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In early 2018, it was reported that the CBN granted a mobile money licence to a subsidiary of MTN Nigeria but revoked it just a week later.
In the last quarter of the year, Nigeria’s apex banking authority released guidelines on how telecommunications operators could participate in the mobile money space. They were required to apply for a Payment Service Bank (PSB) licence through a subsidiary company and make a minimum non-refundable capital deposit of N5bn ($12.2m).
Although there were questions about the application fee, the major telecom operators – MTN, Airtel, 9mobile, Ntel, and Globacom – still threw their hats in the ring given the lucrative appeal of mobile money.
Not the real deal, yet
The license would only allow the telecom operators to maintain savings accounts or electronic purses (wallets), accept deposits from individuals and SMEs, issue debit and prepaid cards, and other related services speculated in the CBN guidelines.
They were however still exempted from core banking operations such as directly or indirectly granting any form of loans, advances and guarantees; accepting foreign currency deposits; being involved in foreign exchange dealings, insurance underwriting and other operations not expressly stated by the CBN guidelines.
But considering their success rates in other African countries, the operators had high hopes for the new Nigerian market they were about to unlock. Banking on their nationwide infrastructure and agency network, the five telecom operators hoped to reach 15 million customers with financial services in six months, 35 million in one year, 70 million in two years, and 90 million in 30 months.
This, they believed, would contribute significantly to the CBN’s goal of achieving 80% total financial inclusion and 70% formal financial inclusion by 2020.
Nevertheless, it was not until two years later that the licence was issued, and only to certain players.
Local operators green light
In August 2020, the CBN issued the much-coveted mobile money licence to two of the telecom operators that had shown interest in offering financial services to Nigerians – Globacom’s Money Master and 9Mobile’s 9PSB.
Surprisingly, two of the biggest industry players – India’s Airtel and South Africa’s MTN – did not receive licences. This raised questions about how the CBN intended to reach the whole market and accelerate their financial inclusion goal without allowing full participation of the systemic telecom players.
The CBN issued the licence to the Nigerian telecoms operators for them to have a head start, but they have not really been able to make much headway 18 months [later].”
The CBN through its payments system policy head, Olubukola Akinwunmi, says the remaining telecom companies, which were yet to get the licence, were ‘unable to meet the PSB licensing requirement’ set by the bank. He added that the apex bank does not give preference to any players and that only the bank management determines applicants who meet their requirements and subsequently get the licence.
Telecoms analysts have been unable to explain which requirements Globacom and 9Mobile met that Airtel and MTN couldn’t, despite their capacity, two decades of experience with the same regulators and broad exposure to international markets.
A source close to one of the two unlicensed telcos, but who prefers to be unnamed, tells The Africa Report that it comes down to the decision by the CBN governor who has the authority to issue licences [at] any time “with just a stroke of a pen”.
He adds that considering how Nigeria and the central bank are falling well short of their financial inclusion targets, particularly for the biggest victims – women, rural communities and northern Nigeria – and how well it will benefit not just the market, but the Nigerian people and the government too, the CBN should grant the PSB licence to the two remaining telecoms operators.
“The CBN issued the licence to the Nigerian telecoms operators for them to have a head start, but they have not really been able to make much headway 18 months [later]. A game changer will be to grant licenses to Airtel and MTN because they control 60% to 65% of mobile subscribers in Nigeria and crucially, they cover the rural poor, the north, women and young who don’t have access to financial instruments,” he says.
A Lagos-based businessperson familiar with Mike Adenuga’s telecoms operations, who also requested anonymity, says Adenuga is ‘extremely happy’ with how his own mobile money [operation] is going.
The current Buhari administration, as well as previous regimes under Olusegun Obasanjo and Goodluck Jonathan, have pushed legislation that favours domestic players over foreign companies. A recent example includes the provisions in the Petroleum Industry Act that protect the upcoming Dangote refinery from foreign fuel traders, but this has since been revised.
