The agreement shows that Africa “doesn’t want a shadow economy” and the costs that go with the use of cash, says Asiru in Lagos. “Everything should be on the table and transparent.” That means priority for digital payments, he adds.
Ratification of the AfCFTA agreement by Nigeria – which was wary of signing up – is “extremely positive,” says Asiru. “It sends a signal to the whole of Africa that this is going to happen.”
Mastercard Advisors, which is Mastercard’s payment advisory business, is in talks with a range of banks to set up new digital operations, says Asiru. “Conversations are ongoing in multiple countries.” The speed at which a bricks-and-mortar incumbent can set up a new digital bank can be as little as a year, depending on the company’s historical culture, he adds.
- Financial services companies are Mastercard Advisors’ core clients. Banks are “revisiting their entire operating model” and demand for advice on cybersecurity has been growing, he says.
Mastercard Advisors has helped create “neobanks” – or digital banks – such as Nubank in Brazil, and Asiru is convinced the experience can be replicated in Africa. “We can create fully fledged digital banks.”
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Banking in Nigeria dates back at least 100 years, yet the number of mobile phone users outstrips the number of banking customers. That, Asiru says, shows that digital banking via mobile phones is the way of the future.
Still, mobile operators MTN and Airtel have yet to receive the Nigerian mobile-banking licenses for which they have applied, with some analysts saying the delay is due to traditional banks seeking to protect their turf against a perceived threat.
A paradox for financiers is that expanding digital penetration relies on the availability of physical cash. Banking relationships beyond the simplest level can’t be sustained by mobile phone alone. A physical point is needed, one which bricks-and-mortar banks have found too expensive to provide in many rural areas.
Agent networks, which allow transactions to be carried out at convenient points such as retail shops, can provide that presence. Yet, as the Cenfri think tank in South Africa argues, such networks become more expensive to establish and maintain as they become more rural.
Cenfri uses a case study in Kenya to argue that agent networks cluster tend to be concentrated within 5km of an existing cash access point. “For providers, this implies the need for networks to expand with cash availability as an explicit consideration,” argues Cenfri.
- Agents need regular availability of cash to manage unexpected consumer demand for cash-out services, says Cenfri.
- Cash constraints lead to agents turning consumers away and limit their expansion into underserved areas.
- Even in a mature mobile-money market such as Kenya, the proximity of agent networks to cash points has tended to increase over time, with the share of agents within 5km of an existing cash access point rising from 75% in 2009 to 83% in 2015.
- Trusted local traders will be “critical” to expanding agent networks, says Asiru. “Maturity in infrastructure” such as roads and electricity distribution will help the networks to grow, he adds. “It won’t be overnight.”
Digital strategies for expanding banking services can’t afford to write off cash just yet.
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