MIP Holdings, one of South Africa’s largest independent software houses, has acquired Stellenbosch-based Itemate Solutions for an undisclosed amount. The acquisition gives MIP access to Africa’s unbanked market through merging financial services with cellular telephony devices.
Itemate’s range of packaged solutions address a wide range of requirements in the mobile and fixed line telco markets. MIP says this will be a world-first in recognising the mobile device as a transaction mechanism rather than just a telephone for developing markets.
“We believe the proliferation of wireless technology is going to transform the mobile device from not just a phone and camera but rather to a device that replaces one’s entire physical wallet to digital forms of credit cards, insurance policies, loans, identification documents and location services,” says MIP CEO and chairman Richard Firth.
“This is the most strategically important acquisition we have made to date,” adds Firth. ”It is impossible to overstate the importance of mobile telephony, but to date big business including the mobile companies has under-estimated it.”
”It is important to note that while other companies address the mobile wallet, MIP and Itemate enable the entire prepaid and financial service value chain.”
Itemate was formed in 2005 and its software solutions track the entire lifecycle of a mobile prepaid phone and SIM card, or any prepaid entity. This embraces the allocation of unique numbers to the use of individual cards through the value chain, including distribution and logistics, point of sale, sales intelligence and tracking the entire usage of the phone card by the user from the time he loads the card, virtual voucher or SIM with airtime until he uses the last second of airtime.
“The vast majority of cellular users around the world are and will be prepaid,” says Itemate CEO Mark Parker.” The figure is as high as 90% in developing countries. These cellular subscribers are by and large untracked. We enable cellular companies to track subscribers via their SIM and prepaid phone cards from the time they buy airtime until it has been used, or not used. The unique key value proposition of Itemate is its solutions’ ability to track and report on deferred revenue, a vital issue for most network operators.
“The telco sector, in particular the cellular component, has been characterised over the last two decades by wireless network expansion during periods of extraordinary growth. This leads to widespread data integrity problems and careless operational processes,” says Parker. “Our operational and business support systems and consulting services help carriers plug revenue leaks, clean up error-prone inventories and boost profitability without spending new money on network infrastructure or marketing.”
“Factors that attracted us to Itemate Solutions were the fit with our financial services and insurance systems,” adds Firth. “Millions of Africa’s telco customers will in time be transacting through their cellphones, which puts us in pole position to provide cost-effective offerings via this channel and owned by the operators.”
Areas MIP will target through the acquisition of Itemate include treasury management, microloans, micro-insurance, funeral policies, stokvel investment schemes and micro-investments.
Itemate’s solutions include iTrac, iPin, iSwitch, iData, iWare, iPos and iVd, which represent a broad scope of offerings. Network operators across Africa have taken up Itemate’s offerings, including MTN, Orange, Telecel and Tigo. Firth advises that a number of these existing and prospective clients have expressed deep interest in the joint MIP/Itemate offering.
“There are three principal drivers for network operators,” says Firth. “They are average revenue per user, or ARPU, customer loyalty or churn and integrated value-added services. It is well known that ARPU is in decline, and the best way to stimulate revenue growth is through value-added services, or VAS, linked to effective loyalty programmes. MIP and Itemate will jointly enable this, driving brand loyalty or customer retention and transactional growth.”
Itemate integrates fully with other applications, such as Fundamo, which was recently acquired by Visa, and Firth says it is the “glue to unite other platforms”. The value attached to the Fundamo acquisition underscores MIP’s strategic intent and timing.
Telephony operators are known to suffer turnover losses due to revenue leaks, in particular emerging market operators, who sustain higher than average levels of loss.
“Where prepaid products are being effectively used in an emerging market, which is most of Africa, that revenue generated from the use of prepaid products comprises at least 90% of total revenue,” adds Parker. “For this reason our solutions are focused on the management and automation of the processes involved with the entire prepaid value chain.”
As an example, many pay-as-you-go customers buy a voucher which may not be fully redeemed, due to theft or other circumstances. As these vouchers are produced in batches, it is difficult for telcos to deal with them at an item level, so the unredeemed time and cash are placed in a massive “float”, or suspense account which grows over time. This is known as “unearned income” or “deferred revenue”. Itemate can reconcile the individual vouchers and pay-as-you-go cards at an item level, thereby freeing up the cash in the float or enabling “detailed deferred revenue” management.