Mastercard's biggest African competitor, Opay's Dominance Claim and Ghana vs MTN

Good morning,

When Raghav Prasad, MasterCard’s Division President, in charge of sub-Saharan Africa was recently asked how it’s platform and offering differs from that of its competitors he replied saying:

Let me put it very simply: in Africa, our biggest competitor is cash. Around 95% of all transactions in Africa are in cash. I could spend all my time thinking about Visa or American Express or I could try to reduce that 95% – come with new ways to expand and digitalize cash. By the way, cash is very expensive. You have to print, store, transport, secure it. We estimate that the cost of cash is around 1.5% of the GDP of an economy. That is where we can make a difference.

There are two outstanding things about his response to me. He skillfully shifted the focus of the question from a comparison with competitors to looking at the bigger picture -- that there’s room for everyone to play. He then dropped a significant claim, that around 95% of all transactions in Africa are in cash.This got me thinking since it’s easy to throw stats around(more on this soon), is the use of cash that prevalent in Africa? Where did he get that figure from? I found that it’s most likely correct looking at recent cash usage patterns mostly other parts of the world. A few of them are:

80% of average global transactions are in cash. 

In Asia, over 75% of eCommerce transactions are paid with cash on delivery.

In the UK, 70% of people say cash gives them peace of mind.

If it’s that high in other parts of the world, then it’s not so hard to believe Africa’s case.

He also stated that the cost of cash is significant, I agree with this because for example, between 2013 - 2018 Nigeria spent ~$770m on printing banknotes. Having settled that, it raises the final question that comes to mind: If cash is expensive (to the government) why do people prefer it? The answer isn’t far fetched as It’s ‘safer’, faster and less expensive, I’d explain with more survey results:

5 million UK adults cancelled their bank cards in 2017 because of cybercrime. Cash is safer especially in countries where there are fewer robberies. 

In Germany, cash payments are 7 seconds faster than card payments with PIN entry. & seconds doesn’t seem like a lot but then remember it’s excluding being delayed by network issues.

In the United States of America, 83% of small business owners say they will never stop accepting cash. It’s easy to see why some small businesses prefer cash, they don’t have to pay for the fees involved with using a credit card.

The relationship we have with cash is intriguing, It’s costing a lot but also comes in handy where its alternatives fall short. I’m curious to see how Mastercard would reduce cash usage in Africa, It already has 2.5m card acceptance locations and 1m merchant locations across Africa that accept Mastercard QR payments, but unless whatever solutions it’s bringing to the table tackles the reasons why people prefer cash, it’d barely cater for the fraction 95% of cash-related transactions in Africa. 

Opay’s Dominance Claim

In response to the notion that things are going bad for Opay - Africa’s next Wechat, it decided to tell it’s own story. 

From Techcabal

OPay says it is having its best yet ever. It claims it now has 5 million users and processes over 60% of mobile money transactions in Nigeria

Outside its core payment business, OPay’s 2020 had been rough. The Lagos ban on motorcycles for passenger transport threatened the future of its bike hailing service. The ban affected OPay’s visibility in the mass market. The pandemic also disrupted the marketing of new products while affecting existing offerings like OCar and gambling payments.

At first, I didn’t read past the first few lines of this article because it felt like a promotional piece by Opay, but then spurred by other people asking the same question -- How can you control 60% of mobile money transactions in Nigeria? --  I read through. 

The simple answer, as seen in the tweet above by the author of the article is that a Payment license (which is what Paystack has) to process online payments is different from a Mobile Money license.

Moving on, there might be some truth in the fact that things are better for Opay as it claims it has moved from 40,000 agents to 300,000 agents and from 100,000 users to  5 million users in about a year. And only a few companies like FirstBank (45,000 agents), Paga (24,143 agents) and, possibly, MTN have a deep agent banking reach, according to the publicly available information.

At the same time, 11-year old Paga claims to have 15 million users across Nigeria, that’s 3 times more than OPay. 

So, If OPay gets over 60%, does this mean, other mobile money operators such as QuickTeller, Paga, Firstmoni have only 40%? I don’t think so.

Ultimately, If Opay’s claims are a fraction of what it claims, and it still has a huge chunk of the 170m it raised last year or is able to tap into more funding when it needs it, then there’s a chance it could dominate the space.

Ghana vs MTN 

Similar to last week’s story on South Africa’s eCommerce space. Last week, Ghana’s National Communications Authority (NCA) threatened to reduce the power of MTN, a dominant player by levelling the playing field for other Telecom players in Ghana by giving them favourable rates — setting of floor/ceiling pricing on all minutes, data, SMS and mobile money. 

Source: Quartz

As seen above, MTN is leading the pack, with MTN also being in control of 80% of the top-ups for the period of January – March of 2020, and more than 90% of Mobile Money transactions for the same period. 

Rightfully, in protest to this move, I think the response of CUTS Ghana, a leading research and policy firm is mostly spot-on: 

“Competition (antitrust) regimes all over the world see nothing wrong in being a dominant or a monopoly. What is against the law is an abuse of a dominant position in the market.

In any case, with no competition law in place, is there enough competence in Ghana to investigate abuse of dominance? The biggest question is whether MTN gained dominance through disadvantaging rivals or simply because rivals were inefficient. If competitors were inefficient, then the new measures are simply intended to bail out or reward inefficiencies.

“There are some services wherein it is more efficient to be served by a monopoly than to have multiple firms competing due to the inherent sunk cost and natural monopoly conditions. Take for instance, while there are plenty power producers for the grid, the electricity retail market is monopolised by the Electricity Company of Ghana (ECG) for the whole country – with exception of the Northern and part of Brong Ahafo Region which are served by the Northern Electricity Company (NEDCO).”

Notably, I don’t think the telecom space would benefit from a monopoly, the downside of a monopoly is known to all. Still, there are different ways to look at this situation, on one hand, you can look at it as the government’s intervention in a free market, which isn’t healthy.

On the other hand, it makes me wonder what message Ghana is sending to other foreign Investors ( MTN is South African owned)? is it do not invest or if you invest, don’t plan to grow too big or else we’d trim you?

Sending you great vibes. Have a great day!