South African companies have been failing in Nigeria for some time now. Tiger Brands, Protea Hotels, Shoprite are a few of the more prominent ones.
According to the Nigerian Communications Commission (NCC), MTN Nigeria – as at July 2021 – controls the largest share of the country’s mobile network operators market with over 73 million subscribers (39.01%).
Globacom comes in second with over 51 million subscribers (27.28%). Airtel and 9Mobile hold the third and fourth positions with 50.3 million (26.83%) and 12.9 million (6.89%) subscribers respectively. MTN and Airtel therefore have a combined 120-million-strong subscriber base, representing 65.9% of the market.
A clear opportunity
Regardless of the political economy, the opportunity for mobile money [expansion] is available in Nigeria.
In the 2020 ‘Access to Financial Services in Nigeria Survey’, EFInA asserted that growth in mobile phone ownership (81%) or access (89%), and agent networks, offer the opportunity to drive faster financial inclusion growth. In addition, much of the total transfer transactions in 2020 (78%) were done on a mobile device.
43% of total transactions were done online, while USSD came a close second with 35% of transactions. This shows the significant role that mobile money already plays in Nigeria’s financial services sector, and the enormous potential yet to be unlocked.
As at 2019, Nigeria had 15.3 million mobile money customers. Ghana, whose population is about 7 times smaller than Nigeria’s, had 32.55 million registered mobile money accounts as at 2018. As of May 2021, Kenya (whose total population is about 50 million people) had some 67.8 million registered mobile money accounts.
That Nigeria’s mobile money adoption rates are dwarfed by the figures from smaller African countries with telco-led mobile money markets clearly indicates the opportunity costs of excluding some telecom companies from actively participating in the market. The expertise and enormous resources that they [the excluded companies] can put behind it [the Nigerian market] also makes the case for their inclusion plausible.
Tajudeen Ibrahim, senior vice president and head of research & strategy at Chapel Hill Denham, a Lagos-based top investment firm, tells The Africa Report that Nigeria’s mobile money market and financial services sector will gain a lot if these telecom companies are allowed to fully participate. “A full participation of telco operators will have a great positive impact on mobile money in Nigeria as it will enhance financial inclusion. We estimate that an additional 63 million people will have access to financial services if MTN and Airtel are granted the payment service bank licence,” he says.
At 36%, Nigeria’s financial exclusion rate is higher than many countries in Sub-Saharan Africa – South Africa (7%), Namibia (22%), Kenya (11%), Rwanda (7%) and Uganda (22%). Interestingly, many of these countries have a large non-bank mobile money share of the financial inclusion basket. While non-bank mobile money actors only account for 6% of Nigeria’s financial inclusion basket, it is 39% in Kenya, 41% in Rwanda and 36% in Uganda, according to data compiled by EFInA.
Saving the banks’ interests
In July this year, CBN released the ‘Regulatory Framework for Mobile Money Services in Nigeria’, a document detailing the guidelines governing the mobile money market in the country.
The new guidelines identified two models for the implementation of mobile money services: the bank-led model, which allows a financial institution or its consortium as lead initiator, and the non-bank-led model, which accepts ‘a corporate organisation duly licensed by the CBN as lead initiator’.
CBN is the regulator of PSBs in Nigeria. It is hybrid in some countries like Kenya and that is why mobile money is really successful there.”
Although the guidelines stated that the telecom operators would provide the infrastructure needed to drive the exchange of messages for mobile payments, it explicitly stated that none of the models would be telco-led. It demonstrates that the CBN still prefers the bank-led status quo and doesn’t currently favour a telco-led drive.
Our source says one of the reasons for this is that the CBN is worried about who will be the regulator between CBN and NCC. “He (CBN Governor) wants to keep control. I think a hybrid system can work where the CBN retains the regulatory authority over this particular area. It has worked elsewhere.”
Adeniyi Oladipupo, a Lagos-based senior banker, says a hybrid system where both CBN and NCC agree on areas of regulatory oversight is the best for the market.
