Nigeria's sluggish mobile money initiative
The introduction of mobile money by the Central Bank of Nigeria (CBN) was one of the strategies of the apex bank at deepening financial inclusion in the country. While the initiative would not only have ensured financial inclusivity, it would have led to the creation jobs for the army of the jobless. Kokumo Godie reports that more than one year after the CBN issued licences to about 11 operators, mobile money agents are nowhere to be found.
When a Nigeria-based financial sector development organisation, Enhancing Financial Innovation and Access, released the result of its survey earlier last year, it made frightening revelations about the state of banking in the country. According to the report, 52.8 million out of the Nigeria’s adult population saved money regularly while only 20.5 million of the 52.8 million went to the banks to save money.
The report added that majority of the 23.8 million people, who kept money at home, were doing so with friends, families, through informal associations, and community-based associations. These findings confirm the belief that only 22 million Nigerians own a bank account out of a population of 167 million people, according to the figures released by the National Population Commission (NPC).
With telecoms subscriber base put at 105 million by the Nigerian Communications Commission (NCC), there are indeed limitless opportunities for the country to achieve financial inclusion by bring the large numbers of the unbanked to the banking sector through the press on the keypad of their mobile phones. The initiative to drive this process is however currently being spearheaded by the Central Bank of Nigeria (CBN), using the bank-led model of mobile money payment (MMP).
Tunde Lemo, deputy governor, Operations, CBN, said over the next few years, the focus of the CBN will be to strengthen the institutional and regulatory frameworks that would facilitate the financial inclusion of the unbanked and promote more usage of electronic payments as clearly enunciated in the Payments System Vision 2020 (PSV 2020).
“The application of mobile technology for financial services especially in rural areas will ensure that a large percentage of the population outside the formal banking system would have access to financial services using one of the three models of card-based, account-based and virtual account,” Lemo said.
There are four types of MMP models recognised globally. These are operator-led model, bank-led model, collaboration model and peer-to-peer model. The CBN chose the bank-led model in which case a bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (PoS) acceptance capability to carry out the transaction.
Mobile network operators’ networks serve merely as a vehicle through which transactions take place. This is based on the regulatory framework for m-payment services issued by the CBN in 2009, which disenfranchised them from operating mobile money. But they are currently entering strategic partnerships with licensed operators. “They are not licensed to offer financial services. Telcos are licensed to offer telecoms services. That is why MTN is partnering with GTBank to roll out mobile money in Nigeria,” Razak Olaegbe, a mobile money analyst.
According to the industry analysts, the decision was made because the CBN does not regulate telcos and if the telcos are allowed to lead mobile money, it will mean putting two critical segments of Nigeria’s economy in the hands of a few companies. This, they believe, portends great risk for the country.
Fortis Mobile Money, UBA/Afripay, GTBank Mobile Money, Pagatech, eTranzact, Monetise, Eartholeum, Paycom, FET, Ecobank and Kudi are the firms given provisional licences to do mobile money business in the country. They have since entered into partnership with the telecoms firms.
Nigeria is a key market in emerging markets and according to report, the number of mobile money subscribers in these markets has been projected to grow from 133 million users two years ago at a compound annual growth rate (CAGR) of 40% to hit 709 million users in 2015. The report also projected that the total value of mobile money transactions will equally grow at a CAGR of 54 per cent from $25 billion in 2010 to $215 billion in 2015 with Asia-Pacific becoming the most important regional market, accounting for about 50% of the user base.
According to figures from the World Bank and other organisations, the global remittance market has grown rapidly over the past decade. In 2010, remittances through formal channels amounted to US$440 billion, of which, developing countries received an estimated $325 billion. The vast majority of these transactions are still cash-to-cash transactions, but the share of digital transactions is steadily increasing. Driven by the development of mobile money systems in emerging markets, experts estimate that USD16 billion worth of international money transfers will be received with mobile phones in 2015.
