the company’s top line, and help scale down its reliance on voice calls as the main revenue earner.
Mr Joseph said the service will initially be free, but will later attract charges.
The telecoms company has signed similar deals with more than 300 utility companies – allowing consumers to use M-Pesa to settle their monthly bills including water, electricity, and insurance.
M-Pesa subscribers can also use it to book flights with Kenya Airways, and pay for services at Sarova Hotels.
Transactions in Kenya are chiefly cash-based, a situation that has been attributed to a combination of factors such as aversion to debt, and stymied the growth of credit cards in the financial services sector.
The challenges of a smaller base of shops accepting credit cards and inefficiencies at the point of sales terminals are seen as factors holding back e-payments.
Slow uptake of banking services has also limited spread of electronic payments, as is clear from the relatively low number of credit and debit card holders, estimated at 110,792 and 4.3 million respectively as per Central Bank of Kenya’s latest data. The Uchumi supermarket’s chief executive, Jonathan Ciano, said Safaricom’s M-Pesa payment system is likely to gain more traction given its deep penetration and a huge subscriber base of 12.5 million, which exceeds the total number of account holders in Kenya.
Mr Ciano said about 20 million shoppers visited Uchumi’s stores last year, an indication of the high revenue potential based on the low-margin, high volume pricing model. In the year ended June 2010, shoppers at Uchumi spent Sh9.6 billion.
As a listed company, Uchumi is the only supermarket in Kenya that publishes its annual accounts.Mr Ciano said he could not estimate the supermarket industry’s total turnover.
In an interview with Business Daily last year, the Nakumatt Supermarkets group managing director, Atul Shah, said his company recorded a turnover of Sh28.8 billion in 2008.
Nakumatt is Kenya’s leading retailer by sales volumes. Other notable industry players include Tuskys, Ukwala, Chandarana and Stagematt.
The value of total money transferred through M-Pesa rose to Sh525 billion in July, implying a monthly churn of Sh33 billion since its launch in 2007.
“M-Pesa is a business that does not have strong competition. It will take time before it is widely acceptance as a platform for buying goods but will in the long term benefit from challenges facing credit cards and the desire by CBK to deepen cash-less transactions,” said Mr Eric Musau, an analyst at African Alliance.
Should the buying of goods using M-Pesa prove to be as popular as the money transfers, he said, M-Pesa could plug revenue holes caused by the dip in voice-generated income.
The Nairobi Stock Exchange listed firm projects M-Pesa revenues will grow by 158 per cent to Sh7.56 billion by end of the current financial year ending March, up from Sh2.93 billion last year. This will represent 9 per cent of total revenues.
Bharti Airtel, which recently acquired Zain, made an unprecedented cut of its voice tariffs to Sh3 per minute in August, a move that led to an industry-wide response that has seen the players charge rock bottom rates for domestic and international calls to keep subscribers in their fold.
Analysts expect the price wars to weigh down on Safaricom’s earnings, and diminish the record Sh20.9 billion profit before tax the firm recorded last year.
Mr Joseph said Safaricom expects voice to remain the key revenue driver despite the low call rates.
“Voice will still account for over 75 per cent of our revenues for years to come,” he said.