He tells The Africa Report that “CBN is the regulator of PSBs in Nigeria. It is hybrid in some countries like Kenya and that is why mobile money is really successful there. In order to achieve the financial inclusion targets and take people out of poverty, I believe collaboration is the way forward”.
There are also indications that a strong bank-led lobby, which fears that banks would play second fiddle in the space if confronted with stiff competition from the telcos, is also at play. However, a faster and wider access to financial services by the country’s largely unbanked population is what is at stake.
Lobbyists for the two foreign telecoms companies tell us that it will be a win-win situation for the banks in the long run if they allow it, because more people will be brought into the financial system that the banks cannot quickly reach.
Adeniyi believes that the banks are the CBN’s constituency and they are bound to protect them. “Banking is a business, and just like other businesses, they don’t want to lose revenue even in the short term. The banks see telcos and fintechs as competitors and truly, they are. It is believed that the telcos have the financial muscle that can kill the banks in that space and the CBN doesn’t want that because they believe that without banks, the economy will suffer. The downside, however, is that financial inclusion will crawl.”
As a result, he says, something’s got to give, and a bank-MNO partnership and participation is what he believes will work.
With more than 38 million adult Nigerians still unbanked, the CBN can’t achieve its 2020 target (80%) for total financial inclusion in Nigeria. The country recently hit 64% inclusion. In fact, unbanked adults grew from 36.6 million to 38.1 million as population growth outpaced the rate of financial inclusion growth, according to EFInA.
The World Bank, in its ‘Nigeria Digital Economy Diagnostic’ report, points out that the needs of the poor have not been successfully addressed by the Nigerian financial sector. The global financial institution stated that in 2018 for instance, about half of Nigerians were extremely poor and that only one quarter of the poorest 40% of adults had an account with a bank or a mobile money provider. It added that for them, the opportunity to receive a deposit in real time “can make the difference between buying enough food or staying hungry, or between keeping [children] at school or having them drop out”.
It then concluded that because the most financially-excluded Nigerians are preponderantly rural dwellers, female, younger and with median monthly income of N15K ($36.46), it is extremely difficult to build a sustainable business model for such a population using conventional banking channels with their high fixed costs. Therefore, digital banking or mobile money transactions remain the viable alternative particularly for this demographic.
As of July 2021, Nigeria’s connected lines had reached over 327 million, over 187 million of which were active. At least 139 million lines are connected to the internet, according to the NCC.
Meanwhile, over 45 million or 36.5 percent of Nigeria’s total 124.5 million bank accounts were inactive in 2019, according to data from Nigeria Inter-Bank Settlement System Plc (NIBSS). Even though the number of active bank accounts jumped to 111.54 million in 2020, 48.5 million accounts (30.31%) are still dormant.
Since EFInA has reported that 73% of Nigeria’s unbanked adults do not have the required documents to open a Tier 3 bank account, non-bank players such as the telecom operators with large, nationwide subscriber base are well positioned to deepen the market and should therefore be given the chance
Tajudeen says: “both MTN and Airtel, when granted the PSB licence, will support the overall aims of the CBN and the government around financial inclusion and job creation. MTN, for instance, has over 515,000 agents in its mobile money business and the number could double within the next two years, in our view. The recent partnership between MTN Group and Flutterwave is one of the types of developments that can accelerate mobile money growth.”
The EFInA report concluded that at the current rate of progress, the National Financial Inclusion Strategy targets for 2020 (80% total financial inclusion and 70% formal financial inclusion by 2020) may not be met until around 2030.
President Buhari came to power through the support of the country’s poor, especially in the north, who hoped for a better life with someone who identified with them. It is already six years into his presidency and one may ask what he has done to significantly change their lives for the better. Inflation, which has reached 17.75% in June this year from 9% in 2015, and insecurity, which is spreading across the north and country, have made things worse.
Will Buhari, with one eye on his legacy, broaden mobile money access to plug the north into financial services?
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