eBusiness Weekly
Kudzanai Sharara
The country’s economic environment, worsened by Covid-19, saw the Zimbabwe Stock Exchange listed, Cassava Smartech, experience a serious dent in some of its biggest operations, mainly EcoCash.
Coupled with inflation hit disposable incomes, EcoCash was affected by regulatory changes and restrictions.
So severe were the regulatory changes on EcoCash that the parent company will have to reconfigure its business model to recover lost revenue streams and embark on another growth path.
While results for February 2020 and the half year to August 2020 are yet to be published, a trading update released by the company, revealed how much of a damage, regulatory changes were and are likely to have on EcoCash going forward. Only a reconfiguration of the mobile money business, coupled with new mass products might help recover lost revenue streams as well as create and capture value going into the future.
In the trading update, Cassava listed seven regulatory directives that have impacted on the Group’s operations, mainly EcoCash.
Revision of mobile money limits and permissible transactions as well as suspension of some EcoCash user categories and functions will see a big chunk of the business’ revenue streams falling off.
While revenue from other sources such as insurtech was already growing, it will take time before they can replace revenue lost not only at EcoCash level, but at Steward Bank as the two enjoyed synergies.
For the first time since inception, EcoCash registered a dip in both registered subscribers and transaction volumes for the half-year to August 2020. This was a result of macroeconomic factors including constrained economic activity in the country, the pandemic, but largely regulatory directives.
While the jury is still out on how much business EcoCash will lose exactly, rough projections indicate as much as 70 percent.
The cash out platform, which has been completely forbidden, means EcoCash may lose a significant portion of its revenue. According to the results for the period to February 28, 2019, the cash-in-cash-out function contributed 14 percent to EcoCash’s revenue.
Concerns over regulatory issues might result in reduced person-to-person (P2P) transactions that previously contributed 52 percent.
Payments that contributed 18 percent for the financial year to February 28, 2019 may 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 affect airtime sales that contributed 9 percent in the financial year to February 28, 2019.
In the latest update, Econet confirmed the impact transaction limits are already having on the business.
“The value of transactions processed on the platform has gone to about 19 percent of the total value processed on the National Payments System down from 30 percent in the prior year,” reads part of the update.
With interoperability now in place some market share could be lost to competition.
The regulatory challenges at EcoCash, unfortunately for Cassava, come at a time banking unit Steward Bank is struggling.
For the period under review, growth in real terms was subdued, as a result of the harsh macroeconomic environment and the adverse effects of Covid-19.
“The aforementioned conditions affected customers’ disposable income, resulting in lower active customers and lower transaction volumes, compared to previous periods.”
The operating environment was unkind to the life insurance business where a decrease was recorded in the number of life policies held, to close at 1,3 million customers covered, down from 1,6 million customers in the previous period. The short term insurance business under Moovah was the only shining light as it recorded growth.
“Growth prospects for this business unit are high, as we continue to introduce new products under the short term insurance line,” Cassava said.
Reconfiguration
Given the potential loss in revenue, Cassava is now compelled to have a re-look at EcoCash’s offering. There is a need to re-look at the EcoCash business model and adjust how it interacts with the environment, and produce an offering that adds value to the participants.
The elimination of some of its offerings has affected EcoCash’s capacity to continue creating and capturing value.
EcoCash now has to re-invent itself to confront interactions with players in the financial services sector that are different from what the company had experienced before regulatory changes. Going forward, EcoCash must reconfigure its business model to add value in spaces where there is little negative interaction with other industry players. It might as well be good if the company can build positive, complementary interactions with other industry players.
Reducing negative interactions or neutralising them through tactical choices might also serve it well going forward. The future of EcoCash depends, to a larger extent, on its ability to imagine, design, and implement new business models.
