Can mobile banking boost financial inclusion in Nigeria?
In Nigeria, Africa’s most populous country with around 167 million people, mobile banking has been relatively slow to take off. This is, however, changing. Last year the Central Bank of Nigeria (CBN) issued the first operating licences to 11 companies to provide mobile banking services.
Nigeria’s telecommunications sector has been one of the country’s star performers over the past decade. According to Standard Bank, Nigeria is already the world’s tenth-largest mobile market. South African mobile operator MTN closely studied the Nigerian market for three years before it entered the country in 2001. Today MTN Nigeria has over 40 million subscribers, its biggest market out of the 21 countries where it operates. Many other brands such as Glo, Airtel and Etisalat have also launched operations in Nigeria.
Mobile banking – the key to financial inclusion?
Mobile banking has the potential to have a significant impact on financial inclusion in Nigeria. A 2010 study by Enhancing Financial Innovation & Access (EFInA), a financial sector development organisation that promotes financial inclusion in Nigeria, found that only 25.4 million adults, or 30%, have a bank account. Yet there are over 90 million mobile subscribers, highlighting the opportunities.
Stanbic IBTC, Standard Bank’s Nigerian unit, recently pointed out that “mobile money solutions will play a major role in integrating Nigeria’s huge informal economy, which is driven by small-scale farmers, traders, craftsmen and other types of small and medium size businesses, into the formal economy”.
Since the CBN granted the licences there has been a flurry of activity in the industry. Nigerian mobile network operators are only allowed to provide the network infrastructure for mobile banking and cannot directly receive any deposits. They must also allow their subscribers to use any mobile payment service of their choice. This has led to numerous deals between the banks, network operators and other mobile payment providers. The banks and other providers need the network operators’ infrastructure for their mobile banking services, while operators are keen to offer mobile banking as part of their value propositions.
“Creating a functional mobile money model can be complicated, especially in a country like Nigeria, calling for a collaboration from two distinct domains, telephony and banking, as well as for partnerships with a variety of players such as agents, some unfamiliar, to manage cash collections and disbursements and promote adoption,” said Stanbic IBTC.
Not a game for the boardroom
Tayo Oviosu, a Stanford University MBA, is the man behind the Paga mobile banking platform. The service currently has more than 87,000 users, but it is Oviosu’s vision to have over 40 million customers by 2015.
“I was frustrated about carrying cash around whenever I was in Nigeria. It didn’t help that 60% of the ATMs are based in Lagos and most of them are constantly not working,” Oviosu explained in an interview with How we made it in Africa. “Mobile money seemed obvious given the number of phones in Nigeria. My frustrations led to the birth of Paga.”
Paga allows users to transfer money, purchase airtime and pay their bills.
“Our mission is to deliver innovative and universal access to financial services. We fundamentally believe that technology should be built to fit into people’s lives rather than the other way around,” he says. “Paga has been designed to work on the most basic SMS enabled phone and without the need to download any application to your phone. Simplicity is key. If you can send an SMS, then you should be able to type in a few words and digits to send or receive money.”
Oviosu believes that building an agent network is one of the biggest challenges facing the company. Agents are responsible for new customer registration, loading cash into customers’ Paga accounts and processing cash withdrawal requests. “To really get this business right, our goal is to have an agent down the street from every consumer in Nigeria. And that means that we have to put feet on the ground to go and recruit those agents and to manage those agents. It is not just about recruiting them, but it is managing them. And that is actually the tough work of this business,” he said in a recent television interview.
Another firm looking to profit from Nigeria’s emerging mobile banking industry is Fortis Mobile Money. The company is an associate of Abuja-based Fortis Microfinance Bank, which was established in 2007.
Fortis is the only company with a microfinance background that have thus far received a mobile banking licence from the CBN. Its focus will be on providing mobile banking services to Nigeria’s unbanked in the rural areas as well as underserved city dwellers. It plans to have 100,000 agents across the country over the next year or so, a tall order by any measure.
“The game of mobile money is not going to be played in the boardroom or the armchair. It is a game of getting into the trenches, setting up the agents, getting the deals and just making the service available in the communities,” said Henry Nwawuba, CEO of Fortis Mobile Money. “For us, mobile money and agency banking is the next step in reaching the mass market and bottom of the pyramid.”
“For … Fortis Microfinance Bank … it was increasingly challenging to provide basic financial services to the unbanked populations, which is naturally our constituents to access loans, savings and repayments. With mobile financial services, we were able to reach more people in currently underserved and unserved communities efficiently and effectively …” Nwawuba added.
The company already has a deal with MTN and it is in the process of partnering with the other network operators. Smartphone users can, however, download the Fortis Mobile Money app that can be used on any network.
But are there too many players in Nigeria’s mobile banking industry? Nwawuba suggested that Nigeria’s huge unbanked population informed the CBN’s decision to license many operators. “I think the market is quite large. What the CBN has done is let as many people in as possible, because of the dearth of financial services and to accelerate financial inclusion.”
A cashless society
Nigeria’s central bank has introduced measures to reduce the amount of physical cash (coins and notes) circulating the economy. As part of the ‘Cashless Lagos’ initiative, those living in the country’s commercial hub now have to pay a ‘cash handling charge’ on daily cash withdrawals or cash deposits that exceed N500,000 (US$3,200) for individuals and N3,000,000 ($19,100) for companies. The plan is to next year roll out the policy across the country.
Mobile banking is one of the electronic payment platforms identified by the central bank to reduce the amount of cash in circulation. Other payment instruments include cheques, internet banking systems, payment cards and point-of-sale (POS) stations.
According to the CBN, the policy was introduced to lower the cost of cash. “There is a high cost of cash along the value chain – from the CBN and the banks, to corporations and traders; everyone bears the high costs associated with volume cash handling,” said the bank. Other reasons include reducing the risks of cash-based crimes and bringing more money into the formal economy, which will improve the effectiveness of monetary policy in managing inflation and encouraging economic growth.
Mobile banking has proved to be a viable business in Africa. Last year Kenya’s M-Pesa contributed $203 million to operator Safaricom’s total revenues. While Nigerian mobile money operators have a lot of work to do in rolling out agents and educating their customers about the benefits of their offerings, those who manage to survive should be in line for handsome returns.