Safaricom Opens Talks With Vodafone UK On M-Pesa License Fees

Safaricom has opened negotiations with its UK parent company, Vodafone, which could see the telecoms firm pay less M-Pesa licence fees to it starting April next year.

A customer is served at an M-Pesa outlet in Nairobi. There are 19.3 million registered M-Pesa users in Kenya. PHOTO | FILE

A customer is served at an M-Pesa outlet in Nairobi. There are 19.3 million registered M-Pesa users in Kenya. PHOTO | FILE

As the inventor of the globally acclaimed mobile money payments service, Vodafone is entitled to licence fees from Safaricom, calculated as a fraction of M-Pesa’s annual turnover.

Vodafone has also been getting annual fees from Safaricom for maintenance of M-Pesa servers in Germany, but these are now set to be shifted to Kenya again lowering charges paid to the UK firm which is the single-largest owner controlling 40 per cent shares of the Nairobi Securities Exchange-listed telco.

“By April next year Safaricom will have moved onto a new M-Pesa platform, which is centrally designed by Vodafone, built by Huawei and hosted locally,” said Nzioka Waita, director of corporate affairs at Safaricom.

“The capital and operating cost structure will therefore change and the licence agreement will also change, this is a work in progress,” he added.

Safaricom further expects Vodafone to have recovered the costs it incurred in setting up and maintaining the M-Pesa infrastructure by April next year, through the royalties fees it has been paying since 2007.

Vodafone currently receives quarterly payments pegged at about 11 per cent of M-Pesa revenue as royalties for using the mobile-based money transfer and payments service.

The Newbury-based telco pocketed a total of Sh2.9 billion from the Sh26.56 billion revenue that Safaricom generated from M-Pesa in the year to March 2014.

Vodafone Sales and Services Ltd (VSSL) owns proprietary rights to the M-Pesa platform and earns service fees accrued from the use of the mobile money transfer solution.

Higher dividend

The success of M-Pesa in Kenya has turned out to be a cash cow for Vodafone plc — generating handsome royalty fees as well as boosting Safaricom’s bottom-line, resulting in higher dividend pay to the UK firm.

“The current M-Pesa licence fee is based on Vodafone recouping the capital investment and operating expenditure incurred in the development and running of the M-Pesa platform on behalf of Safaricom, plus a fee for the intellectual property which belongs to Vodafone,” Safaricom said in a statement.

In total, Vodafone has earned Sh9.6 billion in royalties since the launch of M-Pesa in March 2007, and the money transfer service has recorded double-digit growth in revenue due to increased uptake of the service.

“At this point in time, the accumulated licence fees paid by Safaricom have not recuperated the costs incurred by Vodafone,” Mr Nzioka told the Business Daily.

At the moment, M-Pesa transactions are routed to Germany and bounced back to Kenya, exposing the system to delays and service outages especially when connection is disrupted due to under-sea fibre optic cable cuts.

Huawei has shipped in about 200 Chinese expatriates to upgrade the M-Pesa platform and increase the solution’s capacity to handle 600 transactions per second.

M-Pesa recorded a peak average of 260 transactions per second and 440 airtime top-up transactions per second in the fiscal year ended March 2014.

The move to host M-Pesa servers locally follows an upgrade of the platform’s Application Programmable Interface (API) in January 2014, resulting in real-time processing of transactions such as retail payments.

– Business Daily