Over the last decade Africa has gained a reputation for global leadership in mobile money, with Kenya at the forefront, but up to now financial services via mobile phones have not taken deep root in the continent’s most populace country — Nigeria. That may change as telecommunications companies such as Airtel and MTN jump into the mobile money market, after recently receiving licenses to do so.
Mobile money is not entirely new to Nigeria. Nigeria’s mobile money landscape, however, has been dominated by banks and other financial services companies. It was only late last year that Nigeria’s Central Bank (CBN), gave the green light for telcos to acquire mobile money licenses.
Telcos eye mobile money success in East Africa
Telecom operators would like to replicate the successes they have seen in East Africa for products such as M-Pesa, launched by Vodafone and Safaricom, the biggest operator in Kenya.
Aside from the late-in-the-game approval of mobile money licenses for telecom operators, Nigeria has had generally favourable legislation regarding new financial services. Nigeria’s API-based open banking initiatives, for example, have enabled fintech start-ups to introduce their own mobile-based financial services, working in conjunction with the banking industry.
This resulting explosion in payment services has seen the birth of start-up unicorns in the country, including Paystack and Flutterwave — which have more than US$1 billion in valuation — and Kudabank, valued at $500 million.
Yet there is still a need to extend financial tools to those in underserved regions, and many industry insiders believe the best bet yet is mobile money services.
With the new licenses, banks are set to face some challenges from the telecommunications sector. But how will these new telecom services co-exist with what is already there in the market — will there be stiff competition or collaboration between banks and telcos?
Nigeria has over 120 million people that have access to smartphones and the internet and those figures are growing every year, says Nwabufor Udemezue John, a web developer and consultant in Nigeria.
Mobile money service run by telecom companies will complement those operated by banks, and will potentially give people in underserved areas, such as rural regions, access to financial services for the first time, John says.
Generally, more players in the financial system means more options for the masses, John notes, and competition between the telcos and the banks could be an advantage for users in terms of pricing and service quality.
Telco mobile money can reach rural areas
“The arguments in favour of a telco-led mobile money framework is further supported by their subscriber numbers, available infrastructure and agent network — individuals who facilitate deposit and withdrawals — which far surpasses that of the banks in terms of numbers and geographical spread,” according to an International Bar Association paper by Rotimi Akapo and Glory Ogungbamigbe.
The paper highlighted Ghana as an example of how a review of the legal framework to allow telcos to apply directly for mobile money licenses has had a positive impact on the adoption of mobile money services, resulting in an increase of about 72% in the number of mobile money users.
Telco-run mobile money services can provide new growth paths for Nigeria’s open API initiatives and the fintech start-up ecosystem, says said John Straub, the CPO of Lynx Financial, a financial payment service for emerging markets.
Telco-led money services provide fintech growth path
“APIs facilitating open banking are absolutely the foundation of a thriving fintech ecosystem. What mobile money licenses will provide to Nigeria is the ability for fintechs to move beyond the traditional model of a bank-provided account,” Straub says.
But don’t expect to see staunch competition as yet, Straub says. The new entrants still need to weigh where their advantages lie, and build strategies to capture the market.
“The mobile money licenses have been granted to a very small number of local telecom companies so there is still a long way to go before they reach a wide number of citizens,” Straub says, adding that there is still tremendous investments needed in the infrastructure to drive adoption.
Infrastructure includes human resources — recruiting and maintaining agents on the ground who are the engine of any mobile money ecosystem. These agents are found in local communities, making deposits and withdrawals easy for locals.
“The licenses that [government entities] have issued are quite limited in that they do not allow services like foreign exchange, loans and insurance. So while these mobile money licenses will help remove barriers to doing business in Nigeria there still exists gaps that will need to be addressed to truly achieve financial inclusion,” Straub says.
Collaboration vs. competition in mobile money
If Nigeria is to learn from Kenya, then the conclusion would be that collaboration yields much better outcomes than all-out competition. The banking sector and the mobile money sector in Kenya work in tandem to provide services such as withdrawal from a bank account to a mobile wallet and vice versa. But it has not always been this way.
The Kenyan banking sector in early 2008 saw mobile money as a threat. These sentiments and objections, however, did not sway the growing wave of mobile money across the country.
According to a 2010 GSMA report, the growth of banks had stalled but mobile penetration was skyrocketing.
“For every Kenyan that had access to a bank account, at least two others had access to a mobile phone. Mobile phone penetration in 2006 was nearly 30% and growing much faster than bank account penetration,” according to the report.
In the end, the merging of mobile money and banking services via APIs was beneficial to the Kenyan financial services ecosystem. Banks are now allowing users to deposit and withdraw sums of money through USSD (unstructured supplementary service data) or mobile apps. Even microloan disbursement is now done on the phone, remote from bank branches.
Banks in Kenya are moving billions of shillings every day through mobile money and creating new revenue streams in service charges.
In an analysis of mobile money globally, the GSMA emphasizes the benefits of collaboration among the various players offering mobile financial services.
“The banking and mobile money sectors do not have identical addressable markets, but even where they overlap, customers do not tend to choose one sector over the other. Whether they are a mobile money or banking customer, customers need to be able to transact to both the top and bottom of the financial system pyramid,” the report said.
It will be a “wait and see” situation in Nigeria, as efforts to bring new financial services to the masses gets a set of telco participants.