The scheme has however been beset by an avalanche of problems which range from infrastructure to legal framework. According to the CBN: “The draft National Payments System Bill which is undergoing legislative passage is expected to address the legal barriers to electronic payments such as the admissibility of electronic evidence in the law courts.”
The CBN says it is also mindful of the infrastructure and the security challenges posed by this ambitious programme. “We have therefore progressed in forging effective partnership with telecommunication companies with the cooperation of the NCC while ensuring that structural impediments such as un-interoperability of payments networks of stakeholders are removed.
“Specifically in the area of electronic fraud, we have recently set up an industry wide Nigeria E-Fraud Forum (NEFF), which will serve as an official body to represent the industry on fraud related issues, while enabling a forum for payment stakeholders to collaboratively share data on fraud attempts and proactively tackle these issues, with the objective of minimizing fraud attempts and limiting losses,” the CBN deputy governor said, adding that CBN recognizes that innovations in payments system require institutional support; hence, the issuance of relevant rules and regulations in order to provide a level playing field for all stakeholders in the retail payments industry.
“Consequently, the CBN has commenced the review of the following guidelines: guidelines on Transactions Switching, regulatory framework for mobile payments,” Lemo added.
Emmanuel Okogwale, Managing Director, Mobile Money Africa, agrees that there are still challenges. According to him, most of the companies licensed are yet to have accredited agents who will reside in urban, semi-urban and rural areas. He argued that without well trained mobile money agents, the implementation would not be seamless as agents with the requisite tools and handsets are the infrastructure needed to deliver the money to the customers.
But Sola Bickersteth, Managing Partner of One Network, a structured agent management organisation recognised by the CBN, says Nigerians should give the scheme more time, arguing that it took time for GSM to become something being taken for granted.
It took two years before GSM became ubiquitous in the country. He said the same thing is happening in the mobile money sector, insisting that the 16 licensed operators have started acquiring customers.
He said a number of them were doing serious transactions already, operating in a closed community. He disclosed that some church members use mobile money services now to pay tithe while some are focusing on campuses and some are extending their platforms to existing bank customers.
He said when these numbers are added together, he said there are about between 3 and 4 million active mobile money account users and by any industry standard that is a very good. He added that Nigeria needs about 160,000 mobile money agents all over the country.
According to him, it took five years for Kenya to get to where it is now. It took two years after mobile money was launched in Kenya for people to start knowing that something was happening in Kenya. It took five years for mobile money to become felt everywhere in the country.
According to Ignacio Mas and Amolo Ng’weno, Bill & Melinda Gates Foundation, three key success factors are responsible for the MMP magic of Kenya with 43 million people. These are Brand: Safaricom built a very strong service brand for M-PESA, which rode on strong customer sense of affinity with and trust in the operator.
Channel management: Safaricom effectively leveraged its extensive network of airtime resellers to build a reliable, consistent store network that served customers’ needs. The last is pricing: Safaricom designed a pricing scheme for both customers and stores that provided incentives for both to join M-PESA early on. Bickersteth says people may think there is no noticeable progress but there is a lot of progress. The advantage that Kenya has was that it was practically a monopoly by Safaricom, he said adding that there are 16 operators.
The NCC is expected to design the regulatory framework on the technology and mode of interoperability to be adopted by the operators for seamless operations.
Dr. Eugene Juwah, the Executive Vice Chairman of NCC, said that critical success factors for mobile payment in the country are the integrity and security of the end-to-end transition during a payment transaction process. "The chain of transaction must be secured from initiation to authentication. Therefore, confidentiality and integrity of the data transition are critical factors in mobile payment,” Juwah said.
Juwah noted that it is possible for hackers to intercept transactions and alter the intended recipient while the initiator actually receives a confirmation that the transaction was done. He identified confidentiality of content and data integrity as vital factors to be considered particularly how the industry would provide mechanisms that guarantee non-repudiation of transaction by the initiator.
Sector analysts say it is also important to know who is liable when a transaction goes awry. GSM operators and mobile money licensees appear to be shifting liability on each other.