In the latest bullish development, OPay, founded by Norwegian browser company Opera and which includes lead investors such as Sequoia China, raised $50m to partly fund its expansion in Nigeria. Thanks to regulatory reforms, however, the company best positioned to transform Nigeria’s fintech sector and its entire financial services industry is MTN.
Last year, MTN, the country’s leading telecom operator, announced plans to offer mobile banking services. With the country’s largest subscriber base, MTN will put pressure on Nigerian fintech startups, triggering consolidation in the sector. But, local fintech companies should embrace MTN rather than fear it. MTN’s move into payments represents a sea change for Nigeria’s tech ecosystem. Not only will it boost Nigeria’s low financial inclusion rate, but it will also foster innovation and deepen Nigeria’s tech ecosystem, pushing it beyond payments and into other mobile services.
The quest for scale
The scale of Nigeria’s low financial inclusion and the banking sectors’ inability to tackle the problem necessitated a change in strategy. Nigeria continues to lag behind other African countries in financial inclusion. While sub-Saharan Africa’s number of adults with a bank or other financial account increased to 43% in 2017, up 9% from 2014, Nigeria’s banked population dropped to 40%, down 4% from 2014. Over half of Nigerian adults — 60 million people — lack access to financial services.
As the gap between the banked and unbanked populations widens, the Central Bank of Nigeria was forced to admit that it would miss its target of 80% financial inclusion by 2020. Nigeria’s strict mobile money regulations contributed to its slow pace of financial inclusion. Only licensed banks, or fintech companies in partnership with banks, were permitted to operate mobile money; telecom operators were barred. Nigeria’s bank-led approach has failed to bring rural Nigerians into the banking sector. Commercial banks struggle to offset the high operating costs of opening new accounts and running ATMs in urban and semi-urban areas; in rural areas, the brick-and-mortar banks’ operating costs are even higher due to clients’ smaller account balances.
Under the new mobile-money framework, MTN will drive user acquisition with its large existing subscriber base and powerful agent network. With a 42% market share of Nigeria’s 163m active voice subscriber accounts, MTN has a huge pool of untapped demand as each voice subscriber represents a potential new mobile money account. Moreover, MTN can use its vast network of licensed agents to penetrate isolated areas and reach unbanked Nigerians.
Given Nigeria is a low trust environment, licensed agents are crucial to user adoption since they are from the community and trusted by potential customers. Licensed agents are also necessary to teach new users on how to use a mobile money wallet due to low digital literacy levels; MTN has the financial firepower to train its licensed agents at scale. Powered by a 14,000-strong licensed agent network, Paga, Nigeria’s largest fintech company, grew to 11m users over ten years. In comparison, MTN, which will piggyback onto its existing agent network, will be able to drive mobile money adoption much more rapidly.
Like consumers, Nigeria’s fintech companies will also benefit from MTN’s entry into mobile money. Fintech companies, which only focus on peer-to-peer transfers or bill pay, will struggle to compete with MTN on payments given its vast scale and ability to offer low prices. With MTN poised to dominate payments, like Safaricom’s M-Pesa in Kenya, payments companies will be pushed to diversify their offerings or risk irrelevance. Companies will have to innovate and can use MTN’s open APIs to offer new services.
MTN is exploring opening up its infrastructure to thirty-party developers, mirroring its business strategy in other African markets like Uganda, where it launched its mobile money API for third-party app developers working on payments solutions. Open APIs are common in Kenya and partly explain its successful track record in fintech innovation. For example, Kenyan commercial banks launched Pesalink, which allows for seamless inter-bank transfers by building onto the existing M-PESA app. As a gateway to tens of millions of subscribers, MTN gives market access to startups, which diversify into other services.
MTN’s entry into mobile money will shake up Nigeria’s dormant banking industry and will force fintech companies to innovate. More Nigerian adults will have access to financial services, increasing consumer demand for mobile-based services. Other African markets, such as Kenya, have proven that a strong mobile money provider acts as a catalyst and unleashes innovation in tech. MTN is going to provide that anchor for Nigeria’s fintech sector, pushing it forward to a new phase of its development. Fintech companies, which are concerned about MTN’s entry, should instead see it as an impetus to evolve.
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