Nigeria mobile money revolution delayed by scarcity of licences

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by Neil Munshi in Lagos

In late 2018, Nigeria said it would allow non-financial companies to apply for mobile banking licences — part of a money revolution aimed at transforming Africa’s biggest economy and unlocking the continent’s largest unbanked population.

The move would permit mobile telecoms providers including MTN and rival Airtel to tap into the roughly 60m Nigerians who lack bank accounts, in a country where most transactions are made using cash.

But two years after Nigeria’s central bank announced the new regime, little has changed and neither Airtel nor MTN has received a licence — although two smaller telcos and a payments company were granted licences in August. Observers blame the delay on lobbying by banks that are wary of ceding any territory to mobile providers. The central bank declined to comment.

“I don’t think [banks] fully understand how telcos participate in mobile money — that we essentially expand the pie and everyone gets a bigger piece,” says one industry executive who did not wish to be named. “There’s a sense that telcos are coming to have their lunch, so there’s fightback from the banks.”

Raghunath Mandava, chief executive of Airtel Africa, says receiving the licence that his company applied for in 2018 would “dramatically change financial inclusion in the country. For us, the business could be very big.”

There’s a sense that telcos are coming to have their lunch, so there’s fightback from banks

He pointed to Kenya, a country with a $95bn annual gross domestic product, where mobile money operator Safaricom’s M-Pesa — which holds a virtual monopoly — earned close to $790m in revenues in the fiscal year that ended in March.

“We look at it as [about] 1 per cent of GDP should be the revenue of all the mobile money operators together — what share each of us will get is something else,” he says. “But the GDP of Nigeria is about $400bn . . . that means someday it should be a $3bn-$4bn business for all the telcos.”

The administration of President Muhammadu Buhari and the central bank under governor Godwin Emefiele have made financial inclusion for Nigeria’s 200m people a priority. As the country enters its second recession in five years, with rising inflation and high unemployment, the need to expand savings and lending for Nigeria’s many poor has become more pressing.

Nigeria’s central bank wants to avoid some of Kenya’s drawbacks — in particular M-Pesa’s virtual monopoly — by forcing banks and telecoms groups to work closely together, and to ensure that phone companies are regulated in the same way as financial services groups.

M-Pesa is the dominant mobile money operator in Kenya © Daniel Irungu/EPA
In an August circular, the central bank said it would grant more licences. However, the bank requires that companies — including mobile operators — set up separate corporate entities with minimum capital of N5bn ($13m), which is likely to exclude some smaller contenders.

Despite the lack of progress on licences, some steps towards financial inclusion have been taken by digitally savvy Nigerian banks, with mobile-to-mobile and SMS-based transfers now commonplace.

Lagos’s fintech companies — which attracted nearly $400m in funding in a single week last year — provide an alternative form of banking through their own agent networks and mobile payments infrastructure.

These include TeamApt, a payments start-up whose 60,000 agents principally act as ATMs for people in places where cash machines are unavailable, using debit card point-of-sale devices and a mobile application called Moniepoint.

“In Nigeria, there’s an explosion of agents — take a tour outside of Lagos, I guarantee that every 10 metres you will find a [point of sale terminal] sign in most populated areas,” says Tosin Eniolorunda, TeamApt founder.

Telecoms companies such as MTN have even broader operations across Nigeria, with its agents selling phone credit recharge cards in nearly every town and village in the country.

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Usoro Anthony Usoro, who heads mobile money at MTN, argues that its large agent network is only part of the reason why it is well positioned to capitalise on mobile money if its licence is approved.

“It starts with the ability to deliver services efficiently at the last mile [via agents], but financial services is also a business of trust so having a brand that customers can trust and rely on is very important,” he says.

“[Educating customers about mobile transactions] is also very important and that’s one of the things telcos and MTN know how to do very well,” Mr Usoro adds.

Nonetheless, without the issuing of more licences, the government is likely to find it more difficult to achieve Mr Buhari’s goal of bringing millions more Nigerians into the financial system.

Without that increased inclusion, there will be negative consequences for savings and tax collection in an economy already struggling with a low oil price and poor infrastructure.

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