The withdrawal of two of Kenya’s largest gambling operators could end up with a serious blow for the revenues of Safaricom’s M-Pesa.
The end of September saw SportPesa and Betin Kenya announced their shop closures across the country following operating license revocation and the new 20% excise duty which is being imposed on all bets made by local gamblers. At the time when they revealed their decision to stop providing their services in Kenya, the two companies also explained that neither of them is able to work in what they called a hostile operating environment.
The shutdown, however, could seriously affect the revenues generated by M-Pesa, the mobile-phone money transfer and financing service, which is currently the second-largest revenue generator for the Kenyan mobile network operator Safaricom after voice services. The M-Pesa system has been used by gambling operators to allow their customers to make money transactions to and from their betting accounts, with these transactions generating a certain income for Safaricom, too.
According to analysts from Genghis Capital, the revenue growth of M-Pesa is set to fall from 18.2% that was reported in the first six months of 2019 to 13.3% on a year-on-year basis. The mobile network operator’s M-Pesa service accounted for 30% of the company’s total revenue in the year ended May 2019, after generating revenues of KES35 billion. The total service revenue of Safaricom increased by 7.7% to KES118 billion in 2019, with its voice service and M-Pesa service being the major growth drivers.
Gambling Market Reshuffle Will Take Some Time but M-Pesa Will Still Benefit from the Changes
As claimed by Genghis Capital, the expected decline is related to the performance of the country’s betting sector that currently generates about 7% of M-Pesa total revenues. According to the analyst Patrick Mumu, the impact of SportPesa and Betin’s withdrawal would be significant since the two companies have been the two largest gambling operators in Kenya. Mr. Mumu claims that the gambling operators’ shutdown could deprive M-Pesa of between KES4 billion and KES5 billion of its revenues.
According to researchers, customers will not get used to the situation quickly but they will eventually start moving to the smaller gambling companies which still operate on the territory of Kenya. This is how smaller betting operators will slowly fill the gap left by SportPesa and Betin, and if they manage to do so, M-Pesa is the brand that is most likely to draw benefit from the gambling market reshuffle.
In July, Kenyan authorities suspended the operating licenses of the two largest gambling companies following revelations that both SportPesa and Betin Kenya had not been providing the Government with true reports about their earnings. The operators were accused of paying considerably lower taxes than they had been supposed to. These allegations, combined with the newly-passed Finance Bill 2019 that contains clauses to see a 20% excise duty on all staked amounts, were what pushed the two companies to the decision for the shutdown.
At the time when they announced their decisions to cease operations in Kenya, SportPesa and Betin cited local lawmakers’ hostility and the unfavorable business environment as the main reasons for the withdrawal.